- Indonesia secures 19% rate on palm to US as Malaysia negotiates against August 1 deadline;
- Difference in pricing could further tilt US demand to Indonesia;
- Chancellor Merz and 18 farm groups demand EUDR overhaul as deadline looms
Indonesia clinches 19% US tariff rate, Malaysia still negotiating
Indonesia and the US have confirmed that Indonesia will receive a 19% “reciprocal tariff” rate on exports to the United States, including palm oil products, under the new Framework for a United States-Indonesia Agreement on Reciprocal Trade. Meanwhile, Reuters reports that Malaysia continues negotiations but faces a 25% rate if no agreement is reached by August 1.
Media reports have focused on how tariffs might impacts bilateral trade in aggregate, but the competitive aspects are more significant. US industries just can’t ‘switch out’ palm oil for other oils, and Indonesia has more than 80% of the US palm market.
Much of the increase in Indonesia’s share came after disruptions to Malaysia’s exports because of accusations of forces labour.
So, at this point, a 6% difference further tilts the market towards Indonesia:
Take CPO at USD900/t. Indonesian duty-paid CIF reaches USD1,071/t versus Malaysian USD1,125/t. This is a a USD54/t difference. Oleic acid at US$1,400/t leaves a US$84/t gap.
This pricing advantage effectively reverses Indonesia’s recent competitiveness loss following its export levy increases in 2024. US buyers will continue to drift towards Indonesian suppliers – unless Malaysia negotiates something similar.
Forced labor commitments embedded in tariff framework
The joint statement also requires Indonesia to “adopt and implement a prohibition on the importation of goods produced by forced or compulsory labour.” This mirrors existing Withhold Release Orders applied by US Customs to several Malaysian palm companies.
By linking forced-labour commitments directly to tariff access, Washington has signaled that any Malaysian agreement will replicate – or exceed – Indonesia’s obligations. Malaysian producers still appearing on the CBP forced-labour list face market exclusion in the US.
But how easily can this be implemented? The language may just be symbolic in any agreement. It’s not as though the US hasn’t been scrutinising imports from Malaysia and Indonesia when it comes to labour. Importation of ‘forced labour’ products is already illegal – the agreement can’t make it more illegal. The only thing that could change the calculus is to give more resources to US Customs and Border Protection for labour programs – and CBP will be very busy attempting to enforce checks to prevent Chinese transshipment.
Malaysian officials are reportedly considering several paths forward: Pursuing a rapid “phase-one” package focused on tariffs and avoiding pharmaceuticals and government procurement; Accelerating forced-labour talks and considering third-party verification – something we’ve heard before; Expanded investments in the United States using Malaysian feedstock to align with US manufacturing goals.
The ace that Indonesia had up its sleeve was the ability to make large purchases of goods, such as airplanes. Malaysia’s airlines don’t currently have that level of state support.
EUDR faces renewed pressure from Germany and farm groups
In Brussels, the EUDR faces even more headwinds almost one year after receiving a hard-fought implementation delay.
German Chancellor Friedrich Merz has wrote to Commission President von der Leyen in early July warning that the current EUDR design “massively burdens trade in products from regions with negligible deforestation risk.” Merz urged the Commission to table “as quickly as possible, a ‘null-risk’ variant that would sharply reduce due-diligence obligations for products sourced from low-risk countries.”
Two days later, a coalition of 18 European farm, bioenergy, feed and wood-processing organisations delivered a parallel message, calling for “a more targeted, risk-based, and practicable implementation.” The groups specifically requested EUDR overhaul be included in the Commission’s 2025 “Omnibus” simplification package.
Copa-Cogeca, representing European farmers, stated: “Guidance documents carry no legal weight and diverging national interpretations are multiplying compliance costs for operators.”
The repetition of demands from twelve months ago – when the same actors sought identical fixes only to receive a delay rather than redesign – underscores that blanket requirements may be unworkable at scale.
But it also points to the fact that maybe the entire exercise was flawed from the start. Sure, there’s a call for simplification, but the clear costs of the entire exercise are going to be much larger than first anticipated – and is the link between the regulation and reduced deforestation clear at all?
Brussels must now choose between: Maintaining current requirements and risking widespread non-compliance after December 30 and; Announcing another postponement, acknowledging that participants remain unprepared
Given the political alignment between Germany’s largest EU economy and major agricultural lobbies, a regulatory amendment appears increasingly likely.
And rumour has it that’s exactly where the Commission is headed. The real balancing act is going to be with trade partners.
As we’ve said before, ‘zero risk’ for European countries will spark a major outcry from Indonesia, Brazil and India; but a more technically robust solution won’t satisfy the EU’s farming lobbies.