POSITION | FREE TRADE AGREEMENT | EU – SOUTHEAST ASIA
Industry Demands for Bilateral FTAs between the EU and Malaysia, the Philippines, and Thailand
Necessary steps for successful conclusion of ongoing negotiations
Executive Summary
March 2026
Southeast Asia is one of the most dynamic economic regions in the world and is becoming increasingly important for the German industry. In times of geopolitical uncertainty, trade wars, and China's growing influence, the region is becoming more and more attractive for German diversification strategies. Free trade agreements (FTAs) are a key lever for the EU to secure export markets, creating new trade opportunities for companies, preventing supply chain disruptions, and thus minimising geopolitical risks. Bilateral FTAs between the EU and Malaysia, the Philippines, and Thailand would remove trade barriers, improve market access for European goods, services, and in public procurement, make data transfer more agile, and strengthen intellectual property rights. The recently concluded FTA between the EU and Indonesia, which regulates precisely these areas, can be seen as a blueprint In addition, these agreements could serve as a model for partnerships with other countries in the Association of Southeast Asian Nations (ASEAN) to improve the business environment in general and to consolidate the EU's strategic presence in the region. The ASEAN region is already strongly linked to other parts of Asia through trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Without similar agreements, European companies are at a disadvantage compared to their East- and Southeast Asian competitors. The successful conclusion of the FTAs, alongside binding investment protection agreements between the EU and Southeast Asian countries that include mutually respected dispute settlement mechanisms, would improve the competitive conditions for European companies in the region and significantly strengthen the (economic) partnership between the two economic areas. Successful agreements with Malaysia, Thailand, and the Philippines would constitute a milestone for an EU-ASEAN FTA in the long term Free trade agreements already exist with Singapore and Vietnam. The agreement with Indonesia has been negotiated. The text is now going through the next steps on the EU side: translation, legal review, and approval by the Council and the European Parliament.
A more pragmatic approach in these negotiations is needed. The negotiating parties must be prepared to compromise and, if necessary, abandon positions that they have maintained in other FTAs. Only the most sensitive areas (defined below) and those of strategic importance to the trading partners should be excluded from trade liberalisation A new balance must be found between sustainability requirements and economic interests in free trade agreements. Chapters on sustainability must above all else
be practicable. Greater consideration must be given to realistic demands and needs of partner countries (no "one-size-fits-all" approach). The overburdening of negotiations with non-trade issues should be avoided In its negotiations, the EU Commission should focus primarily on areas that fall within its exclusive competence. In particular, the complete abolition of import duties, trade restrictions, localisation requirements, and the harmonisation of norms and standardisation based on international rules must crucially be included in the treaty texts.
The EU should strategically expand economic partnerships where they bring mutual benefits and make convincing offers in areas where cooperation serves European interests. In doing so, it is necessary to be aware of the mutual red lines of the negotiating partners The failure of one of the agreements could drive Southeast Asian countries to seek alternative partners. The tariff policies of the new US administration is another factor that increases the urgency for both sides to reach a swift conclusion, as can be clearly seen in the example of the EU-Indonesia FTA or the EU-India FTA, which was just concluded in January 2026. The EU Commission and the Southeast Asian countries must view the bilateral agreements as a strategic move in a changing geopolitical world order and conclude them as quickly as possible The German government in this regard is well advised to give clearer support to this endeavour
Introduction
Importance of Southeast Asia
Southeast Asia is one of the most dynamic economic regions in the world and is becoming increasingly important for the German industry. A young population, a growing middle class with rising purchasing power, and rising economic strength make Indonesia (GDP 2024: US$1,396.3 billion) (2025, GTAI), Thailand (GDP 2024: US$526.4 billion) (2025, GTAI), Singapore (GDP 2024: US$547 4 billion) (2025, GTAI), the Philippines (GDP 2024: US$461 6 billion) (2025, GTAI), Vietnam (GDP 2024: US$459 5 billion) (2025, GTAI) and Malaysia (GDP 2024: US$419 6 billion) (2025, GTAI) attractive growth markets for the German industry.
