EU-Indonesia FTA Negotiations: Focus on Trade in Services and Investment

​​​​​The negotiations for a Free Trade Agreement (FTA) between the European Union (EU) and Indonesia were officially launched on July 18, 2016, following a successful joint scoping exercise that determined the scope and level of ambition for the agreement. The negotiations are part of the EU's broader strategy to strengthen economic ties with the Association of Southeast Asian Nations (ASEAN) and enhance its presence in the Asia-Pacific region. 

         

The initial rounds of negotiations focused on establishing the framework for the agreement and identifying key areas of interest for both parties. Early challenges included differences in regulatory standards, market access barriers, and concerns about the impact of trade liberalization on sensitive sectors. Despite these challenges, both the EU and Indonesia demonstrated a strong commitment to advancing the negotiations, recognizing the potential benefits of a comprehensive FTA. The duration of nearly a decade reflects the complexities and challenges inherent in such comprehensive trade deals. Below we take a look at the current status of these negotiations, with a particular focus on the chapters concerning services and investment. 

       

As of early 2025, the EU and Indonesia have completed 19 rounds of negotiations, with the latest round held in July 2024 in Bogor, Indonesia. Despite the prolonged discussions, both parties remain committed to reaching a mutually beneficial agreement. The negotiations have been characterized by a mix of progress and setbacks, largely influenced by domestic political changes, economic priorities, and external geopolitical factors.

    

The Services Chapter

     

The investment chapter aims to create a stable and predictable environment for investors from both the EU and Indonesia. Key elements of this chapter include provisions on investment protection, dispute settlement mechanisms, and the liberalization of investment flows. The EU is particularly interested in securing strong investment protection standards, including fair and equitable treatment, protection against expropriation and the free transfer of funds. Indonesia, however, has expressed concerns about the potential impact of stringent investment protection standards on its regulatory autonomy. The Indonesian government is wary of provisions that could limit its ability to implement policies in the public interest, such as environmental regulations and social welfare measures. To address these concerns, the EU has proposed incorporating sustainable development provisions into the investment chapter, ensuring that investment protection does not come at the expense of environmental and social objectives.

    

Over the last decade, the negotiations have faced some setbacks due to political changes, economic uncertainties, and external factors. For instance, the global pandemic disrupted the negotiation process, leading to delays and a shift in priorities for the parties. Additionally, geopolitical tensions and trade disputes have influenced the dynamics of the negotiations, adding complexity to the process. In recent years, however, there has been renewed momentum in the EU-Indonesia FTA negotiations, driven by changes in leadership and evolving economic priorities. The inauguration of President-elect Prabowo Subianto in Indonesia and the renewed leadership of Ursula von der Leyen in the EU have created new opportunities for advancing the negotiations.

     

​President Prabowo's administration has signaled commitment to economic reforms and enhancing environmental, sustainability, and governance (ESG) standards, aligning with the EU's stringent requirements, particularly concerning deforestation and biofuels. This alignment has created a potential pathway for compromise on key issues, such as market access for critical minerals and sustainable development provisions. The EU, on its part, is eager to secure access to Indonesia's vast resources, particularly as it seeks to diversify its supply chains mitigate its reliance on cluster sources for critical minerals.

       

Hence, despite all challenges, both the EU and Indonesia appear to remain committed to advancing the negotiations, recognizing the potential benefits of a comprehensive FTA.