The European Union and Indonesia have sealed a sweeping trade agreement that will slash tariffs to near zero on almost all goods after nearly a decade of talks. Brussels’ trade chief said duties on 96% of goods will drop to zero within five years—part of a push to diversify supply chains and open markets as both sides navigate a tougher global trading climate.

What the Deal Changes

The deal phases out Indonesia’s steep tariffs on EU exports—cutting car duties from 50% to zero in five years and machinery levies from 30% to zero sooner—saving EU exporters about €600m annually, while also easing restrictions on chemicals and raw materials and granting Indonesia preferential access for some processed goods.

Timelines, Ratification, and Scope

Negotiators say nearly all trade lines will go tariff-free, with 96% at zero within five years, pending ratification by EU and Indonesian lawmakers; officials expect EU exports to Indonesia to rise at least 30% (€3bn), while Jakarta foresees major gains in palm oil, footwear, fisheries and textiles, with the pact likely taking effect around 2026–27.

Nickel Dispute and Raw Materials

A key sensitivity is Indonesia’s nickel-ore export ban, central to its battery-metal strategy and still under WTO dispute, untouched by the deal; meanwhile, both sides frame the pact as strategic for supply-chain diversification, with Brussels eyeing Indonesia’s vast market and Jakarta stressing critical-minerals value chains and downstream manufacturing.

Deforestation Rules and Compliance Support

The pact leaves the EU’s deforestation-free import rules unchanged—a flashpoint for Indonesian palm oil, rubber and coffee—while creating a platform to help smaller exporters meet due-diligence demands; meanwhile, EU debate continues over enforcement timelines, with some pushing for phased rollout and others urging immediate application, a key issue for Indonesian SMEs.

Trade Footprint and Expected Gains

EU–Indonesia goods trade stood at about €27–30 billion in 2024, with the EU in deficit and Indonesia exporting mainly palm products, footwear, machinery parts and metals; officials expect tariff cuts and eased non-tariff barriers to lift trade and investment, with early gains in cars, machinery and agri-food, and clearer rules on processed materials to ease licensing frictions, which Šefčovič said would “create opportunities for both sides.”