Jakarta. Chief Economic Affairs Minister Airlangga Hartarto said Monday that Europe would let Indonesia sell its palm oil at 0 percent tariff as part of a last-minute trade deal negotiation.

The European Union (EU) and Indonesia recently struck a political agreement to advance the Comprehensive Economic Partnership Agreement (CEPA). Palm oil trade has caused a setback in their relations, especially after Indonesia’s top export commodity faced regulatory obstacles. The EU has decided to restrict palm oil imports by requiring traders to prove their products do not come from deforested land. This law, dubbed as the EUDR, will come into effect starting by the end of this year for large and medium companies. Jakarta revealed that the EU had agreed to bring its levies on Indonesian palm oil down to 0 percent under the yet-to-be-signed CEPA.

“The last rounds of CEPA negotiations focused on palm oil. The EU initially refused to include palm oil at all in the agreement. That’s why they came up with the EUDR, but it turns out they really do need our palm oil,” Airlangga told the Investor Daily Roundtable forum in Jakarta. 

“And so, they have agreed to have the tariffs on Indonesian palm oil at zero percent.”

According to Airlangga, both sides have agreed on a tariff-rate quota approach in palm oil trade. This system will set a certain quota of the volumes of the EU-bound palm oil that are eligible for the 0 percent tariffs. However, any palm oil imports above that limit will face a 3 percent tariff when entering the European market. 

“The EU has asked us to implement such systems on crude palm oil and palm kernel oil. … A 3 percent tariff is certainly lower than the 19 percent [levy that the US will impose on us],” the senior minister said.

Airlangga claimed that the EU will simplify the ratification process for this much-awaited pact as Jakarta hoped that the agreement could take into effect next year. The CEPA will have 80 percent of Indonesia’s EU-bound exports subject to zero tariffs. The EU's trade in goods with Indonesia amounted to 27.3 billion euros (around $31.9 billion) in 2024, the bloc’s data showed. Europe had imported around 17.5 billion euros from Indonesia over the said period. 

The EUDR requires palm oil traders to submit geological coordinates of where the agricultural commodity is grown, a requirement that Indonesia had admitted to be taxing on its smallholders. The world’s largest palm oil supplier has been nudging the EU to recognize its sustainability standards. The government mandates the country’s palm oil producers, including those involved in the industrial processing and bioenergy production, to secure the Indonesia Sustainable Palm Oil (ISPO) certificates. Airlangga alluded that the EU had agreed to recognize the ISPO, saying that Indonesia had “already settled the geolocation issues”.

The latest advancements in the Indonesia-EU CEPA became good news amidst the tariff war waged by US President Donald Trump. European Commission President Ursula von der Leyen admitted that the bloc sought to diversify its markets following Trump’s latest trade policy.

“So this big and important political agreement on a free trade agreement with Indonesia today is a huge milestone forward. It shows that we are looking for a new and open market,” von der Leyen said a few weeks ago when hosting President Prabowo Subianto in Brussels.