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Indonesia's Economic Affairs Minister, Airlangga Hartarto, said on Monday that Europe will allow Indonesia to export palm oil to its markets at a zero percent tariff rate, as part of last-minute negotiations on the Comprehensive Economic Partnership Agreement (CEPA).
The European Union and Indonesia recently reached a political agreement to advance negotiations on the CEPA deal. Palm oil trade had been a point of tension between the two sides, particularly after Indonesia's exports of this key commodity ran into regulatory obstacles when the EU decided to restrict palm oil imports by requiring traders to prove their products do not originate from deforested land. This regulation, known as the EUDR, is due to take effect for medium and large companies at the end of this year.
Jakarta revealed that the EU had agreed to cut tariffs on Indonesian palm oil to 0% under the forthcoming agreement.
Speaking at the Investor Daily Roundtable forum in Jakarta, Airlangga said:
"The latest rounds of CEPA negotiations focused on palm oil. Initially, the EU refused to include palm oil in the agreement at all, which is why they drew up the EUDR regulation. But it turned out they genuinely need Indonesian palm oil."
He added:
"So, they agreed that the tariff on Indonesian palm oil would be zero percent."
The minister noted that both sides had agreed to apply a tariff quota system to palm oil trade, under which a set volume of exports to the EU would benefit from full tariff exemption, while a 3% duty would be imposed on any quantities exceeding that threshold.
He explained:
"The EU asked us to apply this system to crude palm oil and palm kernel oil... and of course, a 3% tariff is far lower than the 19% the United States will impose on us."
Airlangga said the EU would speed up ratification of the anticipated agreement, adding that Jakarta hopes it will come into force next year. The CEPA agreement will allow around 80% of Indonesia's exports to the EU to benefit from full tariff exemption. Goods trade between the two sides was valued at approximately €27.3 billion (about $31.9 billion) in 2024, of which €17.5 billion represented European imports from Indonesia.
The EUDR regulation requires the submission of geographic coordinates for palm oil growing areas, a requirement Indonesia has argued places an undue burden on smallholder farmers. The Indonesian government has called on the EU to recognise the Indonesian Sustainable Palm Oil (ISPO) certification, which is mandatory for producers and manufacturers in the sector, including those involved in industrial processing and biofuel production.
Airlangga hinted that the EU had agreed to recognise the ISPO certification, saying his country had "already resolved the geographic coordinates issue."
These developments in the Indonesia-EU CEPA agreement come as welcome news amid the escalating trade war led by US President Donald Trump. European Commission President Ursula von der Leyen had acknowledged that the EU is seeking to diversify its markets in response to new US trade policies.
Speaking a few weeks ago while hosting Indonesian President Prabowo Subianto in Brussels, von der Leyen said:
"This major and important political agreement on the free trade deal with Indonesia is a huge step forward. It shows that we are pursuing new and open markets."