The European Union (EU) and Indonesia concluded the landmark “Comprehensive Economic Partnership Agreement (CEPA) in September 2025. The signing ceremony was led by Airlangga Hartarto, Indonesia’s Coordinating Minister for Economic Affairs, and Maros Sefcovic, European Commissioner for Trade and Economic Security.
The CEPA includes tariff elimination for various key goods for easier and cheaper movement across borders. Specifically, Indonesia will phase out tariffs on certain goods such as chemicals and machinery over the next few years while the “EU will remove duties on Indonesian exports, including palm oil.” Furthermore, “100% of trade value will be liberalized.” In addition to tariffs, the deal discusses cooperation on sustainable development, customs, digital trade, and fair labor.
This agreement “represents the most ambitious trade deal ever reached between the EU and a Southeast Asian economy,” and is significant for the current geopolitical and economic landscape for three main reasons. Firstly, the deal highlights why the EU and Indonesia pursued the CEPA as a strategic effort to deepen economic ties, diversify trade partners, and strengthen their positions amid shifting global trade and geopolitical landscapes.
Secondly, the CEPA is set to strengthen EU-Indonesia bilateral relations by expanding trade opportunities, market access, and reducing economic reliance. Lastly, the CEPA signals a shift and urgency toward deeper regional partnerships, showing how middle and major economies are turning to bilateral deals to secure stability and diversify supply chains.
Indonesia is the largest economy in Southeast Asia, the EU’s 33rd global trading partner, a member of the Association of Southeast Asian Nations (ASEAN), and the world’s fourth most populous country. In 2024, Indonesia-EU trade stood at about $30.1 billion, according to Indonesian government data.
Indonesia is also seeking to diversify its trade partners to reduce dependence on China and the US. Earlier in July 2025, Indonesian Prabowo Subianto and the EU finalized a political agreement to essentially “accelerate negotiations…on this long sought free trade pact.” During the President’s meeting with European Commission President Ursula von der Leyen, he mentioned that “Europe is important for Indonesia and he would like to see more European presence and more European participation in the Indonesian economy.”
Indonesia has been pursuing a policy called “down-streaming” to shift the economy from its dependence on raw material exports to more high-value industrial production of manufactured products. They banned exports of raw materials with the goal of adding jobs and increasing Indonesia’s standing in the supply chain. The investors, technology, and buyers of Indonesian goods come from China. Indonesia sought this deal to broaden market access, diversify its exports, boost industrialization, tap into global markets, and reduce exposure to uncertainties during the trade and tariff wars.
The EU is a political and economic regional union of 27 member states and represents the world’s second-largest economy in terms of nominal gross domestic product. It operates as a single market with a common currency and has been seeking to diversify its trade partners for the last few years. The EU is Indonesia’s 5th-largest trading partner, but the previous free trade negotiations stalled and were strained due to various issues, especially around environmental concerns, including products such as palm oil.
After the pandemic, many high-level discussions within the EU revolved around seeking other trade partners to maintain various open trade lines and supply chains. Furthermore, as part of the EU’s foreign policy strategy, the Union is following a “protect, promote, and partner” agenda to rebalance and de-risk its economic reliance on partners such as China during this new Cold War. Under Ursula von der Leyen, the President of the European Commission, she continues to prioritize “de-risking” to strengthen Europe’s economy to allow it to “protect itself against Chinese encroachments.”
This sentiment represents part of the EU’s short and long-term strategy toward China. The Commission president’s flagship policy involves “de-risking but not de-coupling.” Therefore, this free trade deal with Indonesia reflects the EU’s broader policy goals, and the bloc continues to pursue trade negotiations with other major economies, including India and partners across the Indo-Pacific.
The CEPA has been in negotiations for close to a decade, and its recent formalization highlights a mutual urgency between the trading partners to reach a free trade deal. The goal of the CEPA is to “remove friction and increase the flow of goods and investment between the two parties.” Indonesia’s main exports to EU countries include palm oil and textiles and main imports include “services and higher value finished goods like chemicals.” Therefore, through increased trade this agreement will provide benefits to farmers in the EU and to palm oil exporters and textile workers in Indonesia. The deal “will bolster Indonesia’s position in international trade.”
Indonesian exporters will gain in the trade market due to the reduced or eliminated tariffs. The agreement will support Indonesia’s downstreaming strategy and allow more foreign direct investments into Indonesia. Furthermore, diversifying their trade partners by deepening relations with the EU market will help Indonesia be resilient to supply shocks.
On the other hand, EU firms will benefit from the easing of customs regulations, reduce over-reliance on a small number of large markets, and be able to pursue their commitment to maintaining a free, open, and fair Indo-Pacific region.
Indonesia and the EU have faced a multitude of challenges, in the domestic, regional, and global sense, when it comes to trade and the economy. The US has imposed a 19% tariff on Indonesian exports and 15% on EU exports.
These tariffs will hit Indonesia’s primary export industries, which account for a significant share of employment. The EU’s share of exports going into the US could decline. The EU and Indonesia both rely on the US as a major trading partner. The US is one of the EU’s largest trading partners alongside China. The US is Indonesia’s 4th larger trade partner, with China, ASEAN countries, and Japan constituting a large share.
Indonesia and the EU have also separately worked with the US to negotiate and discuss trade deals. But this finalized negotiation shows the proactiveness and urgency of the EU and Indonesia to chart their own economic future. The CEPA agreement has been “praised as historic by both sides,” in Indonesia and the EU. The CEPA is more than just a trade agreement; it highlights a trend where countries are actively strengthening economic and strategic ties with specific partners or regions.
As mentioned, the EU is also finalizing trade deals with other countries, such as India. Indonesia has also recently finalized trade deals with other countries, such as Canada. It also highlights the sense of urgency in that negotiations for the CEPA have been resolved after decades of discussions. Countries are seeking to secure the stability of their own economic prosperity and development, but also to diversify their supply chains to protect from shocks such as tariffs.
Edited By: Blake Uhlig