The global trade environment is experiencing structural changes fuelled by geopolitical competition, technological advances, along with evolving trade norms. Emerging economies such as Indonesia are adapting their external economic strategies to ensure that they have increased access to markets such as the European Union (EU), which continue to serve as one of the largest trading blocs in the world. Although the EU has huge economic potentials, it equally subjects countries, which aim at developing rapidly with resource base to regulation challenges.

Indonesia ranks the EU as its fifth-largest trading partner and also its  third-largest source of foreign direct investment. Nevertheless, the relationship is not friction free. Indonesia’s export structure that is commodity-dependent, especially those concerning palm oil and nickel has also caused several conflicts between the EU and Indonesia regarding sustainability standards and resource management.

In an attempt to overcome such obstacles, Indonesia is developing a growing interest in bilateral diplomacy with European Union member states that might prove more receptive to its developmental ambitions. Hungary appears to be a very important partner. Since adopting its Eastern Opening Policy (Keleti Nyitás) in 2010, Hungary has sought to enhance interaction with Asian economies, among them the Indonesian economy. With little domestic political hostilities to Indonesian exports and a practical attitude towards trade policy, Hungary could be an efficient interlocutor in Indonesia economic diplomacy.

Historical Background and Trade Development

Indonesia and Hungary established formal diplomatic relations in 1955, at a time when global alliances were defined by the Cold War rivalries as well as the emergence of the Non-Aligned Movement. The relationship started with a focus on cultural diplomacy but later grew into education, politics and trade. Hungary awarded Indonesians academic scholarships and also promoted cultural and arts exchange.

Hungary’s accession to the EU in 2004 was the decisive point. High-level visits as well as economic forums revitalized bilateral ties. The establishment of the Indonesia–Hungary Joint Commission on Bilateral Economic Cooperation marked a great transformation toward more pragmatic engagement.

The Indonesian Ministry of Trade states that the volume of bilateral trade rose by 13.35% in 2020 when compared to the previous year   despite pandemic-related disruptions. Indonesia mainly exports palm oil, footwear, rubber, and furniture to Hungary, whereas Hungary supplies it with pharmaceuticals, precision instruments, and electrical machinery. This trade is of a modest volume nevertheless, but it represents sectoral complementarities between the two nations.

Hungary’s strategic location in the Central and Eastern European (CEE) region, especially in the Visegrád Group (V4) adds value to Indonesia. The influence of the V4 in the decision-making process of the EU is increasing, particularly in high-tech and production industries. Hungary can therefore be a gateway to Indonesian firms wanting entry into regional supply chains in Poland, the Czech Republic and Slovakia.

Cultural and educational engagement has also played a very important role as well. Through the Stipendium Hungaricum scholarship program, students from Indonesia can access fully funded educational opportunities in Hungary, helping to build a new generation of bilateral ambassadors. Cultural initiatives that include batik, culinary festivals, interfaith dialogues, and others also helped to enhance soft power ties and mutual understanding among the two nations.

Trade Tensions and Strategic Openings: Indonesia-EU Disputes and Hungary’s Role

Indonesia’s relationship with the broader EU is increasingly defined by trade tensions that are based on differences in environmental and industrial policies, and two disputes stand out:

The first one is palm oil. The EU Renewable Energy Directive II (RED II), considers palm-oil based biofuels to be environmentally unsustainable as a result of indirect land-use change (ILUC) risks. It requires a phase out by 2030. As the World's largest producer of palm oil, Indonesia considers this policy as a discriminatory green protectionism. In response, Indonesia filed a complaint in the World Trade Organization (WTO) in 2019 (WT/DS593).

The second issue concerns nickel. In 2020, Indonesia put a ban on raw nickel exports to encourage local value-added processing of its electric vehicle (EV) batteries industry. This was challenged by the EU at the WTO and their decision was against Indonesia in 2022 (WT/DS592). The case is still unresolved due to the WTO Appellate Body’s paralysis.

