The European Union and Indonesia opened "an exciting new chapter" in trade this week, with the Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA) being signed in Bali following years of diplomatic wrangling.

Palm oil exports have proven to be the most contentious issue during the talks. EU officials point out that producing palm oil is a  major driver of deforestation and pollution. The trade dispute spilled into the arena of diplomacy and chilled ties between Jakarta and Brussels.

Recent global trade uncertainty, combined with US tariffs on countries in Europe and Asia, seem to have finally pushed the talks across the finish line. Brussels and Jakarta now hope to see the accord go into effect by 2027, allowing around 80% of Indonesia's exports to enter the EU tariff-free.

Although the new IEU-CEPA framework allows the European Union to buy Indonesia's palm oil at zero tariffs, this deal alone is not enough to guarantee smooth exports to Europe.

What's next after Indonesia's zero-tariffs deal with EU?

Starting in December, the European Union will demand palm oil imports to comply with the bloc's Deforestation Regulation (EUDR), a new legal framework aimed at fighting deforestation worldwide.

Exporters, including those in Indonesia, will be required to carry out due diligence and provide documentation proving that their palm oil did not come from recently deforested areas.

Though major companies may be able to deliver the necessary export certificates, smallholders — who control over 42% of Indonesia's palm oil plantations — are likely to struggle, risking exclusion from supply chains. Without proper support, this imbalance could leave independent farmers marginalized and likely weakened in any land conflicts with big corporations.

Small palm farmers likely to bear the brunt

Eddy Martono, chairman of the Indonesian Palm Oil Association (GAPKI), praised the IEU-CEPA deal as a vital gateway to global markets, but told DW that there would be further obstacles related to the EUDR.

"For large companies, especially GAPKI members, EUDR is not a major problem. The real challenge lies with smallholders, as the government has yet to provide clear rules regarding their land cultivation," Eddy said. 

Eddy also called for a national traceability system in Indonesia, which would also be recognized by the EU, as a tool to minimize export rejection.

"When tariff barriers are gone but nontariff rules like EUDR are unmet, the zero-tariff facility becomes meaningless,"  he said.

Global markets 'wide open' with IEU-CEPA

Bhima Yudhistira, executive director of the Center of Economic and Law Studies (CELIOS), also warned that the EUDR could emerge as a significant barrier. 

"What companies see as additional costs, European consumers view as necessities," Bhima told DW Indonesia.

"In tariff terms, Indonesia can now compete more strongly with other vegetable oil producers. But environmental standards must not be seen as obstacles. With IEU-CEPA, the door to global markets is already wide open — certification and due diligence must follow quickly," he said.

EU tracks Indonesia's environmental protection

Coordinating Minister for Economic Affairs Airlangga Hartarto has told the Antara News Agency that Indonesian palm oil would enjoy zero-tariff access as soon as the agreement takes effect, with no long transition period.

The minister said the deal could lead to greater acceptance for crude palm oil and its derivatives in the European Union, despite lingering stigma over deforestation and regulatory barriers.

The European Union is keeping a close watch on environmental protections in Indonesia. This means exports will face tighter scrutiny, including traceability of plantation origins, and pressure on European importers to prove due diligence.

Danger of 'greenwashing' to hide deforestation

Civil society groups in Indonesia have concerns of their own. WALHI (Friends of the Earth Indonesia) — the country's largest and oldest environmental advocacy organization — and Indonesia for Global Justice (IGJ) have both warned that sustainability certification schemes could simply turn into tools of greenwashing, allowing companies to project a "green" image without making meaningful changes on the ground. 

The danger is that Indonesian palm oil may pass administrative checks while still leaving behind deforestation, destroying biodiversity, and violating the rights of Indigenous peoples.  In other words: palm oil could pass on paper, but continue to damage ecosystems in practice. 

IEU-CEPA is more than a trade deal: It is also seen as a test of Indonesia's overall narrative on palm oil.

"If EUDR standards are not met, Indonesia risks being trapped in the negative stigma of palm oil as cheap but environmentally destructive," said Bhima, from the CELIOS think-thank.

Failure, he added, could mean losing access to premium markets, which would in turn force Indonesia to rely on more price-sensitive, lower-value destinations outside the European Union. 

Indonesia far behind Malaysia on palm yields

Even with these challenges, the new EU deal gives Indonesia an edge over other ASEAN palm oil exporters, especially Malaysia, which is still negotiating a free-trade deal of its own.

This edge in trade does not automatically translate into market dominance. The Indonesian Ombudsman, an independent state institution that oversees public services, reported that average national palm oil productivity is just 12.8 tons of fresh fruit bunches (FFB) per hectare (around 2.5 acres). This is far below Malaysia's 19 tons per hectare under its Malaysian Sustainable Palm Oil (MSPO) certification, mounting to billions of dollars in loses for Indonesia.

Malaysia also leads in certification standards and logistics efficiency. Yet Bhima pointed out that all ASEAN producers face the same EUDR hurdle.

"Malaysia, Thailand and the Philippines must all prove their palm oil is deforestation-free — but, unlike Indonesia, they don't have the incentive of zero tariffs," he said.

Moving beyond palm oil

Expanding Indonesia's exports of crude palm oil will likely provide opportunities for exports of related products such as biodiesel, palm-based cosmetics and chemicals derived from palm oil. However, experts like Bhima warn that the benefits of the EU deal would only be maximized if Jakarta steps up regarding regulation.

"EUDR remains the ultimate test: Without credible sustainability compliance and a trusted traceability system, zero tariffs will be difficult to utilize," Bhima said.

In the end, IEU-CEPA could be a global springboard for Indonesia's palm oil — or a trap that exposes the industry's unresolved environmental and social weaknesses. 

Edited by: Darko Janjevic