Introduction
President Prabowo Subianto’s limited meeting on 27 June 2025 outlined the push for deregulation to create a healthy domestic business climate.
This effort was in preparation for the planned Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) meetings in mid-2025, which will focus on eliminating bureaucratic processes and licensing barriers.
After successfully negotiating and ratifying the Regional Comprehensive Economic Partnership (RCEP), Indonesia is now eyeing to secure membership in other regional blocs, such as CPTPP.
Preparations for CPTPP accession began before Prabowo became president. Former president Joko “Jokowi” Widodo undertook various pragmatic and growth-oriented initiatives to realise its economic goals. These initiatives range from downstreaming policies and streamlining labour regulations to enhancing economic gains from international trade and investments.
The latter has notably become one of Jokowi’s top foreign policy goals during his administration, pursuing policies such as bilateral economic diplomacy and participation in regional free trade blocs. These steps were mainly driven by the Ministries of Foreign Affairs and Trade.
The upcoming accession talks to CPTPP require comprehensive participation from various aspects of the government, including the Ministries of State-Owned Enterprises, Labour and Environment. A “whole-of-government” approach is necessary in preparation for such an objective, as accession to CPTPP could offer a strategic opening to stave off the effects of the United States’ increased tariffs.
Indonesia’s Plan to Join CPTPP
After the United States’ withdrawal from the Trans-Pacific Partnership (TPP), members of the bloc preserved the bulk of the original 2017 deal but still suspended 22 provisions relating to intellectual property, environmental standards and investment, among others, thereby lowering the bar for entry.
Indonesia saw an opportunity from this development, after previously rejecting participation in the original TPP talks. Statements from Coordinating Economic Minister Airlangga Hartarto and Trade Minister Budi Santoso confirmed this: Indonesia’s planned accession to CPTPP is motivated by market access and economic growth potential.
The announcement for Indonesia’s accession was made in May 2024, while the application letter was sent afterwards in September 2024. Airlangga further said that a meeting to discuss Indonesia’s bid to join the CPTPP is scheduled for mid-2025. To back up its bid, Indonesia has already garnered support from key members like Australia, Malaysia, Singapore and the pact’s newest member, the United Kingdom.
A primary draw is market access, as Indonesia currently lacks trade agreements with several CPTPP members, including Canada, Mexico, the United Kingdom and Peru. For Jakarta, joining the bloc could increase exports by 19%. For the bloc, Indonesia’s inclusion would be significant; as the fifth-largest economy, Indonesia would swell the group’s total market size by about 50%.
Major Problems
To prepare for the talks, there are major roadblocks that need to be addressed based on the guiding CPTPP Auckland principles. These principles underline the need for preparedness and compliance with the “gold standard” of the agreement.
One of the major prerequisites that Indonesia needs to adhere to is regarding the state-owned enterprises (SOEs), which poses a critical challenge to the country. Chapter 17 of CPTPP explicitly states that the discrimination of enterprises of another party – or non-party – within the free trade area is not tolerable.
With many of Indonesia’s SOEs still relying on the government’s support for their operations, as well as the absence of a regulatory firewall that excludes policymakers from leadership positions in SOEs, the need to reform the SOE regulation in Indonesia is crucial to facilitate Indonesia’s accession to CPTPP.
For instance, the recently revised Law on SOE grants the president the authority to permit monopoly rights upon SOEs that were deemed “crucial” to national interests—an approach that directly contradicts CPTPP principles.
Compared to Southeast Asian countries that are already members of CPTPP, Indonesia has yet to match the same level of institutional reform necessary to ensure commercial neutrality and transparency standards on the sensitive issue of SOEs.
Vietnam, for example, has undertaken its doi moi reform since the 2000s, which aims to create a business-friendly climate for foreign capital. For SOEs, the goal is achieved by shifting the government’s role from overseeing state-invested enterprises as a whole to managing only its capital contributions. SOEs are expected to operate under market mechanisms and compete fairly with private firms.
Apart from SOEs, Indonesia also needs to revisit its government procurement policy.
The Presidential Regulation No 12/2021 mandates a minimum local content requirements (LCR) as a condition within the procurement process. Though it has provided incentives to foster domestic production, this specific regulation is at odds with the CPTPP standard to eliminate discrimination in procuring government goods, as prescribed in Article 15.4 of the agreement.
Howev
Malaysia’s experience could provide a practical blueprint for Indonesia’s CPTPP negotiation, as Malaysia was successfully granted government procurement flexibility for a 12-year transition period (see Malaysia’s Annex 15-A exemption for Bumiputera set-asides). While a transitional exception can buy time, it cannot substitute for long-term competitiveness in preferential markets.
Outlook and Conclusion
The cost of non-reform is not abstract—as a 2021 ISEAS study warns, if Indonesia delays its membership, existing CPTPP members may shift their trade toward other member countries, leaving Indonesia behind. This scenario will reduce Indonesia’s competitive advantage in strategic commodities such as nickel and tin, as well as processed goods, including musical instruments, although it has no direct competitor from other Southeast Asian countries in these sectors.
Non-membership will also place Indonesia in an inferior position in all of its most important export destination countries (Japan, Singapore, Malaysia and Australia). It will also arguably exacerbate the “spaghetti bowl” effect, worsening trade regulations, which force Indonesia to pursue more fragmented bilateral FTAs.
A report further highlighted the raised stakes of this accession process, providing concrete data that the accession will boost middle-class job creation, especially in textiles and light manufacturing sectors.
On 15 July 2025, Indonesia agreed to a 19% tariff rate with the United States after long rounds of negotiations. Prabowo is reportedly still unsatisfied with the rate and plans to continue negotiations to further lower tariffs between both countries. As part of the agreement, there will also be large-scale imports of various US goods, adding stress to Indonesia’s external finances.
There is, however, a widespread concern that the agreement wo