These disputes highlight the structural tensions that exist between the EU’s normative approach to trade and Indonesia’s development-driven industrial policy. Rather than confronting the EU as a bloc, Indonesia has turned to a more subtle tactic of seeking out individual member states like Hungary that are more flexible in policy interpretation and less bound to issues of regulatory orthodoxy.

Hungary is highly situated to act in this regard. It does not have any remarkable interest in competing commodities such as palm oil or nickel and is inclined to adopt a pragmatic view of trade relations. Under Prime Minister Viktor Orbán, Hungary has actively pursued sovereignty in the EU policymaking process and often disagreed with Brussels on regulatory issues including those on environmental benchmarks.

Hungary’s openness can be traced to its Eastern Opening Policy which explicitly aims to diversify Hungary's external partnerships beyond Western Europe. This is in line with the maritime connectivity agenda of Indonesia and ASEAN-centric approach to diplomacy. Hungary’s positioning within EU institutions, especially the Council of the EU, where national governments shape collective trade decisions, also offers Indonesia a  very valuable point of influence.

By enhancing its relationship with Hungary, Indonesia can not only open bilateral trade and investment hopes, but also have an ally in EU trade talks. Hungary’s relatively neutral position on palm oil and nickel makes it a very good potential intermediary in contentious policy areas. It can play a key role in guiding Indonesia through the internal EU issues, coalition formation, and efforts to promote more balanced regulatory outcomes.

Hungary’s Strategic Position in the EU and Global Trade

The geographic position of Hungary in Central and Eastern Europe and its evolving foreign policy has increased its stature in the EU-Asia relations. Following the financial crisis of 2008 and European stability in the eurozone, in 2010 Hungary started the Eastern Opening Policy (Keleti Nyitás) to diversify its economic relationships with Asia. Since that time, Hungary has enhanced cooperation with China, South Korea, Japan, Vietnam and Indonesia in trade, culture and institutional partnerships.

Hungary is the first EU member to join the Chinese Belt and Road Initiative and has attracted a lot of significant Asian investment, especially in green technology and digital sectors. The East-facing approach is in line with Indonesia’s effort to build pragmatic, development-oriented partnerships within the EU.

In addition, Hungary frequently promotes itself as a “policy entrepreneur” in the EU, opposing the mainstream regulatory trends on issues like environmental policy and trade. The scepticism it has shown to elements of the EU Green Deal, shows a similar trajectory to those expressed by Indonesia over sustainability-related trade restrictions like This shared preference for economic pragmatism over normative policy allows Hungary to act both as a bilateral ally as well as a very important and diplomatic mediator to assist Indonesia in brokering its way through EU trade politics. As the EU–ASEAN relationship grows, Hungary offers Indonesia a great platform to promote more balanced and inclusive trade arrangements within the EU.

Case Studies of Specific Commodities and Investment Case

1. Palm Oil and Sunflower Oil Exchange: Toward a Complementary Agricultural Partnership

Palm oil is an important Indonesian commodity facing EU-based crackdowns due to the RED II directive listing it as a high risk commodity. Hungary produces sunflower oil, but takes a more pragmatic approach when it comes to the issue, importing palm oil for industrial use and remaining open to sustainable cooperation as well.

A mutual certification structure might be established to harmonise the openness of Hungary with the ISPO standards of Indonesia. Possible cooperation in this regard includes:

• Joint sustainability certification aligned with EU guidelines.
• Investment in traceability and processing technology.
• Research on agroecology and re-export schemes via Hungary to less restrictive CEE markets.

This model would mitigate EU-wide trade barriers while supporting both countries' agricultural sectors.

2. Nickel Pig Iron and Green Technology Synergies: Strengthening Resource-Industry Integration

The ban on Indonesian nickel exports promotes its production of EV batteries domestically- this acts in accordance with the Green Deal promoted by the EU. Hungary, an emerging EV manufacturing hub on the other hand offers complementary potential. Cooperation could include:

• Long-term supply of processed, ESG-compliant nickel.
• Joint ventures in green smelting.
• Circular economy projects and policy alignment on sustainability.