In 2024, Germany exported goods worth EUR 27.56 billion to the ASEAN region. The most important markets were Singapore (EUR 7 06 billion), Malaysia (EUR 6.60 billion), Thailand (EUR 5.05 billion), Indonesia (EUR 2 87 billion), and the Philippines (EUR 1 95 billion) The EU has already concluded and implemented free trade agreements with Singapore and Vietnam, the agreement with Indonesia is currently undergoing translation, legal review, and awaits approval by the Council and the European Parliament Negotiations with Malaysia, Thailand, and the Philippines should be accelerated in parallel. Discussions with EU officials suggest that the EU-Philippines FTA could be concluded before the end of this year At the end of 2027, a special incentive scheme that grants the Philippines duty-free access to the EU market for more than 7,200 products will also expire. Progress with Malaysia is also being made, albeit at a slower pace In Thailand, political continuity appears to have been maintained after the recent February 8 election. The incumbent trade minister is expected to remain in office and to continue the negotiating mandate with the EU. As the Thai economy has been facing difficulties for some time and is growing more slowly than other Southeast Asian economies, a free trade agreement could stimulate growth in Thailand
Swift Conclusion of Negotiations Through Greater Pragmatism
The region is already closely linked to East and South Asia through the RCEP and CPTPP agreements. This creates a significant competitive disadvantage for the German industry especially the automotive sector compared to Chinese, Japanese, and South Korean competitors. To close this gap, the BDI welcomes the conclusion of the successfully negotiated FTA with Indonesia (2025) as well as the free trade agreements currently being negotiated with Thailand (2023) and the recently resumed talks with Malaysia (2025) and the Philippines (2024) The time frame announced by EU Trade Commissioner Maros Šefčovič foresees the conclusion of the FTA with the three ASEAN countries by 2027.
The BDI considers the first trade and investment dialogue between the EU and the CPTPP members in November 2025 as a further positive step, and at the same time calls on the EU to intensify the dialogue and to agree on an implementation plan. In the meantime, the EU and the CPTPP countries have decided to start substantive exploratory talks this year Both blocs together account for 32 percent of global GDP and 37 percent of world trade. Particular emphasis was placed on the growing importance of digital trade, where both sides are seeking closer cooperation to remove trade barriers and to set global standards. The CPTPP bloc includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The United Kingdom joined at the end of 2024.
The EU has bilateral free trade agreements with nine of the twelve CPTPP members; deepening relations with the remaining three countries – Australia, Malaysia, and Brunei – could pave the way for
more comprehensive regional agreements such as an EU-CPTPP association or an EU-ASEAN minus-X agreement Negotiations are currently underway with Australia and Malaysia, and an EUAustralia FTA is reportedly close to finalisation A potential consolidated EU-CPTPP-ASEAN free trade bloc now appears possible in the context of the recent finalisation of the EU-Indonesia agreement. Here, a pragmatic solution in mutual interest was achieved and the many long-standing points of contention were (at least partially) resolved.
In times of geopolitical uncertainty, trade conflicts, and China's growing influence, Southeast Asia is also gaining strategic importance as a target for German diversification strategies. While China, the US, and Japan have strengthened their strategic presence there in recent years, Europe is in danger of falling behind. Long delays not only jeopardise the progress made in the negotiations so far, but also the economic benefits for both sides. The Southeast Asian countries are united in their strong interest in a swift conclusion of the bilateral agreements and are behaving flexible and in an accommodating manner. The US administration's tariff policies increase the urgency of a quick finalisation for both sides. This window of opportunity must be seized now. The EU Commission must engage more effectively with its negotiating partners and make concessions to conclude the bilateral agreements as quickly as possible and conceive FTAs as a strategic move in a changing geopolitical order.
Challenges in Further FTA Negotiations
Negotiations with the three ASEAN countries, the Philippines, Malaysia, and Thailand, are progressing at different rates and face specific hurdles. Talks on a trade agreement between the EU and Malaysia began in 2010 but were interrupted two years later with the EU’s environmental regulation being the major obstacle. Market access for palm oil is controversial with Malaysia – the EU rejects it on environmental grounds, while the country sees this as discrimination and has referred the matter to the WTO. Negotiations resumed in early 2025. There was a virtually identical dispute with Indonesia, but this has now been resolved in the agreement through partially duty-free import quotas for palm oil into the EU and the recognition of the Indonesian certification system for sustainable palm oil (ISPO) which could now be managed in a similar way for Malaysia (keyword: most-favoured-nation principle) Conflicts over the protection of the fishing industry are complicating talks with Thailand. In the Philippines, bureaucracy and high energy prices are key challenges. All three countries (and Indonesia as well) consider several European regulations to be significant barriers to trade, such as CBAM, the planned deforestation regulation (EUDR), and the EU Corporate Sustainability Due Diligence Directive (CSDDD).
