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On Sunday, the EU and Indonesia announced they had reached a “political agreement” on the Comprehensive Economic Partnership Agreement (CEPA), a deal expected to increase trade between the two countries and remove most tariffs.
The CEPA has been nearly 10 years in the making, but stalled over disagreements on palm oil, Indonesia’s second-largest export. The EU currently imposes tariffs on refined Indonesian palm oil imports due to the product’s environmental impact.
The production of palm oil is the single largest cause of deforestation in Indonesia, with an estimated 45% of land covered by new plantations being former rainforest. Indonesia has pushed for the removal of these tariffs, calling them unfair; its palm oil industry employs over 4 million people, and the product is responsible for 9% of the country’s exports.
In a joint appearance with Indonesian President Prabowo Subianto, European Commission President Ursula von der Leyen said the agreement would “open new markets and create more opportunities for our businesses” and “strengthen the supply chains of critical raw materials.” The agreement is expected to be finalised in September.
The two leaders emphasised that the agreement – which was not itself a trade deal, but rather paves the way for a concrete deal to be signed in the near future – would foster collaboration between the two countries, reaching “untapped potential” in bilateral trade, said Subianto.
Currently, the EU is Indonesia’s 5th-largest trading partner; Indonesia is one of the fastest-growing Asian economies and a member of ASEAN, the main regional cooperation group. Through the agreement, the EU may be hoping to access an ever-growing market for its exports and ensure a stable supply of raw materials from Indonesia and its neighbors.
This comes after Trump’s recently announced threats of 30% tariffs on the EU, which came as a surprise to most leaders, who thought a deal to keep tariffs at their current 10% level was in the making. Indonesia, on its part, is set to receive 32% tariffs on its exports to the US starting on 1 August.
Although this round of negotiations had been planned long before the latest tariff developments, it’s hard to believe that Trump’s latest announcements didn’t at least play a role in speeding talks along. As the EU and the rest of the world scramble to diversify away from the US, new trade relationships may be forged and old ones deepened. One of the effects of rising uncertainty, then, may turn out to be a more interconnected and resilient world than we’ve ever seen before.
