The implementation timeline of the IEU‑CEPA is now clear. Indonesia’s Coordinating Minister for Economic Affairs has set the target signing date for 21 November 2026. Both sides are finalising the English text, which will then go through scrutiny by the European Parliament and domestic ratification in Indonesia, with implementation slated for early 2027. For Chinese enterprises with existing production capacity or planned investment in Indonesia, the real focus is not whether the agreement will enter into force, but whether their products can obtain Indonesian originating status to capture these tariff benefits.
A critical time factor: expiry of the GSP
The EU’s Generalised Scheme of Preferences (GSP) tariff preferences for Indonesia will expire at the end of 2026. Classified by the World Bank as an upper‑middle‑income economy for three consecutive years, Indonesia no longer qualifies for GSP treatment. The IEU‑CEPA is designed to take its place: it covers more than 98% of tariff lines and 99.5% of trade volume for both parties, with around 90% of Indonesia’s tariff lines moving straight to zero duty upon entry into force. Without this agreement, Indonesian goods exported to the EU will revert to most‑favoured‑nation rates, substantially eroding their price competitiveness.
Biggest gains for products with residual GSP duties or excluded from GSP
Footwear and textiles only receive limited concessions under the GSP, with tariffs phased down to zero after the agreement takes effect. Palm oil and its derivatives have been excluded from the GSP since 2017, followed by timber and wood products from 2020. The IEU‑CEPA establishes separate access arrangements for these two product groups. In 2025, the EU imported approximately €1.7 billion worth of footwear and €1.2 billion worth of textiles from Indonesia. A tiered tariff cut can shift the flow of orders accordingly.
Setting up a factory in Indonesia does not guarantee automatic duty exemption
The IEU‑CEPA rules of origin require goods to undergo substantial transformation in Indonesia or the EU. Mere packaging, labelling or simple assembly will not qualify for Indonesian originating status. Textiles are subject to stricter criteria: key processes such as weaving and garment manufacture must be carried out in Indonesia or the EU to qualify for preferential treatment. In short, relocating genuine production activities to Indonesia is a prerequisite for accessing tariff advantages — an area where Chinese manufacturers hold distinct strengths.
Central Java is emerging as an export‑oriented production cluster
Special Economic Zones (SEZs) in Central Java have become a key base for Chinese‑owned export manufacturing, with Chinese investors accounting for nearly 40% of enterprises. Priority sectors include export furniture, advanced textile materials and rubber goods, all set to benefit from the IEU‑CEPA. On the cost side, factory rents in Central Java are 40%–50% lower than in West Java, and the minimum wage stands at roughly IDR 2.327 million per month, supporting healthier margins for labour‑intensive segments such as textiles, footwear and furniture. SEZ tenants may also stack incentives including corporate income tax relief and duty‑free import of machinery.
For Chinese enterprises aiming to integrate into European supply chains, the roadmap is straightforward: relocate production of fabrics, finished garments, footwear components, furniture parts or oleochemicals to Indonesia, secure originating status through genuine substantial processing, and access the EU market via the IEU‑CEPA zero‑tariff route. Factory location, production rollout schedules and origin compliance must be assessed together at the early stage of investment planning.