The practical implementation of the EU Deforestation Regulation (EUDR) poses considerable challenges in global supply chains, particularly the collection and transmission of geolocation data. In important producing countries such as Indonesia and Malaysia, national legislation – for example on data protection – restricts the systematic collection, processing, or cross-border transmission of precise location data on agricultural land. At the same time, the EUDR requires the first distributor of a relevant commodity on the EU market to provide precise geographical coordinates of the production areas to ensure supply chain traceability and prove that the products are deforestation-free. These diverging requirements lead to tension between EU law and the framework conditions in the producing countries. If the necessary geodata is missing or is not legally accessible, it is not possible to draw up proper due diligence statements and pass on the associated reference numbers, which prevents the legal placement of products on the EU market. As a result, supply bottlenecks may occur and downstream companies in the EU are forced to adjust their supply chains or find alternative sources of supply. This is particularly relevant for import-heavy products, such as palm (kernel) oil, around two-thirds of EU imports of which come from Indonesia and Malaysia
German Industry Demands Regarding Free Trade Agreements with Malaysia, the Philippines, and Thailand
1. Tariff Barriers to Trade
ASEAN has already concluded trade agreements with China, Japan, and South Korea in addition to alternative free trade zones such as CPTPP and RCEP, depending on the country This leads to reduced competitiveness for German businesses Currently, for example, high tariffs on new fully assembled vehicles are forcing European vehicle manufacturers to invest capital in simple local assembly activities – primarily to avoid tariffs rather than to promote high-quality innovation. To ensure equal access to the respective markets, the potential tariff reductions in the EU trade agreements with the respective Southeast Asian countries must not fall short/behind of those with China, Japan, and South Korea.
The goal in negotiations between equal partners should therefore be complete tariff reduction Asymmetric tariff reduction agreements (e.g., 90 percent market liberalisation while the EU market is 95 percent open) must not permanently lead to unjustified distortions of competition and can only be applied for clearly defined transition periods
Longer transition periods may be agreed in demonstrably sensitive industrial sectors Transition periods for tariff phase-outs should include an immediate initial tariff reduction but could extend over several years – similar to the EU-Vietnam or EU-India free trade agreements. From the BDI's point of view, quotas are not the preferred option. Effective and consistent tariff reductions and the resulting benefits must not be counteracted by the other side with measures such as excise duties or non-tariff trade barriers
2 Non-Tariff Barriers to Trade
German companies face non-tariff trade barriers and bureaucratic hurdles in the ASEAN countries involved in the negotiations For example: In Malaysia, an official permit (Approved Permit, AP) is required for the import of various goods, including passenger cars. This system is intended to control the number and type of imported vehicles, though restricts free trade and undermines the planning for German companies. The licensing requirement for imports should be abolished as it restricts free trade. In addition, vehicles require Malaysian type approval (Vehicle Type Approval, VTA) prior to initial registration, which sets narrow limits on model variants. In the commercial vehicle sector, this means that vehicle models with minor technical deviations (e.g., different engine class) require a new type of approval. Recognition of the EU’s whole vehicle type approval would significantly reduce lead times and avoid a large proportion of duplicate testing.
The BDI calls for effective regulations against non-tariff trade barriers to be written down in all FTAs. Existing trade barriers must be erased through specific commitments Each new stage of tariff reduction by the EU should be subject to clear conditions, particularly a review of the status of the eradication of non-tariff trade barriers. Provisions should be made for early mutual notification when setting new standards and technical regulations, transparent mutual consultation mechanisms, and an effective dispute settlement mechanism.
