The IEU-CEPA: Reflections and A Way Forward

The negotiations on the Indonesian-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA) concluded on 13 July 2025. This negotiation process finally reached its finish line after 19 formal rounds and several technical summits.

According to Airlangga Hartarto, the Indonesian Coordinating Ministry of Economic Affairs, the signing of this agreement will occur on 23 September 2025.

The kickoff of the economic partnership negotiations started in September 2016. Furthermore, 18 formal rounds of negotiations were conducted, with the 19th Round finally concluded in July 2024.   

The IEU-CEPA is basically a comprehensive package deal that consists of various topics. Those topics consist of, among other trade in goods, customs and trade facilitation, small and medium-sized enterprises, digital trade, sustainable development, and dispute settlement.  

The IEU CEPA and the European Green Deal 

The adoption of this bilateral agreement should be taken into account by the EU while implementing its extraterritorial environmental policy. The EU is currently implementing the European Green Deal (EGD) to achieve the climate-neutral continent goal.

Furthermore, the EGD is implemented through the Fit for 55, targeted to reduce the EU's emissions by at least 55% by 2030. These hierarchical policy packages were basically adopted and are currently implemented to enforce the EU's commitment under the Paris Agreement.

Both the EGD and the Fit for 55 are generally implemented through regulations and directives related to the transboundary movement of goods. Those measures are among others, consist of the Renewable Energy Directive II (RED II), the Carbon Border Adjustment Mechanism, and the European Deforestation-Free Regulations.

As exporters of products deriving from deforestation and land expansion, the implementation of those measures potentially impairs Indonesia's exports to the EU. The extraterritorial nature of those measures could therefore constitute arbitrary or unjustifiable discrimination prohibited by the Agreement on Establishing the World Trade Organization (WTO Agreement) and the General Agreement on Tariffs and Trade 1994 (GATT 1994).

WTO Disputes involving Indonesia and the EU 

While discussing the potential inconsistencies, it is important to note that the EU and Indonesia are currently involved in disputes in the WTO Dispute Settlement Body (DSB).

One of those disputes is the European Union -- Certain Measures on Palm Oil Case (DS 593), which involved the RED II, its implementing regulations, and its French TIRIB measure. This dispute was triggered by the EU import prohibition on Indonesian palm oil products, which involved land expansion.

The panel report of this dispute was adopted on 10 January 2025. Both Indonesia and the EU informed the DSB that they agreed that the reasonable period of time for the EU to implement the panel recommendations and rulings would be 12 months (until February 2026).

Besides the DS 593, Indonesia and the EU also had a dispute involving Indonesia's export ban on its nickel ore (DS 592). The panel for this dispute found Indonesian export restrictions were inconsistent with Article XI: 1 GATT (quantitative restriction prohibition).

There are three ongoing disputes in the WTO involving Indonesia and the EU. Those disputes are the DS 616 involving EU Anti-Dumping and Countervailing Duties on Indonesia's stainless-steel exports, DS 618 involving EU Countervailing Duties on Indonesia's biodiesel exports, and DS 622 involving EU Anti-Dumping on Indonesia's fatty acid exports.

A Way Forward for Indonesia and the EU 

The presence of the IEU CEPA is therefore expected to create coordination and cooperation between Indonesia and the EU in avoiding disputes. Such an amicable approach will be in line with Chapter XX of the IEU CEPA, should this agreement be adopted in line with the drafts. 

The adoption of the IEU CEPA should not be perceived solely for further market access liberalization for both parties. Nevertheless, it shall be perceived as an instrument of coordination for both parties before adopting their respective trade-related measures.

This coordination can be conducted through technical consultations by referring to this bilateral agreement. Furthermore, this coordination may refer to the WTO Agreement, the International Labour Organization Treaties, and Multilateral Environmental Agreements, as mentioned by the IEU-CEPA. 

For the Government of Indonesia, these technical consultations shall be led by representatives from the Ministry of Trade (MOT). Due to the miscellaneous substances of the IEU-CEPA, the MOT should also involve other related ministries and non-ministerial agencies.

Those government agencies are among others, consisting of the Ministry of Environment, the Ministry of Marine and Fisheries, the National Investment Coordination Agency, and the Indonesian Competition Commission. These agencies will have a role in supporting the MOT by providing information related to the consultation's subject matter or topics.