EU Aims to Finalise Trade Deal with Indonesia by September

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In an era where global trade dynamics are in constant flux, the European Union (EU) is taking significant steps towards cementing a trade agreement with Indonesia, the world’s fourth-most populous nation. This development comes on the heels of Donald Trump’s recent threats to impose hefty tariffs on EU imports, which has spurred Brussels to act decisively after nearly a decade of negotiations.

On July 12, 2025, Trump’s declaration of a potential 30% tariff on European goods prompted Ursula von der Leyen, President of the European Commission, to look eastwards rather than getting ensnared in a transatlantic trade war. In response, she swiftly announced a “political agreement” aimed at advancing a long-anticipated trade deal with Indonesia, marking a notable shift in the EU’s trade strategy.

Von der Leyen’s announcement was emblematic of the EU’s commitment to strengthening global partnerships based on the principles of rules-based international trade. The following day, she welcomed Indonesian President Prabowo Subianto to Brussels, where she emphasised a shared vision of openness, partnership, and mutual prosperity.

President Prabowo echoed these sentiments, stating that the agreement would bolster Indonesia’s industrial growth, job creation, and sustainable development goals. However, Indonesia’s track record presents a complex backdrop, characterised by a myriad of import restrictions, unpredictable regulatory frameworks, and a reluctance to adhere to World Trade Organization (WTO) rulings, leaving many to question the sincerity of Jakarta’s commitment to reform.

The “political agreement” itself, however, does not signify a completed deal; rather, it expresses an intention to conclude negotiations. As highlighted by Hosuk Lee-Makiyama, a former Swedish trade diplomat, this declaration serves as a directive for negotiators to expedite the process and arrive at a compromise that satisfies both parties.

A Firm Path Forward

Fabian Gehl, who leads the EU’s negotiations with Indonesia, has conveyed optimism regarding the timeline for finalising the Comprehensive Economic Partnership Agreement (CEPA) by September 2025. Gehl has outlined a clear path for addressing remaining gaps in the negotiations, though the complexities involved in the discussions surrounding energy, raw materials, and sustainable development pose significant challenges.

In a further twist, just two days after von der Leyen’s meeting with Prabowo, Trump announced a trade deal with Indonesia that includes a 19% tariff on Indonesian exports to the U.S., while maintaining no tariffs on American exports. This stark contrast in trade approaches raises questions about the competitive landscape that the EU must navigate.

Iuliu Winkler, the European Parliament’s lead lawmaker on the negotiations, remains hopeful about meeting the September deadline, claiming that resolving outstanding technical issues is achievable. However, a significant portion of the trade agreement’s chapters, particularly those concerning services, remain under negotiation.

Commission spokesperson Olof Gill has indicated that while substantial liberalisation has been secured regarding volumes and tariff lines, the EU is focused on refining market access for crucial products. Gill has underscored the importance of handling sensitive products with care, ensuring that the interests of both the EU and Indonesia are adequately addressed.

Shifting from Ultra-Protectionism?

The ongoing negotiations have prompted reflections on the evolving nature of Indonesia’s trade policies, particularly its historically ultra-protectionist stance. Cecilia Malmström, former EU trade commissioner, expressed surprise at the reported progress, noting that previous discussions had moved at a glacial pace. She acknowledged that Indonesia is beginning to recognise the necessity of moving past its protectionist policies, though she expressed uncertainty about the feasibility of finalising the agreement by September.

Despite claims of progress, the negotiations are still burdened by the lingering effects of a WTO case from 2021 concerning Indonesia’s ban on nickel ore exports—a critical material for electric vehicle batteries. The EU successfully challenged this ban, yet Indonesia has appealed the ruling without resolution, complicating the current discussions.

Furthermore, the EU’s new deforestation regulation, set to take effect on December 30, 2025, adds another layer of complexity, as it will require Indonesia to demonstrate that its palm oil exports are not linked to deforestation—a significant challenge given that palm oil production has been a major driver of deforestation in the country.

The EU is keen to secure access to Indonesia’s raw materials, including palm oil for its biofuels industry, while navigating the contentious issues of sustainability and environmental impact. The EU’s classification of Indonesia as a “standard risk” regarding deforestation highlights the sensitive nature of these negotiations.

In summary, the EU’s pursuit of a trade agreement with Indonesia is indicative of a broader strategy to enhance its global trade relationships amidst a backdrop of escalating trade tensions, particularly with the U.S. and China. As both parties strive to finalise the CEPA, the path ahead remains fraught with challenges. The outcome of these negotiations will likely have significant implications not only for EU-Indonesia relations but also for the global landscape of trade and sustainability.

As we continue to monitor these developments, it remains crucial for the Net Zero News community to engage with and understand the complexities of international trade as they relate to sustainability goals. The stakes are high, and the decisions made in the coming weeks will reverberate across global markets and environment policies for years to come.

Stay tuned for more updates on this unfolding story.