The agreement will wipe out more than 98% of tariffs, clearing the path for trade and opening the door to new investment opportunities
[BALI] Indonesia and the European Union have signed a long-awaited free trade pact that will remove tariffs on all trade starting January 2027, as the EU seeks to bring more South-east Asian nations into the agreement.
The comprehensive economic partnership agreement, signed on Tuesday (Sep 23), marks a milestone after nearly a decade of negotiations and is expected to boost investment flows and deepen economic ties, valued at an estimated US$21 trillion.
Indonesia’s Coordinating Minister for Economic Affairs Airlangga Hartarto said the deal will now move to parliamentary ratification in both jurisdictions.
The agreement will eliminate more than 98 per cent of tariffs, removing most trade barriers and opening new investment channels.
For Jakarta, it offers a much-needed lift for exports at a time when Indonesian goods face US tariffs of up to 19 per cent.
Indonesia is prioritising labour-intensive exports such as palm oil, textiles and footwear to the European market, while EU industries including agri-food, automotive and chemicals stand to gain from greater market access.
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Airlangga noted that concerns over Indonesian palm oil, which has long faced non-tariff barriers in Europe over environmental issues, have been addressed through mutual recognition of standards.
The pact also paves the way for closer cooperation in emerging sectors such as electric vehicles, pharmaceuticals and electronics, while securing critical raw materials for green and digital technologies.
Indonesia’s current 50 per cent import tariff on cars will be phased out over five years, opening the door for EU automotive exports and encouraging long-term investment in electric vehicles. EU exporters are projected to save more than 600 million euros (S$908.4 million) annually in customs duties on shipments to Indonesia.
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Indonesia is the third Asean country to establish a free trade agreement with the EU, following Singapore and Vietnam.
EU Trade and Economic Security Commissioner Maros Sefcovic said the deal positions Jakarta as a key partner in the bloc’s efforts to diversify supply chains, particularly for raw materials, while opening new markets to 280 million consumers. This is amid the 15 per cent tariffs imposed by the US on most EU exports, the bloc’s largest trading partner.
He added that the EU is also in talks with Thailand, the Philippines and Malaysia, which have expressed interest in joining the pact.
“In a world of rising protectionism and fragile supply chains, when many turn inward, this comprehensive economic partnership sends a clear signal that the EU and Indonesia are choosing openness and cooperation to enhance competitiveness, create jobs and build resilience,” Sefcovic said.
Trade between the two partners is already significant. In 2024, goods trade exceeded 27 billion euros, with Indonesia running a trade surplus, while EU services exports added nearly nine billion euros. European investment in Indonesia has surpassed 25 billion euros, yet South-east Asia’s largest economy remains only the EU’s fifth-largest trading partner in the region.
