The conclusion of the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA) represents a significant political achievement. After more than 10 years of negotiation, the 27-member European Union and Southeast Asia's largest economy have cemented their economic ties.
The stakes are high: global trade is fragmenting and the predictable patterns of the past three decades are changing. Trade between economies that value predictable rules and cooperation has become vital for both our regions. The agreement therefore comes at exactly the right time. Both Indonesia and the EU are sizeable economies; they do not have the weight of the US and China, but together they represent a heft and geographical breadth that is significant.
Palm oil was one of the most contentious issues, causing long delays and difficult negotiations. Now that a deal has been reached, it's worth examining what the agreement does – and doesn't do – for the palm oil industry.
For Indonesia's palm oil sector, the agreement creates tangible near-term opportunities – but only if implementation is executed with discipline and sustained engagement.
The market access provisions offer clear opportunities for Indonesian palm oil exports, particularly refined products. Upon entry into force, 1.9 million tonnes of crude and refined palm oil will enter the EU tariff-free, rising to 2.479 million tonnes from the ninth year. For palm-kernel oil, the tariff-free volume stands at 140,000 tonnes, expanding to 182,668 tonnes from year nine. Beyond these quotas, tariffs will likely be around three percent.
Against the EU's most-favoured-nation schedule, this translates into substantial preference margins: between 9 and 12.8 percent for some refined palm fractions and 6.4 to 12.8% for palm-kernel oil within quota limits. There are meaningful advantages outside those limits too. In short, the agreement improves the landed-cost position of Indonesian palm oil in the EU market, especially for refined products.
These quotas carry real economic weight. Based on recent EU import levels, the palm oil quota covers more than one-third of current market volumes, while the palm-kernel oil quota approaches one-fifth. With these quotas in place, that share can grow. The largest gains are expected in refined and fractionated products, where existing tariffs are highest.
But it isn't a free-for-all. Rules of origin determine whether a product qualifies under the free trade agreement. For example, crude palm oil cannot be imported into Indonesia, refined, and then exported under the agreement. The benefits of lower tariffs will go to products derived from Indonesian fruit and kernels. This rewards growers and processors who invest in segregated supply chains with clear origins. It also incentivises exports of more refined products to the EU, encouraging greater investment in Indonesian processing capacity.
On sustainability, the Palm Oil Annex acknowledges the Indonesian Sustainable Palm Oil (ISPO) certification system and encourages cooperation on palm sustainability. While these commitments are not hard obligations, they provide an official platform to demonstrate ISPO's strengthening to European stakeholders and to build technical cooperation.
It's important to note that the annex references the EU Deforestation Regulation but does not directly address it beyond cooperation measures. Compliance with the repeatedly delayed EUDR remains a separate obligation for any exporter targeting the EU market.
The Trade and Sustainable Development (TSD) chapter is binding under this agreement – and this is novel. Under most agreements, including the EU's, disputes over sustainability cannot be escalated to the same level as disputes over tariffs. Under this agreement they can. This raises the stakes considerably for international obligations, particularly on labour. European NGOs will be watching closely.
The institutional provisions – an annual Trade Committee, a TSD Committee, and Domestic Advisory Groups – are not mere formalities. Indonesian industry stakeholders must maintain an active presence. They should establish a standing channel to the TSD Committee and secure representation in the Domestic Advisory Group to ensure that practical experience on sustainability directly informs decision-making from the outset.
It's worth remembering that governments don't trade – businesses do. Translating the agreement into increased market share and domestic value-addition requires an active implementation agenda. Those wanting to exploit lower tariffs will need to ensure segregated supply chains. The annex's acknowledgement of ISPO can be leveraged to align with EUDR due diligence obligations and buyer specifications. Memoranda of understanding with EU industry bodies will facilitate data exchange and industry cooperation.
One hurdle remains: ratification. Views within Indonesian industry are not uniform. Some sectors would prefer that ongoing WTO disputes be resolved and that certain EU measures, including aspects of the Renewable Energy Directive, be brought into conformity with international obligations before the agreement is signed. These concerns are legitimate.
But the agreement's balanced package – market access, institutionalised cooperation and a binding sustainability chapter – offers a concrete, near-term pathway to protect and expand Indonesia's legitimate trade interests. The opportunity is real, but it demands active engagement, not just an expectation it will 'just happen'.
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Fadhil Hasan, International Affairs Director at GAPKI (Indonesian Palm Oil Association)
Fadhil Hasan, International Affairs Director at GAPKI (Indonesian Palm Oil Association)