The European Commissioner for Trade has met the deadline for concluding discussions on the trade agreement with his Indonesian counterpart (see EUROPE 13680/7): on Tuesday 23 September, he announced the conclusion of negotiations with Indonesia on a Comprehensive Economic Partnership Agreement (CEPA) and an Investment Protection Agreement (IPA). These two agreements touch on areas of exclusive EU competence and will only need to convince a qualified majority of Member States in the Council and a majority of MEPs to be ratified.
The reason why the EU-Indonesia trade agreement (CEPA) has not attracted much attention is that trade between the two blocs involves very few products considered sensitive by the EU.
As for the Investment Protection Agreement (IPA), there is also a broad consensus on it, since it is mainly a question of protecting European investors against arbitrary or discriminatory practices in Indonesia.
Trade liberalisation. The outcome of the negotiations is a reduction in Indonesian tariffs on 98.5% of European products. Some goods will see a gradual reduction in tariffs. For example, European vehicles will be able to enter Indonesia duty-free, but only after five years of application.
Most European agricultural products will also be exempt from tariffs, either when the agreement comes into force or gradually.
In the opposite direction, the EU is not completely opening up its agricultural market: customs duties are being maintained on rice, sugar, eggs, bananas, ethanol, modified starches and albumins (proteins).
In addition, tariff quotas have been negotiated on garlic, mushrooms, maize, manioc starch and products with a high sugar content, which are seeking to enter the European market.
In addition, 221 European geographical indications will be protected in Indonesia, and the EU will have to do the same for 72 Indonesian product names.
Raw materials. The EU asserts that it has increased access to the critical materials that Indonesia has in abundance. The biggest issue is nickel, of which the country is one of the world’s largest producers, but imposes export bans on raw nickel so that it is processed locally and not abroad. In 2022, a WTO panel ruled in favour of the EU on the illegality of these measures (see EUROPE 13074/26).
While the agreement does not completely remove these restrictions, it does broaden access compared to the current situation, according to a European official. Indonesia retains its freedom to legislate, and therefore the option of imposing tariffs on nickel. However, these are governed by a specific clause, and the EU has negotiated a 50% reduction in these potential customs duties. The provisions of the agreement on this matter are not precise at this stage, as the exact text of the agreement is not yet available.
The European Commission wants to be clear on one political point: the trade agreement negotiations will not prevent it from following the WTO’s advice and taking countermeasures as part of its dispute, if it so wishes.
For other raw materials, the Commission has negotiated duty-free import quotas.
Another sensitive issue, this time for the EU, is Indonesian palm oil. Tariffs have been removed, although there are quotas on crude palm oil.
The EU has also had to take account of Jakarta’s concerns about certain European legislation, such as ‘RED II’ on renewable energies, which indirectly restricts imports of Indonesian palm oil into the EU. To this end, the agreement opens a trade facilitation platform to help Indonesia comply with existing EU rules.
Environment. As in the most recent trade agreements negotiated, compliance by both parties with the Paris Agreement is an essential element of the text. Violation of the Paris Agreement, but also of certain fundamental conventions of the International Labour Organization (ILO), can lead to retaliatory measures.
The other provisions contained in the chapter on sustainable development are subject to a dispute settlement mechanism, but not to sanctions in the event of violation.
Digital. The agreement also includes a whole section on digital technology and aims to facilitate e-commerce as much as possible. This involves assurances on cross-border data flows, consumer protection and the use of electronic signatures. More importantly, Indonesia will have to relax its local content requirements in the IT services sector.
Positive reception. The conclusion of the agreement was warmly welcomed by several political groups in the European Parliament and several organisations. The EPP, S&D and Renew Europe each welcomed the agreement as beneficial and strategic at a time when world trade is unsettled. (Original version in French by Léa Marchal)