• The Indonesia-EU CEPA eliminates tariffs on Indonesian palm oil, creating 3.8-12.8% point price advantage over Malaysia
• Refined fractions gain the biggest advantage, intensifying pressure on EU rapeseed and sunflower
• Malaysia faces a disadvantage and will seek to expedite its own agreement

The European Union and Indonesia have reached the “substantive conclusion” of their Comprehensive Economic Partnership Agreement (CEPA). The landmark deal will eliminate tariffs on approximately 80% of Indonesian exports to the EU, including palm oil. This fundamentally reshapes the competitive landscape for Southeast Asia’s most important agricultural commodity.

Headlines trumpet “duty-free palm oil,” but the reality is more nuanced — and more significant.

The EU’s current tariff structure for palm oil is complex. Rates vary based on end-use and processing. Under the 2025 Common Customs Tariff, crude palm oil for industrial uses already enters duty-free. But CPO for food manufacturing faces a 3.8% tariff.

Importantly, refined fractions — the products that directly compete with European vegetable oils in food applications — currently face duties ranging from 9% to 12.8%.

The CEPA’s elimination of these duties creates competitive advantages for Indonesian suppliers. On refined palm oil fractions, Indonesian exporters will enjoy a landed-cost advantage of €90-128 per €1,000 of value compared to competitors still paying MFN rates.

In the price-sensitive bulk oils market, where margins are sensitive, these differentials can make a difference.

The immediate loser here is Malaysia — Indonesia’s primary competitor in global palm oil markets.

Without an EU free trade agreement of its own (negotiations resumed this year), Malaysian palm oil will continue facing the full MFN tariff burden. This creates a major tariff wedge between the world’s two largest palm oil producers.

For crude palm oil destined for food uses, Indonesian suppliers will hold a 3.8 percentage point price advantage. For refined products, the gap widens to 9-12.8 percentage points.

These aren’t marginal differences. They’re sufficient to redirect trade flows across Southeast Asia. Malaysian palm oil will increasingly be diverted to other markets while Indonesia captures a growing share of EU imports.

The CEPA will therefore intensify competition in EU food manufacturing. Cheaper palm oil alternatives will pressure the price spreads that European rapeseed and sunflower oil producers have long enjoyed. Food manufacturers — particularly in price-sensitive segments like industrial baking and frying fats — may find Indonesian palm products increasingly attractive.

The agreement also tilts the economics of palm oil processing. With refined fractions entering duty-free from Indonesia, the incentive to import crude palm oil for refining within the EU diminishes. This could accelerate the ongoing shift toward value-added processing in origin countries — a long-standing Indonesian goal that the CEPA now makes economically compelling.

But there are still details that remain to be finalized before the agreement enters force.

The deal may include a tariff-rate quota (TRQ) system for crude palm oil — potentially limiting duty-free access to, say, 1 million tonnes annually with a reduced 3% rate for imports out of quota.

And there is also the question of rules of origin. This will determine whether Indonesian refiners can process Malaysian crude and still qualify for EU preferences. This detail will make a difference. Traders will trade, and often companies will make trades intra-company to get the best deal.

The agreement must also manage other regulations, particularly the EUDR. CEPA addresses tariffs, but it doesn’t override other compliance requirements that will continue shaping the market whatever the duty may be.

This is nonetheless significant: Indonesia has secured preferential access to one of the world’s largest palm oil import markets just as EUDR pressures intensify. Will this tariff advantage provide Indonesian producers with a cushion to invest in measures such as traceability? That’s a stretch, but a possibility nonetheless.

For Malaysia, the pressure to conclude its own EU trade agreement will now increase. European oilseed producers, long protected by the tariff differential between imported tropical oils and domestic production, must now compete on a more level playing field. This could accelerate consolidation in the EU crushing industry and drive innovation in differentiation strategies beyond price.

There are still, however, some unknowns. The European Parliament and Member States may double down on protectionism just as they are with the EU-Mercosur Agreement, and delay ratification. The Indonesian Parliament may also baulk at the impact of the EUDR on smallholders and any delays to the EU bringing its rules on biofuels in line with WTO judgements — and also delay ratification. They have done this before.

Nonetheless, this is a positive step for Indonesia’s palm exports to the EU.