2.1 Rules of Origin
To ensure minimal administrative burden for European companies – especially small and mediumsized enterprises (SMEs) – the rules of origin should be made as simple as possible and harmonised with other European FTAs as far as possible. Since rules of origin are crucial for benefiting from preferential tariffs in trade, the BDI calls for rules of origin and procedures for proving origin to be designed in a practical and unbureaucratic manner
Attention should be paid to digital feasibility and process standardisation to simplify processes and reduce bureaucratic hurdles. German industry advocates for uniform, cross-industry value-added rules of 50 percent based on the EU calculation method (EEU) within the framework of the rules of origin for industrial goods (Chapters 25 to 96). In addition, alternative rules should also be explicitly permitted for determining preferential origin. The individual sectors should be closely involved in the design of product-specific rules (PSRs) of origin to ensure that companies can implement the rules and reflect production processes.
Rules of origin, as well as customs regulations and other technical details, should be dealt with for individual industries in a separate annex to the free trade agreement, similar to the EU-Vietnam Free Trade Agreement.
The trade agreement between the EU and Indonesia states that clear rules of origin will be established. This will ensure that only products that have undergone substantial processing in the EU or Indonesia will benefit from tariff concessions. Proofs of origin are based on modern self-certification procedures, which should significantly simplify processes for companies, especially SMEs. Verification is carried out in close cooperation between the customs authorities of both sides and may also include administrative coordination between the EU and Indonesia if necessary The agreement thus complies with the standard of all modern FTAs.
2.2 Standardisation
Technical barriers to trade, foremost national, unique, and redundant testing requirements, create additional bureaucratic hurdles in the negotiating ASEAN countries. This leads to longer approval times, delays in production, and significantly higher costs for companies. National standards and the associated requirements for standardisation, certification, testing, and reporting make market access difficult for German companies in Malaysia, Thailand, and the Philippines. Product registration, product standards, and environmental and labelling requirements in particular lead to significant restrictions on German exports. The main objective of these national standards is to force the localisation of manufacturing. As a result, goods often experience extended customs clearance times before being released. In some ASEAN countries, particularly Thailand, there is also a tendency to re-test products locally – a practice that the BDI strongly opposes Annual audits of manufacturers do not lead to improvements in safety or quality. Instead, the process becomes unnecessarily complicated and the products more expensive for customers. This problem is particularly evident in the automotive, electrical, and mechanical engineering industries
Inconsistent standardisation and regulation hamper the trading activities of German companies, particularly in Thailand and Indonesia. In Thailand, the mandatory Thailand Industrial Standard (TIS) certification represents a significant barrier to trade. It affects 60 products from ten industries, including agriculture, building materials, consumer goods, electrical appliances, and vehicles, and requires local safety standards and factory inspections. The mandatory QR code under the TIS mark makes sensitive
data public before market launch and doubles the compliance burden, compounding the effort already required for the mandatory eco-sticker. In Indonesia, the Indonesia National Standard (SNI) has caused additional compliance costs since 2014, particularly in the after-sales sector, and remains costly and time-consuming. Indonesia often requires re-testing by third parties for certain imported products that have already been tested in the EU. Each company must obtain its own licenses for imported products, even if they belong to the same subsidiary or group of companies. This leads to a double burden of product testing and quality assessments. These testing and certification requirements mainly affect consumer goods, but also certain electrical and electronic industrial components such as circuit breakers, lighting fixtures, and power cables. A similar problem also affects the German automotive industry. The EU-Indonesia FTA has made essential progress in this area: For key industries such as electronics, mechanical engineering, and energy-efficient products, Indonesia has agreed to recognise certificates and test reports from EU-accredited bodies. So, for example, if Germany exports a car to Indonesia that has already been certified according to EU standards, Indonesia must accept this certification and refrain from re-testing it.
