Geopolitics trumps deforestation as Brussels seals Indonesia trade deal

The EU finally closed a trade pact with the world’s fourth most populous nation on Tuesday morning in the luxury tourist escape of Bali – just don’t mention palm oil.

The end to nearly a decade of talks over a Comprehensive Economic Partnership Agreement (CEPA) between the EU and Indonesia, one of the world’s fastest growing economies, comes quick on the heels of US President Donald Trump’s decision to hit both with tariffs.

It’s therefore no surprise that the European Commission’s veteran dealmaker Maroš Šefčovič’s is moving to double down on relations with key Asian allies. Over recent years, the Commission has moved to build on its deals with Singapore and Vietnam by kicking off talks with Thailand and the Philippines, while trying to make progress on a mammoth pact with India.

The hope with the Indonesia deal is that slashing tariffs by as much as 98% will multiply the €27.3 billion in bilateral trade between the two recorded in 2024.

Experts say the deal with Jakarta is generous.

“It is by far the most ambitious FTA (free trade agreement) that the Indonesians have agreed to,” said Hosuk Lee-Makiyama, director of the European Centre for International Political economy (ECIPE) and a former diplomat, adding that concessions go beyond the recent EU-Mercosur agreement.

But fights over EU sustainability rules, palm oil imports and raw materials have defined Brussels-Jakarta relationship as much as tariff cuts. And it remains to be seen whether a signature in Bali is enough to stem concerns over green policies that have dogged talks from the start.

Beyond the trade triumph, the deal is still clouded by the elephant in the room – palm oil.

Indonesia is the world’s largest producer of the stuff and a key supplier to the EU of a material used in everything from snacks to toiletries and from animal feed to biofuels. However, exports to Europe also come with a toxic reputation for driving deforestation which has long held up relations.

“The deal reinforces an extractive model which has already caused immense harm to Indonesia’s forests,” said Perrine Fournier, campaigner at FERN, an NGO focusing on forest policy, ahead of the full signing in Bali.

The EU-Indonesia deal includes a zero tariff for palm oil within a limited quota. Fournier regrets that this concession by Brussels will likely “not be linked to sustainability requirements.”

Despite progress in curbing palm-linked deforestation over the last decade, the crop remains a key driver for forest loss, according to international non-profits and organisations tracking deforestation across Indonesia.

The timing of the deal is especially important, as it lands weeks before the EU’s anti-deforestation regulation (EUDR) is set to take effect on 30 December. Indonesia’s most important agricultural commodities – palm oil, coffee, rubber and cocoa – will all be covered, with importers having to prove with geolocation data that these have not contributed to deforestation.

But it remains to be seen if the trade deal will directly address concerns raised by farmers and Indonesian officials regarding a lack of financial and technical means for implementation. Indonesian diplomats told Euractiv that the trade deal would not directly tackle EUDR compliance.

Legal disputes over energy and raw materials have also fuelled mistrust between Brussels and Jakarta.

The EU’s green regulations have been targeted at imports of palm oil based biofuels from Indonesia – which are significantly cheaper than EU-made alternatives. Since 2019, Brussels has imposed duties of up to 18% to discourage imports – arguing that producers receive state subsidies – and has restricted the use of crop-based fuels from Indonesia under the EU’s renewable energy rules.

Jakarta challenged these actions at the World Trade Organisation (WTO) and won, as it found Brussels’ actions discriminatory.

Lee-Makiyama said Brussels would abide by the decision. “The EU won’t appeal the cases. The WTO was clear on the EU’s tariffs being discriminatory with Indonesian imports.”

It doesn’t stop there either. Indonesia also holds some of the world’s biggest reserves of nickel – a critical raw material to produce batteries, for renewable energies, and defence and space technologies. But it has restricted its export since 2014 to ensure processing happens at home.

The EU has long wrangled with the ban, challenging the measure at the WTO – which ruled that this time Brussels was right. Indonesia has appealed, but because the WTO’s appeals body is currently paralysed after the US blocked the appointment of new judges, the case is stuck in limbo indefinitely.

The EU’s push to secure its access to nickel comes as part of a broader push to “de-risk” the bloc’s supply chains away from China, which maintains a chokehold over the refining and mining of many of the minerals required for the green transition.

It’s already clear that the deal is about much more than just trade.

Brussels is seeking to secure alliances with more partners when it comes to security, and allies in the Indo-Pacific region are crucial to counter China’s influence. “Indonesia […] is one of the keystones of Indo-Pacific security,” said Lee-Makiyama. “They don’t want to put all the eggs in one basket – which ultimately comes down to containing China.”

Lizza Bomassi of the EU Institute for Security Studies told Euractiv that the deal can give Indonesia a “viable option” to China. “A visible, active EU presence is key to that,” she said.

There have already been big deals in the defence sector too.

During French President Emmanuel Macron’s visit at the end of May, Jakarta deepened ties with Paris with plans for orders of Rafale fighter jets, submarines, light frigates and Thales radars worth billions of euros. Jakarta is set to receive its first out of 42 French fighter jet at the beginning of 2026, while Indonesia struck a deal to built two submarines under the guidance of the French Naval Group, following the visit of Macron.

These intentions are showing that Indonesia sees France as a partner in its security and defence system, Lee-Makiyama said.

Defence ties can also make a trade deal more palatable for nations like France, which have been among the major opponents to Brussel’s free trade policies in recent years. “Such a free trade agreement is about showing credible engagement in a region where economics and security go hand-in-hand,” said Bomassi.

But even after Šefčovič leaves the dreamy sunsets of surf of Bali behind, the deal is far from closed.

Brussels is expected to decouple CEPA’s trade elements to fast track its approval. The deal would only need support from 15 member states at the Council representing 65% of the population and a simple majority at the European Parliament.

Approval in Indonesia won’t be any easier. Ratification bills must overcome waves of committee hearings, consultation rounds and an unpredictable plenary vote, as well as ‘translation delays’ similar to those occurring in Brussels, according to ECIPE.

While no Indonesian FTA has been rejected so far, the think tank adds, sensitivities have often stymied the entry into force of the provisions. Deals with South Korea took nearly two years to ratify, while a pact with EFTA countries – Norway, Switzerland and Iceland – dragged on for three years.

Farmers – many of them at odds with the EU’s sustainability rules – account for millions of votes, and politics can be unpredictable, he added. “Their parliament is just as messy as ours and their farmers equally angry,” Lee-Makiyama said.

Tags: palm oil, deforestation, tariffs, trade pact, exports, Indonesia, EU