This collaboration will boost industrial upgrading and assist Indonesia in securing access to EU high value markets.

3. Multi Lane Free Flow (MLFF) Project: Infrastructure Innovation as a Pillar of Bilateral Investment

The Multi Lane Free Flow (MLFF) toll system, developed by Hungary’s Roatex Ltd., in Indonesia, demonstrates the rationale of bilateral infrastructure cooperation in assisting modernization objectives of Indonesia. The project incorporates GPS based cashless tolling, and it is supported by a  $300-million investment.

Challenges such as regulatory alignment and public outreach still exist, but the project demonstrates what Hungary can contribute to digital transformation as well as smart mobility, setting a very good precedent for further cooperation in the fields of digital governance and infrastructure.

4. Enhancing Socio Cultural and People to People Contact Impact of Indonesia-Hungary Relations

Indonesian-Hungarian socio-cultural relations have expanded especially through the Stipendium Hungaricum scholarship program, where Indonesia holds the largest quota in Southeast Asia.  To maximize impact:

• Co-funding with LPDP can also expand areas of research that are relevant to the labor market in Indonesia.
• A skills-needs database would make scholarships compatible with the national development agenda..

Programs such as Indonesian International Student Mobility Awards, (IISMA) and Darmasiswa facilitate cultural exchange and it is common to find alumni acting as informal cultural ambassadors. There are a lot of untapped potentials in vocational internships, especially for Indonesian polytechnic students in Hungarian industries such as manufacturing, IT, and hospitality.

Public-private partnerships would be able to expand internship opportunities and improve bilateral industrial cooperation.

Therefore expanding educational exchange, scholarships, as well as vocational opportunities will build a resilient people-to-people foundation that strengthens long-term bilateral ties.

Similarities and Mutual Interest

Although Indonesia and Hungary are diverse in terms of their size and geography, they have three main strategic characteristics that provide a solid foundation of collaboration.

• Multipolar Diplomacy:  Both countries pursue balanced foreign policies. Indonesia maintains its non-aligned policy equidistantly  balancing with the West, China, and Russia, whereas Hungary though an EU and NATO member pursues an independent foreign policy via its Eastern Opening. This mutual strategic independence underpins innovative diplomacy as well as joint advocacy in multilateral settings such as the G20, UN and the European Union-ASEAN arenas.
• Industrial Modernization:  Indonesia and Hungary are significantly transforming their economies through a lot of strategic investments in digitalization, green energy, and advanced manufacturing. Indonesia’s Making Indonesia 4.0 complements Hungary’s role as a regional hub for automotive and electronics. This opens opportunities for:

• R&D and joint ventures in EV and battery tech.
• Renewable energy (solar, geothermal, hydrogen).
• Smart manufacturing and AI integration.
• Vocational and technical education partnerships.

The availability of EU innovation funds in Hungary and the youthful and tech-savvy labor market of Indonesia has the potential to generate quite significant public-private cooperation.

• Shared Development Challenges: Both nations face pressures from sustainability transitions. Hungary must conform to EU Green Deal objectives and Indonesia has to confront sustainability-related trade barriers. This common ground offers opportunities that includes:

• Joint ESG frameworks.
• Training on sustainable certifications
• Climate-resilient infrastructure projects
• Collaboration in clean technology transfer

These shared goals and challenges provide a strong basis for Indonesia and Hungary to act as forward looking middle powers that work together to  establish novel ways of cooperation that are founded in the principles of sovereignty, sustainability, and inclusive prosperity.

Policy Recommendations for Enhanced Cooperation

To unlock the potential of Hungary-Indonesia relations, the following policy actions are recommended:

1. Establish a Joint Trade and Investment Council

Indonesia and Hungary should establish a high-level council composed of government officials, chambers of commerce and other stakeholders in the private sector.

• Functions:

• Organize frequent consultations to detect and eliminate trade and investment bottlenecks.
• Standardise customs, licensing and regulatory standards.
• Align Hungary's EU policy representation with Indonesia's trade interests.