National technical regulations and rules must be aligned with international standards. All technical requirements should be fully harmonised with UNECE regulations – in addition to the 19 regulations already agreed upon in ASEAN. Unrestricted recognition of all UNECE regulations and certificates without additional requirements is crucial to avoid duplicate testing. In addition, unique and redundant requirements should be abolished, including the limited validity of test reports to a maximum of two years per license approval and the additional requirement for a Conformity of Production (COP) test report. The requirement that product prototype tests must be carried out individually by each factory, in deviation from the UNECE type approval procedure, should also be removed. Non-signatories to the 1958 UNECE Agreement, such as Indonesia, were persuaded to sign and implement it as part of the FTA negotiations Upon entry into force of the FTA or Indonesia's accession by 2033 at the latest (whichever comes first), Indonesia will accept EU vehicles certified in accordance with Regulation 86 of the 1958 UNECE Agreement. This eliminates the need for duplicate testing and ensures that UNECE type approval certificates issued in the EU are recognised in Indonesia. Free trade agreements must include clear references to international standards such as ISO, IEC, and ITU to prevent future technical barriers to trade. A comprehensive annex for sensitive sectors, particularly the automotive industry, should promote regulatory alignment and remove trade barriers. Mutual recognition of testing institutes is also essential.
3. Public Procurement
The opportunities for German companies to participate in public procurement in Thailand, Malaysia, and the Philippines have improved significantly in recent years thanks to the introduction of more transparent award procedures and faster processing times Nevertheless, tedious bureaucratic procedures and extensive documentation requirements still exist in Southeast Asian countries, limiting participation in the public procurement market.
As a requisite of participation in tenders, foreign companies are required to establish a local company (Malaysia) or must partner with a local entity (Philippines). These requirements particularly impact SMEs and should therefore be abolished.
Example: Digital economy
In Malaysia, local providers of certain digital economy applications are given preference in public tenders. The Malaysian cloud service provider regime, for example, de facto favours certain digital service providers, initially with a focus on digital infrastructure. Many of these providers are also active in the Software-as-a-Service (SaaS) sector, so their preferential inclusion in government programs can give them significant advantages in public tenders This preference for certain cloud providers distorts competition for public contracts.
Example: Pharmaceuticals
Under the current national public procurement regulations in Thailand's pharmaceutical sector, stateowned pharmaceutical companies receive preferential treatment. These companies – in particular the Government Pharmaceutical Organization (GPO) – enjoy privileges that are not available to private domestic or foreign companies, including German pharmaceutical companies. Specifically, the current regulations require hospitals to purchase medicines exclusively from the GPO, provided that it manufactures the required products – even if the GPO's prices are higher than those of competing bidders. This practice distorts market mechanisms in the public health and pharmaceutical sector. In this context, Thailand should seriously consider acceding to the WTO Agreement on Government Procurement (GPA).
Participation in public tenders in Indonesia has been particularly difficult for German companies to date, as the local content requirements are more restrictive. The agreement with Indonesia now stipulates that public procurement must be transparent, fair, and non-discriminatory. Once it enters into force, it will ensure that companies are not disadvantaged based on foreign ownership. All EU companies based in Indonesia enjoy equal treatment (and vice versa for Indonesian companies in the EU).
In summary, there is an urgent need to make public procurement requirements in Thailand, Malaysia, and the Philippines more transparent and uniform to ensure fair competition and give European and German companies reciprocal, non-discriminatory access to public contracts in Southeast Asia. Specific demands are: binding transparency rules for the entire procurement process, clear deadlines in the selection and decision-making process, clear decision-making criteria, introduction of a national standard that is binding for all public tenders at all levels of government (central, regional, local), alignment with European contract design and case law (e.g., inclusion of liability exclusion clauses in tender documents), and the establishment of an independent review body to handle procedural and process complaints.
Just as in the EU specifically in Germany and in the other member states of the Government Procurement Agreement (GPA) an effective system of procurement review should also be introduced in Southeast Asia for major public contracts above certain thresholds. Within this framework of effective procurement review, exercised by independent administrative review bodies or courts, errors in public procurement procedures can be effectively challenged and examined. Affected companies can not only claim damages but, under certain circumstances, also obtain a correction of the flawed procurement procedure, such as the reinstatement of a bidder who was unlawfully excluded from the process.
Efforts should be made to create a level playing field for domestic and foreign companies. Legal and administrative barriers should be removed to enable fair competition in public procurement. If, in certain cases, exceptions to the important principle of equal treatment of all bidders are nevertheless permissible, clear and unambiguous rules must be established for this purpose.
