Navigating challenges and opportunities in EU-Indonesia trade relations: towards a future Free Trade Agreement

The study of Free Trade Agreement (FTA) continues to gain prominence as a means of understanding how international trade influences social welfare. Amid a rapidly shifting geopolitical landscape, Indonesia and the Europe Union (EU) have engaged in intensive discussion to establish a free tariff trade. Given Indonesia’s status as a developing country, it faces distinct challenges and opportunities in negotiating with the EU, one of the world’s foremost economic blocs. This research examines the socioeconomic impact of Indonesia’ export to the EU, with a particular focus on identifying pathways for Indonesia to maximise its gain from this cross-continental trade agreement. This study specifically investigates the socioeconomic impacts of Indonesia’s key export commodities from major provinces to the EU, examining indicators such as poverty, unemployment, the Gini ratio, and Gross Domestic Product (GDP) in consumption to identify sectors for prioritisation in FTA negotiations. This study uses a mixed-method approach that combines quantitative vector autoregression (VAR) analysis from 2002 to 2022 for selected Harmonised System (HS) codes and Impulse Response Function (IRF) to assess export shock impacts on socioeconomic condition. For qualitative method, it includes policy analysis, semi-structured interviews, and document review. Findings indicate that trade benefits remain concentrated in Java, highlighting disparities with limited advantages from EU-Indonesia trade relations. Furthermore, this study addresses key FTA negotiation issues, noting the EU’s focus on liberalisation versus Indonesia’s emphasis on protecting domestic industries. These differences emerge in areas such as Trade in Goods, Services, and Sustainable Development (TSD), posing challenges for Indonesian SMEs in meeting international standards.