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<\/p>\nBRUSSELS – The European Union and Indonesia reached an agreement to move ahead on a free trade deal, which is set to strengthen economic ties between two of the world\u2019s largest economies at an uncertain time for the global trading regime.<\/p>\n
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In a statement on Sunday ahead of a joint appearance with Indonesian President Prabowo Subianto, European Commission President Ursula von der Leyen said that the two sides \u201creached a political agreement to advance the trade agreement.\u201d She said that in a \u201cvolatile world,\u201d Europe and Indonesia had chosen \u201ca path of openness, partnership, and shared prosperity.\u201d<\/p>\n
\u201cThe agreement will open new markets and create more opportunities for our businesses. It will also help strengthen the supply chains of critical raw materials, essential for Europe\u2019s clean tech and steel industry,\u201d she said.<\/p>\n
Prabowo, who arrived in Brussels on Saturday night, said that the two sides were \u201cready to finalize\u201d the agreement, which would \u201csupport our efforts to grow our industries, create jobs, and strengthen our sustainable development goals.\u201d Speaking alongside von der Leyen, Prabowo added that the economic partnership between Europe and Indonesia \u201cwill make a very important contribution to the economic and geopolitical stability in the world.\u201d<\/p>\n
Once the Comprehensive Economic Partnership Agreement (CEPA) is finalized, the EU will remove many of its tariffs on Indonesian goods, chief economics minister Airlangga Hartarto told reporters from Brussels on Sunday, describing the agreement as a \u201cmilestone.\u201d He added that the final signing of the agreement is expected in the third quarter of 2025, pending a formal announcement from Prabowo.<\/p>\n
The CEPA between the EU and Indonesia, which covers 21 areas of cooperation, including trade in goods and services, investment, customs procedures, digital trade, and sustainable growth, has been under negotiation since July 2016. However, the talks have run aground on a number of disagreements relating to Indonesia\u2019s protectionism and the European bloc\u2019s policies toward palm oil, a key Indonesian export, including a deforestation regulation adopted in 2023. The two nations have also engaged in trade disputes over Jakarta\u2019s nickel export ban and the EU\u2019s imposition of anti-dumping and countervailing duties on certain types of Indonesian stainless steel products.<\/p>\n
But as I noted back in June, when the two sides announced the completion of the bulk of the negotiations for the CEPA, Jakarta and Brussels have had increasingly urgent strategic incentives to finalize the agreement. The most significant of these pertains to the Trump administration\u2019s aggressive tariff policy, which both Prabowo and von der Leyen referenced indirectly during their comments in Brussels on Sunday.<\/p>\n
Indonesia was hit with a 32 percent tariff during Trump\u2019s \u201cliberation day\u201d tariff announcement on April 2, a rate that was reaffirmed by the USA president last week and is now set to come into effect on August 1.<\/p>\n
In a letter to President Prabowo announcing the tariff decision, Trump said that he remained open to changing his mind if Jakarta got rid of its tariffs and non-tariff barriers. \u201cThese tariffs may be modified, upward or downward, depending on our relationship with your country,\u201d he wrote to Prabowo.<\/p>\n
Trump\u2019s announcement came as a shock to Jakarta, following as it did a series of proposals from Indonesia aimed at helping reduce the USA trade deficit \u2013 the ostensible cause of the high USA tariff. These include a promise to spend $34 billion on \u201cnew Indonesian investments and purchases in the United States,\u201d including significant purchases of agricultural products, energy, and Boeing aircraft, among other goods. Jakarta has also hinted that this will include a major USA-bound investment involving its new sovereign wealth fund, Danantara.<\/p>\n
While en route to Washington to meet with USA officials, Indonesia\u2019s chief economics minister Airlangga Hartato told the Washington Post that the decision to maintain the 32 percent tariff was \u201ca surprise.\u201d<\/p>\n
\u201cWe have been moving 180 degrees, and the US is not moving at all \u2013 zero,\u201d he said. \u201cThere were a lot of things we had already discussed in detail.\u201d<\/p>\n
The EU, too, faces a tariff of 30 percent on its exports to the USA, which is also due to come into effect on August 1.<\/p>\n
During her press conference with Prabowo, von der Leyen said that there was \u201ca lot of untapped potential\u201d in the trade relationship between the EU and Indonesia. \u201cThe new agreement will open new markets. It will create more opportunities in key industries. Business activities in agriculture, automotive, and services will massively benefit from it,\u201d she said.<\/p>\n
The agreement is a sign that even before entering into effect, Trump\u2019s tariffs have prompted a reordering of global trade \u2013 though not necessarily one that will redound to the long-term benefit of the United States. (*)<\/p>\n