4. Dispute Settlement, Protection Instruments, Investment Rules
Lengthy approval processes and high tax burdens on foreign investments are currently making it difficult for German companies to access markets in Malaysia, the Philippines, and Thailand FTAs with Southeast Asian countries have the potential to achieve far-reaching liberalisation of investment rules more quickly and effectively. The BDI is calling for FTAs with Southeast Asian countries to lead to liberalisation for foreign investors (most-favoured-nation and national treatment) and for the remaining approval processes to be simplified and to be made transparent. Core priority must be the free transfer of profits from foreign subsidiaries to the parent company In addition, Bumiputra quotas (participation of the indigenous Malay population) in Malaysia lead to complex investment conditions. Although the general foreign equity cap has been removed, participation limits and restrictions remain in place. Residence permits for key personnel necessary for the establishment and operation of the subsidiary should be facilitated on a reciprocal basis, mirroring the conditions EU member states offer to investors from Malaysia, the Philippines, and Thailand The BDI also calls for the Trade Defense Instruments against competition-distorting imports, i.e., anti-dumping or countervailing measures, to be applied in unchanged form to the negotiating countries.
EU FTAs should include effective dispute settlement mechanisms. Dispute settlement should be structured in a similar way to the WTO dispute settlement mechanisms (establishment of independent panels, clear procedural deadlines, authorisation to suspend concessions as a last resort). The dispute settlement procedure established between the EU and Chile or the EU's FTAs with South Korea or Indonesia, which provide for a rapid dispute settlement mechanism compared to the established WTO procedure, can serve as a guide. In addition, direct access to dispute settlement for companies should also be striven for.
5. Protection of Intellectual Property Rights
Intellectual property protection should be strengthened in Malaysia, the Philippines, and Thailand. It is desirable to speed up dispute proceedings, which will strengthen the effective protection of patents and create greater legal certainty. Robust patent protection for new and emerging technologies is also essential. Efficient and rapid granting of patents by national patent offices is important in this regard
To compensate for lengthy development times in the pharmaceutical sector and to promote investment in this area, a patent term extension comparable to that in Europe should be introduced. FTAs involving the EU must ensure the full implementation of WTO TRIPS (Trade-Related Aspects of Intellectual Property Rights) obligations, which provide a good basis for cooperation on intellectual property protection. Nevertheless, improvements are still needed in the implementation of TRIPS obligations in Malaysia, the Philippines, and Thailand. Such a system must comply with international standards. The working requirement in the Philippines, for example, with the possibility of compulsory licensing to third parties, is highly detrimental to patent holders and should be abolished.
ASEAN agriculture also needs resilient plant varieties to cope with climate risks, pests, and new market requirements. Strong IP protection is essential for this. Thailand, the Philippines, and Malaysia should therefore consider accession to the 1991 UPOV Convention to promote breeding innovations, especially considering new biotechnologies and genome editing. In this context, and to promote innovation and investment in research and development capacities, particularly in the pharmaceutical and agricultural sectors, the BDI recommends extending patent terms to compensate for bureaucratic delays, protecting regulatory data (RDP) for the exclusive use of confidential approval data, a patent linkage
system between patent offices and regulatory authorities to avoid disputes (establishment of a governance framework), and streamlining the regulatory system for greater transparency, speed, and technology transfer in patent registration, including opposition procedures and conditional flexibilities.
The chapter on intellectual property in the EU-Indonesia FTA sets out relevant international agreements (TRIPS) on intellectual property that the contracting parties must comply with. The agreement thus creates more obligations for Indonesia, which the country must now fulfil This is an important step forward for the protection of European brands' intellectual property This mechanism ensures legal remedies and provides effective tools to combat counterfeit products, supports small businesses, and ultimately benefits Indonesian consumers
6. Data Transfer & Data Regulation
Companies in the German digital economy repeatedly encounter obstacles to the free flow of data in Southeast Asia. It is particularly problematic when companies are forced to localise the storage and processing of data for non-transparent or unclear reasons. The current level of data localisation exceeds the existing physical data infrastructure. Increasing restrictions on cross-border data transfers also hamper research and development opportunities.
