The agreement will also remove restrictions for transactions in key raw materials, the bloc’s trade chief Maros Sefcovic told Bloomberg News in an interview. Around €600 million ($700 million) of tariffs will be saved by European exporters as a result of the deal, he added.
“We are really opening a new chapter of huge, huge proportions,” said Sefcovic, who arrived in Indonesia on Monday following the conclusion of negotiations after nearly a decade.
“Our trade with Indonesia was really below the potential” given that southeast Asia’s largest economy is bigger than Vietnam, the Philippines, and Thailand combined.
A deal with Jakarta would play an important role in the bloc’s efforts to diversify its supply chains, especially of materials, and to open new markets amid the 15% tariffs imposed on most EU exports by the US, the bloc’s largest trading partner.
European officials have intensified negotiations with some of the largest global economies, including India, and have concluded talks with the South American bloc of Mercosur, which includes Brazil and Argentina. The EU has also ramped up negotiations with Vietnam, the Philippines and Thailand.
The deal will reduce tariffs to zero on 96% of goods within five years. That is expected to increase EU exports to Indonesia by at least 30%, or about €3 billion.
Duties on EU cars will be reduced from 50% to zero in five years, while levies for machinery and appliances will go down from 30% to zero in a short period of time, officials said. Agriculture and food products will also benefit from trade liberalisation.
In regard to materials such as chemicals exported from the EU, the deal will remove licensing and other restrictions. The EU, meanwhile, will get preferential treatment for duties on Indonesia’s materials exports after the first stage of processing.
Still, the agreement will not alter Indonesia’s ban on exporting nickel to the EU – an ongoing dispute between the two partners at the World Trade Organization.
Indonesia is an important partner for the EU, with a rising economy of 300 million consumers. But the bilateral relationship has been strained by the bloc’s deforestation regulation, which aims to combat the felling of trees abroad, especially to clear land for palm oil and coffee. Indonesia has been one of the most vocal critics of the rules.
The agreement will not affect the implementation of these rules by Indonesia, an issue that was discussed during the negotiations. But Sefcovic said that the deal will create a platform to help Indonesian companies, in particular smaller exporters, to meet EU obligations.
The agreement requires the approval of EU member states and the European Parliament as well as Indonesia’s legislature before it comes into force.
Sefcovic called the agreement a “very clear framework” that would promote trade and create opportunities for both sides.