Indonesia, EU seal trade deal, hope to offset Trump tariffs

NUSA DUA, Indonesia (Reuters) -Indonesia and the European Union concluded a free trade agreement on Tuesday after nine years of talks, with both aiming to boost exports and investment and to offset the impact of U.S. President Donald Trump's tariffs.

Both sides will remove import duties on more than 90% of products, most of them as soon as the deal enters force, with the rest, including Indonesia's 50% duty on EU cars, phased out over five years.

Indonesia says it expects bilateral trade, worth $30.1 billion for goods in 2024, to double in the first five years.

TRUMP PROVIDES SPUR TO TRADE DEAL

Since Trump's re-election last November, the EU has gone into overdrive to forge new trade alliances, including with the South American bloc Mercosur and Mexico and also accelerating negotiations with India.

The 27-nation EU hopes these alliances will offset the impact of Trump's tariffs, as well as reducing dependency on China, particularly for minerals required for its green transition.

Indonesian exports are also subject to a broad 19% U.S. tariff.

The EU says its exporters will be spared 600 million euros ($707.4 million) of Indonesian duties and envisages selling more chemicals, machinery, automobiles and food products, notably milk powder and cheeses.

Indonesia expects a boost to its exports of palm oil, coffee, textile and clothing and other products, and aims for the pact to enter force by January 1, 2027.

At that juncture Indonesia, a vast archipelago with more than 284 million people, is set to become an upper-middle-income country and so lose access to the preferential duties the EU grants to developing countries.

The agreement in the coming months will need to undergo legal checks and be translated into the EU's official languages. EU governments and the European Parliament will then need to give their formal consent to the deal.

Indonesia's Coordinating Minister for Economic Affairs Airlangga Hartarto said he looked forward to closer supply chains, including for critical minerals, renewable energies, innovation and investment.

Indonesia is in talks with EU automakers on partnerships in battery and electric vehicle production in the Southeast Asian country, he told reporters.

EU EYES IMPROVED ACCESS TO KEY MINERALS

EU Trade Commissioner Maros Sefcovic, speaking in Bali, said the agreement would bolster investment into Indonesia by European companies and improve the bloc's access to minerals critical for the bloc's clean tech and steel industries. These include nickel, copper, bauxite and tin.

The Chairman of the Indonesian Palm Oil Association (GAPKI), Eddy Martono, said the deal would remove tariffs on his sector's exports to the EU, a major buyer of palm oil.

However, non-tariff barriers, including the EU Deforestation Regulation (EUDR), remain a hurdle for the industry, he said in a text message to Reuters.

Indonesia is the world's biggest palm oil producer and the EUDR, which the EU is set to delay by another year, requires its growers to provide documentation proving shipments did not come from areas deforested after 2020.

"There is still homework to be done, namely the EUDR, which must also be resolved immediately because it will be implemented later this year," he said, adding this risked reducing the effectiveness of the trade agreement.

($1 = 0.8482 euros)

(Reporting by Sultan Anshori in Nusa Dua, Bernadette Christina Munthe, Fransiska Nangoy in Jakarta, Philip Blenkinsop in Brussels; Editing by John Mair, David Stanway, Christian Schmollinger and Gareth Jones)