In the Philippines, several legislative and regulatory initiatives for the data localisation of foreign companies have been enacted in recent years. It is assumed that further measures for data localisation will follow, driven by political interests related to the data centre industry. Trade agreements should prevent such developments by clearly defining in which cases such a requirement would be proportionate and necessary for national security objectives. In Indonesia, ESO/ESP registration poses significant compliance hurdles for German companies. It requires the mandatory disclosure of company data or even customer data upon request by authorities – without clear and narrowly defined criteria as to when and in which legal proceedings such access would be justified. These broad provisions create considerable legal uncertainty and disproportionately interfere with corporate data sovereignty. In addition, planned legal requirements force public ESOs to use cloud computing services from the National Data Centre Although the use of third-party providers is theoretically possible if the capacities of the National Data Centre are insufficient, in practice this basically leads to an obligation to store data in the National Data Centre – and thus to de facto data localisation. These regulations not only hinder the free flow of data but also represent a massive interference in corporate IT strategies. Indonesia is also one of the few countries that openly opposes an extension of the WTO Moratorium on Customs Duties on Electronic Transmissions The EU and Indonesia have also negotiated on this issue and taken far-reaching steps. The EU-Indonesia FTA strengthens the rules for digital trade. It protects cross-border data traffic and prohibits tariffs on electronic transmissions, including software, messaging services, and digital media. For Indonesia, this ban is unprecedented.
Genuine freedom of choice for businesses and public authorities, as well as clear, proportionate criteria for official data access, are essential. FTAs should decisively counteract politically motivated data localisation measures by clearly and bindingly defining when such a requirement is proportionate and security relevant. The data protection laws of the respective countries should promote global interoperability and free data flow. Regulation of non-personal data should be implemented and, ideally, aligned with the European regulatory framework. In addition, the potential for increased cooperation to harmonise data regulation between the negotiating countries and the EU should be fully exploited.
The governments of Southeast Asian countries should strive for a coherent, comprehensive, and efficient framework for data protection and privacy that facilitates the lawful use of data without hindering innovation. They need to accelerate legislative changes to clarify the scope and liability for violations of software-related obligations such as licensing, hosting, and user data that span multiple jurisdictions. In addition, clear regulations are needed for the use of global and local data sets in training AI models.
7. Dealing with Non-Trade Related Matters
The German industry supports fundamental EU policy objectives, such as the promotion of democracy and human rights and compliance with internationally agreed environmental and social standards. For many decades, German companies have been taking responsibility for the environment, employees, customers, and society in Southeast Asia. German companies base their investments on the OECD's Guidelines for Multinational Enterprises, thereby promoting environmental and social standards To make further progress in reducing administrative burdens, reporting requirements for compliance with environmental and social standards should be waived and made voluntary. Sanctions, such as those for social standards, should be avoided, and the agreement should not be overburdened with issues that go beyond direct trade. Other political channels are available for such issues.
Ultimately, trade agreements are crucial to securing a robust, resilient economy and a diversified supply of raw materials for Europe and Germany. They promote rules-based trade, expand access to critical resources, and create better market and investment conditions. In view of an increasingly fragmented global economy, a pragmatic and realistic approach toward Southeast Asia is needed – one that balances political principles with economic agency
Successful EU-Indonesia FTA Negotiations as a Blueprint
Despite some of the challenges, after almost a decade of negotiations on a trade agreement, the EU and Indonesia suddenly agreed on a common position. On September 23, 2025, the European Union and Indonesia agreed on the Comprehensive Economic Partnership Agreement (IEU-CEPA) and an associated Investment Protection Agreement (IPA). This was preceded by an understanding at the highest political level in July 2025 between Indonesian President Prabowo and EU Commission President von der Leyen. Indonesia is the largest economy in Southeast Asia, the fourth most populous country in the world, and a driving force within ASEAN, accounting for 35 percent of the GDP of ASEAN countries. The trade agreement with the EU is considered "one of Indonesia's most significant trade agreements," according to Indonesian Trade Minister Airlangga Hartarto. Full implementation is expected by 2027, in line with the postponement of the EUDR to the same period. The BDI strongly welcomes the conclusion of the EU-Indonesia FTA At the same time, the BDI urges for a quick conclusion of the IEU-CEPA at the European level (Council and Parliament) once the intermediate steps (translation, legal review) have been completed.
