The European Union and Indonesia have signed a free trade agreement that will remove 98% of all duties in both directions immediately after it’s been implemented, which is expected to be next year. In the quality shoe world there’s a big potential for more of the fine handmade boots and shoes that are made in Indonesia will be sold by European retailers.
I have to admit that when the EU-Japan free trade agreement went into place in 2019, and all customs immediately were removed on shoes from Japan to Europe (and taken down step by step during three years in the other direction), I thought we’d see much more Japanese footwear in the EU. That hasn’t really happened, even if we have some new brands available, there hasn’t been a big change. From people I talk to, many believe it’s due to the relatively similar base costs for the footwear, and when the rather high European VAT is added the price of the Japanese shoes they end up similar in price to European ones when it comes to quality-price ratio. So not that many more retailers have gone for Japanese shoes.
For Indonesian shoes, I think things can be different with the new deal. But first, some background. For nine years EU and Indonesia have been in discussions about a free trade deal. And after the U.S. has taking steps in the other direction, talks have intensified, and now a free trade agreement has been signed. It will now go through a process to be approved by all 27 EU countries (easier for Indonesia), but hopefully some time next year it will be formally in place.
From then 98% of all the goods will have no customs between the countries (with some exceptions like European cars etc where things will be stepped down over five years). The bilateral trade, worth $30.1 billion for goods in 2024, is expected to double in the first five years.
The reason that Indonesian footwear has a good potential of growing sales in the EU is that the living costs in Indonesia, and in turn salaries, is much lower, resulting in much lower priced shoes. Already today Indonesian shoes are really affordable, a reason that European giants like Ecco has both factories and tanneries in Indonesia. But as Shoegazing readers would know, Indonesia also has a bunch of great brands making handmade workwear boots and a lot of other fully handmade shoes (read more in this article). And with customs removed, even with high VAT added, price of these will be very competitive in the EU. Good potential for sure, looking at it from a customer perspective.
The other way around will likely also mean that especially the stronger footwear brands will see increased sales in Indonesia, and to add to that, for European tanneries and producers of footwear materials it can be really positive, given that Indonesia is a big shoe and also leather goods producer. As I’ve said before, I believe in free trade, so these steps are all positive.
Hi Jasper, when do you think this would take effect?
Patrick: I have no idea, I’ve just read that it’s expected to be in place next year, so that’s all I know.