Written by: IngChang Tan & Alyssa Almonte
On 23 September 2025, Indonesia’s Coordinating Minister Airlangga Hartartoand the EU Trade Commissioner Maroš Šefčovič announced the conclusion of negotiations on the EU-Indonesia Comprehensive Economic Partnership Agreement (CEPA) and an accompanying Investment Protection Agreement (IPA). The bilateral negotiations, which restarted in 2016, had gone through 19 rounds of negotiations before reaching the finalisation of the text. The announcement of the end of negotiations came after European Commission President Ursula von der Leyen and Indonesian leader Prabowo Subianto reached a political agreement to expedite the trade pact in July.
The agreement will now undergo legal scrubbing and is expected to be ready for official signature sometime in early 2026. Following the official signature, the CEPA will need to be approved by the European Parliament, as well as the Indonesian parliamentary commission charged with reviewing the free trade agreement. The whole process may take up to a year to complete, with expected entry into force more likely to take place only towards end-2026 or early 2027. The IPA will still need to be ratified by the individual Member States, which is expected to take a few years.
Upon ratification, CEPA will place Indonesia as the third ASEAN Member State to have a Free Trade Agreement (FTA) with the EU, following Viet Nam and Singapore.
Key features
The deal aims to remove up to 98.5% of tariffs for both parties. EU-Indonesia bilateral trade in goods amounted to 27 billion euros in 2024, while the stock of European investment in Indonesia exceeded 25 billion euros in 2023.
ASEANcham has analysed four chapters of the CEPA that are significantly relevant to firms operating or exploring expansion into the EU market:
- Tariff Reduction
- Digital Trade
- Trade and Sustainable Development
- Protocol on Palm Oil
1. Tariff reduction
*Note: the CEPA tariff schedule has yet to be published publicly and will not be made available until after the official signing.
The CEPA is expected to remove over 98% of total tariffs on either side. 90.4% of tariff lines for Indonesian exports will be eliminated upon entry into force, while Indonesia would eliminate tariffs on around 80 percent of EU tariff lines, phasing down the remainder over several years. The Commission estimates that EU exporters will save some €600 million a year in duties paid on their goods entering the Indonesian market, such as agri-food products and industrial products like automotives, chemicals, and machinery.The EU has heralded this as a win for European exporters, particularly in the Agri-food industry.
Available information indicates that key Indonesian exports to the EU— specifically textiles, footwear, and iron and steel—will have their duties removed. It is also rumored that furniture and coffee will be granted tariff exemptions. It was reported that while processed palm oil will not be subjected to tariffs, crude palm oil and kernel will be subjected to tariff rate quotas (TRQs) – the EU would allow 1.9 to 2.5 million tons of Indonesian crude palm oil and 140 to 180 thousand tons of palm kernel enter its market duty-free each year. Any imports exceeding the quota will be subject to a 3 percent tariff. However, key sectors are expected to keep certain tariffs – Indonesia is expected to keep protections for sensitive agricultural products like rice and sugar, while the EU will likely preserve safeguards for items such as beef and dairy.
The rules of origin under CEPA also allows for diagonal cumulation of origin for certain goods such as machinery, electric motors, and precision instruments. The cumulation means that materials originating from Japan and other ASEAN Member States that have already signed FTAs with the EU (i.e. Singapore and Vietnam) will be considered as originating from Indonesia. This cumulation will allow Indonesia to be better positioned as a processing hub for third-party goods destined for the European Union, potentially establishing it as a strategic supply-chain hub in the region.
The CEPA geographical indications (GI) registry will provide intellectual property recognition and protection to 221 EU, and 72 Indonesian, agricultural and food products.
2. Digital Trade Chapter
As ASEAN continues to push forward with its digital transformation, the Digital Trade chapter sets the foundation for Indonesia’s electronic commerce with the EU. The agreement includes a full digital trade facilitation package, making electronic transactions easier (e.g. electronic signatures and authentication), promoting a safe online environment for consumers, and enhancing predictability and legal certainty (e.g. protection
of computer source code). This will better protect online transactions and facilitate cross-border trade between the EU and Indonesia. Among the key provisions of this section are:
● Free cross-border data flows (Article 10.5)
● Protection of Personal Data and Privacy (Article 10.6)
● Prohibition of customs duties on electronic transmissions (such as software, messages, digital media etc.) (Article 10.7)
● Legal recognition of contracts through electronic means (Article 10.9)
● Strengthening online consumer trust and cybersecurity (Articles 10.11 and 10.14)
The chapter’s most significant achievement lies in establishing a digital infrastructure to facilitate trade. Digital trade and e-commerce are identified as a crucial platform for selling Indonesian goods to the EU, especially Indonesian furniture, whose trade value continues to grow worldwide. The provisions, particularly those concerning electronic documentation, will simplify bureaucratic requirements and reduce red tape in cross-border trade, thereby strengthening the local coffee and timber industries and other SMEs by expanding their market access.
A major structural commitment under the CEPA is the liberalisation of Indonesia’s telecommunications and computer services sector, allowing up to 100% foreign ownership for EU investors. This ownership liberalisation is also in line with the Positive Investment List under Presidential Regulation 10 of 2021. (Before the 2021 reforms, some businesses in the telecommunication industry, such as call centres, internet service providers, and mobile networks, had a cap of 67% foreign ownership). Nevertheless, foreign-owned companies setting up businesses in the digital industry must still comply with Indonesia’s technical requirements and local permitting rules.