Key Content
The agreement provides for the elimination of tariffs on most goods traded between the two partners. According to the European Commission, this will mean that 98.5 percent of EU exports to Indonesia will be duty-free in future. Around 80 percent of the reciprocal tariff reductions will come into effect as soon as the agreement becomes implemented. The remaining reductions will occur gradually over a
period of five years. For European exporters, this means annual savings of around €600 million in customs duties, which currently average around ten percent. The agreement also obliges Indonesia to erase certain local content requirements in sectors such as electric vehicles and renewable energies. This is because the current linking of tariff advantages to local content requirements poses a challenge for German industry, as it benefits local companies unilaterally.
For the EU and European companies, the agreement offers considerable advantages, particularly in the areas of agricultural and food products, chemicals, machinery, and the automotive industry Indonesia, in turn, benefits primarily from exports of palm oil, textiles, and shoes. The current import duty of up to 50 percent on passenger cars is to be completely abolished within five years for almost all car classes Only in a few individual cases will import duties on automotive product groups be phased out within 15 years. This means that the reduction in customs duties will happen more quickly than, for example, in the EU-Vietnam Free Trade Agreement, which came into force in 2020 The same applies to machinery and electrical equipment: the majority of exports will be duty-free (currently 15 percent) immediately after the agreement comes into force, with the remainder following suit after five years. Pharmaceutical products will be almost completely exempt from customs duties (currently 15 percent) within three years, and chemicals (currently 25 percent) within five years The agreement thus not only creates better market conditions but also gives a boost for planning for companies on both sides.
The agreement introduces a proposal for flexible rules of origin, which provide for a regional valueadded share of around 40 percent for most industrial products and allow for so-called cumulation rules. This means that materials from other ASEAN countries can be considered – a decisive advantage for complex, cross-border supply chains. The BDI generally calls for greater harmonisation of definitions of local content within ASEAN countries and uniform procedures for proofs of origin. This would help companies optimise their regional supply chains and integrate countries into higher-quality industrial networks.
In the area of investment, the FTA replaces Indonesia's previous bilateral agreements with the EU's Investment Court System (ICS), which also has an appellate body. This reduces legal uncertainty for long-term investments. In addition, EU companies will in future be allowed to acquire full foreign ownership in key sectors such as IT and telecommunications services. New investment opportunities are emerging in strategic sectors such as electric vehicles, electronics, and pharmaceuticals, promoting the integration of both sides' value chains.
The Trade and Sustainable Development (TSD) chapter commits both sides to complying with the Paris Climate Agreement and ILO labour standards (binding). The EU will provide technical assistance and funding to support Indonesia in establishing traceability systems for raw materials such as palm oil. This effectively transforms a major point of conflict into a cooperation mechanism.
Economic and Strategic Significance
According to the Indonesian central bank, Indonesia exported goods and services worth just under €15.01 billion to the EU in 2024 and imported €10.98 billion, resulting in a trade surplus with the EU. Indonesia's main exports are palm oil, textiles, shoes, and fishery products, while the EU mainly supplies chemicals, machinery, cars, and high-value goods. The agreement now also secures the EU access to critical raw materials such as nickel, copper, and bauxite. This creates a trading area of over 700 million consumers, positioning Indonesia as a key partner for the EU's Indo-Pacific strategy.
The EU has thus succeeded in concluding a trade agreement with Indonesia that focuses on essential areas such as market access, the almost complete elimination of tariffs within the next five years, investment protection, and fair competition conditions. Controversial issues, particularly those relating to palm oil, biodiesel, and EU deforestation regulations, have been resolved or at least skillfully navigated. The BDI welcomes the results of the FTA and suggests that further negotiations with Malaysia, Thailand, and the Philippines should be based on the agreement between the EU and Indonesia.
Imprint
Federation of German Industries (BDI)
Breite Straße 29, 10178 Berlin, Germany
www.bdi.eu
T: +49 30 2028-0
German Lobby Register Number: R000534
EU Transparency Register: 1771817758-48
Editors
Friedolin Strack
Co-Director International Affairs
T: +49 302028 1423
F.Strack@bdi.eu
Matthias Krämer
Co-Director International Affairs
T: +49302028 1562
M.Kraemer@bdi.eu
Patricia Schetelig
Senior Representative International Affairs
T: +32 27 921008
p.schetelig@bdi.eu
Moritz Fink
Expert International Affairs
T: +49 302028 1609
m.fink@apa.bdi.eu
BDI document number: D 2256