EKONID: The EU-Indonesia CEPA has been in the negotiations stage for over a decade and now negotiation has been concluded. What accelerated the final stretch?
Carsten Sorensen: There was a clear acceleration in the last two years of negotiations, but the final sprint really started when the geopolitical contents in trade matters changed substantially; when a big economic power makes a decision that rules-based trade is not a priority. If you want to diversify your markets, diversify your supply chains, and create a stable predictable partnership, it became even clearer that it's in our joint interest to walk the talk and really get the agreement finalized and push it over the finishing line.
The geopolitical context clearly helped in accelerating. It didn't change the fundamentals, but it put an additional emphasis on the importance of getting it done.
EKONID: What is the current status, and what are the steps before entry into force?
Carsten Sorensen: Negotiations have been concluded. The agreement has not been signed.
The process is the following: you finalize negotiations. The text is done. Nobody will touch the text anymore. Then the next stages are so‑called legal scrubbing. Legal scrubbing means you have specialized lawyers from both sides sit together and go through the text to eliminate inconsistencies, to make sure that some formulations are clear. The text will not be changed. It's just about making sure the text is consistent and precise.
To give an example: these texts have been negotiated for over 10 years. You refer back to articles, and you may find out that the number for the article has changed, so you make sure that it refers back to the right article. Or a sentence that have been negotiated and finalized was found to have a verb missing; you don't understand the sentence anymore; both sides need to see what that verb actually was.
Subsequently, translations are done. For Indonesia, it’s relatively simple, you have Bahasa Indonesia. For the EU, we have a set-up where we have 24 official languages. So you see the degree of precision that has to go into that, and even in the age of AI, it will still take some time.
After legal scrubbing and translations, you sign the text, which means the text then really is final. After that, you ratify it.
At our end, it goes to the European Parliament. We call it an EU‑only agreement. Everything in the agreement is in the exclusive competence of the EU at our end. There are no Member State competences covered by the text. In mixed agreements you need ratification by all Member States' national parliaments; here it is only the European Parliament.
EKONID: It has been mentioned that the target for the agreement to come into effect is 2027. We understand that this has to do with Indonesia’s status as an upper-middle income country?
Carsten Sorensen: We are aiming to have it ratified and entering into force by the end of 2026.
On January 1, 2027, the GSP graduation of Indonesia kicks in. The EU offers import duty rebates to developing countries—it's a General System of Preferences. Indonesia has graduated and is now an upper‑middle income country based on UNDP classifications, which means Indonesia doesn't qualify anymore for these unilateral tariff rebates. To avoid a gap where GSP ends but CEPA is not in force yet, the target is ratification by end of 2026. This depends on many factors: the speed of legal scrubbing and the stance of our parliaments.
EKONID: What tariff coverage will CEPA achieve?
Carsten Sorensen: In short, CEPA will remove tariffs on almost all products traded between both sides—98‑point‑something for Indonesia and 99‑point‑something for the EU. In value, it's close to 100%. In understandable terms, with CEPA, almost all import tariffs go down to zero for everything that's covered by the agreement.
From the EU side, from day one, we drive down our tariffs to zero from entry into force. For Indonesia, some products go down to zero from entry into force, and others have a transition period of maximum five years. After five years, everything is down to zero.
EKONID: Beyond tariffs, what other examples can you provide as to how CEPA improve trade and investments between the EU and Indonesia?
Carsten Sorensen: One major example is non-tariff barriers. In the goods sector you have two main aspects: the tariffs you have to pay when the product crosses the border, and the possibility for the product to cross the border and be marketed. For the latter, so‑called non‑tariff barriers (e.g. red-tape, discretionary measures) are addressed.
This is the second element of what CEPA tackles. Very often, the main value of an agreement lies in addressing these obstacles behind the border.
Another example is import licensing. We have many potential investors who are keen to invest in this big market. They explain that they would need more legal certainty and predictability. The agreement contains exactly that, including streamlined licensing processes. The jointly agreed objective of that is to make investments easier.
These are just some examples of how CEPA is helping to create new certainty and predictability, which will be instrumental in attracting more investment.
EKONID: That answers my questions as to why transparency is mentioned many times in the agreement. By that same token, how will this apply to standards and regulations?
Carsten Sorensen: The agreement maintains the right for each party to regulate. Whatever new regulation with a trade impact set up by either side has transparency requirements: publish it so that stakeholders can look at it and allow sufficient time between publication and entry into force so operators can adapt.
In the agreement, both sides have penned down the commitment to strive to use, as much as possible, international standards to eliminate discrepancies of additional national requirements. In general, the EU rules apply to all 27 Member States; we offer 27 markets and a border‑free internal market. Once a product is inside the EU, it can be sold everywhere.
Inside the EU, we create standards applicable throughout the EU. This is a big chunk of harmonization: one standard, one rule, not 27. That’s an often-underestimated economic beauty of the EU.
EKONID: What about investment protection? How will that be handled?
Carsten Sorensen: It's a separate agreement: an IPA, an Investment Protection Agreement. It's a separate text but follows the same procedures and is part of the entire CEPA package.
The Investment Protection Agreement is a classic state‑to‑state protection agreement. There's no investor‑to‑state element. This could be considered in the future, but right now it's not the case.
EKONID: What would be the business impact expectation of CEPA from the EU perspective?
Carsten Sorensen: CEPA is a door opener. It's not in force yet, and once it is, it will certainly take some time before operators use it fully on both sides. Our role is to help prepare for implementation of the agreement. Already now CEPA creates confidence and interest.
There has been a lot of press. My Trade Commissioner has made it a personal point of travelling to Indonesia for the conclusion of negotiations to emphasize commitment and presence. The EU want to put Indonesia more clearly on everyone’s map. We want to show that there are concrete opportunities that should be seized.
More importantly though, is that we have, I think, a very good agreement. But in the end, the treaty is worth what we make of it. The game is not over. It’s not done and dusted. We need to ensure that things really happen––that there is not a gap between what's possible and what really can happen on the ground afterwards.
Business has always been very closely associated, and it's a central part of it. We do this because we want our business to have better conditions to do their job. And I'm sure the Indonesian side has the same consideration. During implementation, constant dialogue with industry will be crucial to identify bottlenecks and difficulties. It's a living thing.