- Negotiators have stated that the agreement is close to completion, with zero tariffs of refined palm looking promising;
- The agreement won’t ‘solve’ EUDR, but may offer a symbolic gesture;
- ISPO will remain a key part of Indonesia’s approach to palm exports.
Last week’s bilateral between Indonesia and the EU in Brussels was principally to move closer finalizing the IEU-CEPA.
Just to remind, the negotiations have been in train for more than nine years – a long haul in anyone’s book. However, it’s also worth remembering that the EU-Mercosur negotiations ran for more than a decade – and that agreement is yet to be ratified.
Although many commentators had their eye on how the EUDR would be treated under the agreement, tariffs on refined palm oil were a much bigger concern in the view of exporters.
Although the EU has a zero percent tariff on crude palm oil, any refined palm comes in at between 5 and around 12.8 per cent – and this can make a big difference for pricing.
The question is whether those tariffs will go to zero under the final agreement.
Indonesia’s Coordinating Minister for the Economy Airlangga Hartarto told journalists that more than 80 per cent of Indonesian goods would enter the EU at 0% — with palm oil among the products cited.
One point Indonesian stakeholders have repeatedly made is that Vietnam already has tariff-free access under its FTA with the EU.
Using the FTA to somehow negotiate better conditions for Indonesian palm oil and the EUDR was always going to be more difficult. Although it has frequently been mentioned in the negotiations – alongside other EU Green Deal measures such as the CBAM – Airlangga confirmed that it was never really on the table, although the broader scope of the trade and sustainable development chapter of the agreement was.
However, the industry was particularly buoyed by the prospect of at least a gesture on the part of the European Union. As we mentioned last week, the EU-Mercosur agreement contains an annex under which there are symbolic provisions around certification and data.
Specifically, that Annex states:
“where EU law so allows … Documentation, licenses, information and data from certification schemes and traceability and monitoring systems officially recognized, registered or identified by Mercosur countries shall be used as a source by the relevant authorities in the EU for the purpose of verifying compliance of products covered by such measures with traceability requirements placed on the EU market.”
Although this stops short of recognising or endorsing national certification schemes – which has been a push by palm producing countries – it’s a step in the right direction for Indonesia’s national scheme, ISPO.
It’s no surprise, then, that Indonesia’s Vice Minister for Foreign Affairs, is now pushing the importance of ISPO. Last week during a meeting with Indonesian palm stakeholders in a discussion on the EUDR, he stated:
“Legality and traceability are not only technical issues, but part of data-based diplomacy and legal compliance that are increasingly dominant in Europe… When it comes to palm oil, especially for export purposes, the legal clarity of land ownership is essential … Our timber products can clearly demonstrate a legal connection between the land, the trees, and the production process … Palm oil must do the same, particularly through the Indonesian Sustainable Palm Oil (ISPO) standard.”
“That’s what our international partners will notice … Because palm oil is not only about products—it’s about the people behind them … In Europe, narrative and compliance go hand in hand … Speak with law. Act with ethics. And build a narrative the world can believe in.”
Indonesia’s government is also shaping up to introduce some new reforms and revisions to the ISPO scheme later this year – some of which will no doubt be oriented towards export and compliance.
Indonesia’s government has raised expectation that the IEU-CEPA will be finalized by the end of June – just a few weeks away. This may be possible, though promises on completion have been made before.
Obstacles in Europe will still remain, however. The EU-Mercosur agreement remains at the mercy of European lawmakers and member states. French beef farmers have stated they will block the agreement. Expect a similar tone from rapeseed and sunflower farmers.