By Sidan Raeskyesa

In October 2025, I had the opportunity to discuss the trade agreement between the EU and Indonesia in an interview with Deutsche Welle Indonesia. The conclusion of the Indonesia–EU Comprehensive Economic Partnership Agreement (IEU-CEPA) is a welcome, strong signal for Indonesia’s economic ambitions. This deal could open the door to much-needed foreign direct investment (FDI), especially in sectors such as electric vehicles, manufacturing, and downstream processing—areas where Indonesia seeks to add value beyond commodity exports.

However, trade liberalization alone may not be enough. Without matching domestic policies, such as investing in workforce skills, upgrading regulatory standards, and supporting small and medium enterprises, IEU-CEPA might exacerbate inequality rather than reduce it. Sectors with weak competitive capacity risk being left behind, and the benefits could accrue disproportionately to large firms or urban centers.

For the agreement to translate into broader welfare gains, Indonesia must attract “productive FDI,” which creates decent jobs and builds long-term productive capacity, rather than just focusing on export-oriented or resource-based projects.

Ultimately, IEU-CEPA is a “double-edged sword.” It offers a promising path to accelerate Indonesia’s structural transformation and economic modernization, but only if it is complemented by policies that ensure equitable distribution of gains, skill upgrading, and inclusive economic participation across regions and societal groups.

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