THE IEU CEPA : WHAT BUSINESSES SHOULD PREPARE FOR

By: Valencia Gustin

2025 Negotiations Concluded

2026 Target Ratification

2027 Expected Entry Into Force

“The IEU-CEPA is not a story about the future. It is already changing business decisions today” 

Companies that wait for ratification before preparing may discover that the race for new markets has already begun.

A trade agreement that reaches beyond

General Background

On 23 September 2025, Indonesia and the European Union (“EU”) negotiations on the Indonesia–European Union Comprehensive Economic Partnership Agreement (“IEU-CEPA”) negotiations in Bali after nearly a decade of talks.[1] The deal followed a political agreement reached on 13 July 2025 between European Commission President Ursula von der Leyen and Indonesian President Prabowo Subianto.[2] 

Its significance has less to do with geopolitics than with something more immediate for business.[3] Unlike a conventional tariff agreement, the IEU-CEPA reaches rules that shape day-to-day decisions, from supply-chain documentation to sustainability and investment structuring.[4] That breadth is the point; companies will need to look beyond the tariff schedule to see how sourcing, compliance and investment decisions will be shaped. 

Ratification Outlook and Implementation Timeline 

Both parties aim to ratify by the second half of 2026, with entry into force expected in early 2027.[5] On paper, that leaves over a year. In practice, far less, the agreement's most immediate effect, phased tariff elimination on most traded goods, will start reshaping competitiveness the moment it takes force.[6] 

Tariff liberalization is only the starting point

Tariff Liberalization

Tariff liberalization remains the most visible commitment. The agreement requires each party to progressively reduce or eliminate customs duties on originating goods under tariff schedules in the annexes, from immediate duty elimination to phased liberalization over several years.[7] 

But lower tariffs are only part of the story. What matters is whether those gains hold as trade relationships continue to evolve. 

Predictability is therefore just as important as the cuts themselves. Companies rarely invest in tariff reductions alone; they invest when they trust the underlying conditions will remain stable. The remaining question is how businesses convert that certainty into a real competitive advantage. 

What should businesses do now?

Businesses should not assume that preferential access will apply automatically. In practice, the benefits of the IEU-CEPA will depend on whether companies are ready to meet its operational and regulatory requirements, and that readiness takes longer to build than most companies assume.  

For Indonesian exporters, the first test is the agreement's rules of origin. Preferential tariffs apply only to products that qualify as originating goods, not simply those shipped from Indonesia. This distinction has significant commercial implications. Companies that have never examined where their inputs come from, how much value is added locally, or whether they can substantiate those claims through reliable documentation, may discover that the preferential tariff they expected is unavailable in practice. Under the IEU-CEPA, origin compliance is not an administrative formality, but the gateway to preferential market access.  

Preparation must also extend beyond tariffs

Access to the EU market is increasingly shaped by sustainability, supply-chain transparency and product standards alongside traditional customs rules. Measures such as the EU Deforestation Regulation ("EUDR") and the Carbon Border Adjustment Mechanism ("CBAM") reflect a broader policy shift in which regulatory compliance is becoming a competitive requirement rather than a post-market obligation.  

A palm oil exporter could benefit from zero tariffs under the IEU-CEPA and still be excluded from the EU market for failing to meet the EUDR. This reflects a broader shift: competitive advantage increasingly depends on regulatory readiness as much as tariff preferences. 

The same logic applies to European investors in Indonesia. The IEU-CEPA lowers barriers but does not eliminate domestic regulatory requirements. Companies that use the period before ratification to review supply chains, strengthen governance and structure investments will be better positioned to capitalize on the agreement from the outset, rather than spending its early years catching up. 

Companies that start now, mapping their supply chains, testing their sustainability compliance, structuring their investments, will be the ones competing under the new rules from day one.  

Those that wait will spend 2027 catching up to companies that started in 2026. 

About the Author

Valencia Gustin is an Associate at Bahar Law Firm. She holds a business law degree from Universitas Padjadjaran and focuses on regulatory compliance, commercial transactions, and technology-related legal matters, with an interest in international trade and cross-border regulation.  

[1] EU Policy Trade. (2025). “EU-Indonesia Comprehensive Economic Partnership Agreement and Investment Protection Agreement”, accessed from https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/indonesia/eu-indonesia-agreements_en.

[2] Ibid.

[3] Datasatu. (2025). “Indonesia to Control 41% of ASEAN's Population by 2025”, accessed from https://datasatu.com/sosial-budaya/2819777/indonesia-kuasai-41-populasi-asean-pada-2025

[4] EU. (n.d.). IEU CEPA, Table of content.

[5] Investor Trust. (2026). “Indonesia Fast-Tracks Mega EU Trade Deal: Why Early 2027 Implementation is a Game-Changer for Critical Minerals”, accessed from https://investortrust.id/market/105567/indonesia-fast-tracks-mega-eu-trade-deal-why-early-2027-implementation-is-a-game-changer-for-critical-minerals?page=english-edition

[6] Ibid.

[7] EU. (n.d.). IEU CEPA, Art. 2.5 and Annex 2-A.