• Strategic Rationale:
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  • Eliminate bottleneck issues such as delays in granting licenses, investment constraints, and also regulatory mismatches.
  • Build institutional trust that will stand political changes in both countries.

2. Enhance Sector-Specific Collaboration

The two countries must initiate pilot activities that are in line with the EU green transition and the development agenda of Indonesia..

• Key Sectors:

• Sustainable agriculture (climate-resilient crops, agro-tech).
• Renewable energy (solar, geothermal, green hydrogen).
• Digital economy (joint innovation hubs between Indonesian startups and Hungarian universities).

• Instruments:

• Public–private partnerships (PPP), joint R&D funding, and university-industry consortia.

• Impact:

• Encourages innovation, job creation, and the growth of value-added trade.

3. Leverage EU Structural Funds and Programs

Hungary can act as the gateway to EU funding programs in Indonesia, especially areas such as digital and green areas..

• Key Instruments:

• Horizon Europe: For collaborative R&D and technology exchange.
• Global Gateway: for infrastructure and connectivity initiatives.

• Diplomatic Strategy:

Hungary can advocate for the inclusion of Indonesian commodities (e.g. palm oil and nickel) in the EU’s sustainable value chains, ensuring that they conform to EU's stringent environmental and labor standards.

• Benefits:

• Reduces risk exposure for Indonesia exports, and also increases access to the EU innovation ecosystems.

4. Advance CEPA Negotiations with Hungarian Support

Hungary could become a constructive broker during the Indonesia–EU Comprehensive Economic Partnership Agreement (CEPA) negotiations.

• Action Points:
  • Encourage a developmental-sensitive CEPA that takes into account the economic framework and priorities of Indonesia.
  • Support mutual recognition of standards as a method to minimise non-tariff barriers.

• Strategic Role:

As a less protectionist EU member, Hungary can mediate between more conservative EU states and Indonesia to ensure an agreement that is based on equity and also reciprocity.

5. Promote Cultural and Educational Exchange

People-to-people diplomacy is a long-term investment in bilateral trust.

• Policy Suggestions:

• Increase the number of scholarship schemes LPDP – Stipendium Hungaricum collaborations.
• Enhance academic relations in such fields as environmental governance, trade and international relations.
• Support mutual cultural projects through exhibitions, youth discussions as well as language courses.

• Strategic Outcome:

• Fosters strong cross-cultural leadership, and promotes societal support for a long term partnership.

Conclusion

Hungary offers Indonesia as a strategic but underestimated gateway to further involvement with the EU. Its very pragmatic, growth-oriented foreign policy, coupled with openness toward Asia, positions Hungary as a great ideal partner for Indonesia in finding ways through the EU’s complex trade landscape and accessing Central and Eastern European supply chains.

In an era of increasing protectionism, disruptive digitalization, as well as evolving alliances, middle powers such as Indonesia and Hungary should form new alliances that are strongly based on shared interests, from fair trade to sustainable development. Their cooperation can provide a very good example on how two regionally influential states can collaborate to shape a more inclusive globalization framework..

To move beyond just symbolic engagement, the two countries should invest in effective mechanisms towards mutual development that could overcome trade barriers, create jointly sustainable technologies, increase exchange of academic and professional resources, and also align regulatory standards. Durable institutional linkages such as trade councils and innovation hubs will help in making this ideal partnership future-proof.

In addition to the bilateral outcomes, a positive Indonesia-Hungary hub would contribute to enhancing EU-ASEAN links, especially in the areas of vital importance such as infrastructure, green energy, and electronic governance. Aligning Hungary’s EU influence and also Indonesia’s developmental vision can help in ensuring a much more balanced and representative regional structure.

In conclusion, the shared commitment of Hungary and Indonesia to economic pragmatism, sustainability, as well as multilateralism creates a very good fertile ground for deeper, innovative cooperation. As strategic partners, the close ties between Indonesia and Hungary will help to strengthen not only the relationship between the two of them, but will also help to contribute to building a more equitable and collaborative global economic order.

Note: The cover image accompanying this article was generated using artificial intelligence and is intended for illustrative purposes only