3. Trade and Sustainable Development (TSD)
The Trade and Sustainable Development (TSD) chapter outlines commitments from both the EU and Indonesia to implement the UN Framework Convention on Climate Change (UNFCCC) and the Paris Climate Agreement. Towards this end, the text commits both parties to the promotion of domestic and international carbon markets. Another significant commitment is the joint effort to prevent illegal deforestation and promote sustainable forestry. However, the text does not specify how existing EU measures, such as the EU Deforestation Regulation (EUDR), will interact with or affect these practices.
The chapter further binds both blocs to the principles of Multilateral Environmental Agreements (MEAs), establishing a framework for closer cooperation and regular discussions on MEA implementation between Indonesia and the EU.
A notable agreement in the text is the mutual recognition and ratification of ILO fundamental conventions. Indonesia has yet to ratify two of these: C155 (Occupational Safety and Health Convention) and P029 (Protocol of 2014 to the Forced Labour Convention). The mechanism by which the EU will enforce this compliance remains to be seen, particularly since several EU Member States, including Germany and France, have not yet ratified the ILO C155 convention.
Protocol on Palm Oil
The Protocol notes Indonesia’s ongoing efforts regarding the design, implementation, and dissemination of sustainability assurance schemes, including the ISPO, and its objective to apply the scheme to its entire domestic production of palm oil. While it does not grant upfront recognition of the Indonesian Sustainable Palm Oil (ISPO) scheme as an accepted certification for goods entering the EU, the scheme is still acknowledged, and both parties have pledged to work on its viability to align it with EU sustainability regulatory requirements.
[Indonesia and the EU] acknowledge the role that ISPO and other relevant sustainability assurance schemes can play with respect to facilitating compliance of operators with trade-related sustainability regulatory requirements of relevance for palm oil products, if the laws and regulations of the Parties allow for the use of such schemes.
The Protocol also agrees to foster the uptake and adoption of ISPO and support improving the ISPO’s ability to facilitate compliance of operators with relevant EU trade-related sustainability regulatory requirements. This is intended to explore practical arrangements for possible future recognition, in accordance with the European Union’s regulatory requirements, although it is also carefully worded not to commit the EU to recognise the ISPO certification scheme.
[Indonesia and the EU] strive to develop initiatives to foster the contribution of ISPO and other relevant sustainability assurance schemes to the sustainability of production throughout the palm oil supply chain and to enhanced bilateral trade in sustainable palm oil products. These may include carrying out activities to improve the contribution of relevant sustainability assurance schemes’ to facilitate compliance of operators with trade-related sustainability regulatory requirements, including with a view to support the improvement of the ISPO’s ability to facilitate compliance of operators with relevant Union trade-related sustainability regulatory requirements, also in view of exploring practical arrangements, including requirements for possible future recognition in accordance with the Union’s relevant regulatory requirements.
The main benefit for Indonesia’s palm oil industry is the removal of tariffs on processed palm oil, and the TRQ for crude palm oil (CPO) of duty-free export for the one million tonnes, with the excess subject to a three percent tariff. Nevertheless, non-tariff barriers, such as the EU Deforestation Regulation (EUDR), remain in place, and the impact of such measures on the Indonesia-EU palm oil trade will depend on the implementation of the EU’s Omnibus package.
Consequently, both the EU and Indonesia have committed to bilaterally supporting Indonesian SMEs (Small and Medium-sized Enterprises) with ESG compliance (Environmental, Social, and Governance) and capacity building.
Impact on Indonesia and ASEAN
CEPA has the potential to benefit Indonesian producers and traders, by lowering EU tariffs on their goods. However, the absence of an ASEAN cumulation provision to allow for diagonal cumulation across ASEAN is a missed opportunity for other ASEAN producers. Nevertheless, this aspect of the CEPA represents a positive step toward developing and upgrading Indonesia’s domestic manufacturing and processing capabilities.
What Next?
The CEPA is expected to face further scrutiny by Member States and the European Parliament. Recent cases of opposition in the European Parliament on concerns regarding similar trade agreements may signal potential difficulties for the IEU-CEPA’s ratification.
- GDPR and Data Concerns: The opposition raised by The Left in the European Parliament against the EU-Singapore Digital Trade Agreement (DTA), based on grounds of adherence to the General Data Protection Regulation (GDPR), is a sign of concern for the Digital Trade chapter of the IEU-CEPA.
- Environmental Opposition: The Parliament’s continued opposition to the EU-Mercosur agreement also presents a challenge, though to a lesser extent, given that the IEU-CEPA’s provisions heavily favour the EU agri-food sector.
- Protectionism: Developments in German domestic politics—specifically its refocus on protecting domestic steel products—foreshadow a possible pushback against the IEU-CEPA’s commitment to remove steel tariffs.
These political developments indicate that significant work remains to be done to secure the deal’s final ratification.
ASEANCham-EU is fully supportive of the CEPA and advocates for a quick ratification and entry into force so that companies can start to reap the benefits of the CEPA as soon as possible.
Link to draft CEPA text here.
