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EU Agrees New Trade Deal with Indonesia and Postpones Deforestation Rules

/ Indopacific, Trade / By

The European Union will delay launching its anti-deforestation law for a second time, Environment Commissioner Jessika Roswall announced on Tuesday, postponing the ban on imports of commodities such as palm oil linked to forest destruction for another year.

The regulation — initially due to take effect on December 30 — would require companies selling goods including soy, beef and palm oil into EU markets to prove their products were not produced on deforested land. Brussels had already delayed the law by one year, but opposition from industry and trade partners such as Brazil, Indonesia and the United States persisted. They argue compliance with the rules would be costly and could hurt their exports to Europe.

US pressure?

Roswall said the latest postponement was necessary to address technical concerns rather than political pressure. “We have concern regarding the IT system, given the amount of information that we put into the system… That will… also give us time to look at the different risks,” she told reporters. She emphasized the delay was not linked to U.S. complaints about the policy, but this is being disputed by many observers.

The EU’s anti-deforestation law has been one of its most contentious green initiatives, particularly in Southeast Asia. Malaysia and Indonesia — both major palm oil producers — have repeatedly criticized the bloc’s classification of their imports as “standard risk,” while the U.S. enjoys a “low risk” designation. Malaysian officials point to improved environmental performance, citing NGO data showing a 13% reduction in deforestation last year. Between 2015–2017 and 2020–2022, the country cut its rate of primary forest loss by 57%. Also, Malaysia fell out of the top 10 countries for tropical primary forest loss for the first time.

Malaysia lost just 0.56% of its remaining primary forest in 2024, according to Global Forest Watch. That is less than Sweden’s 0.87% loss. Sweden holds the largest share of ‘old growth’ forest in Europe, with 70% of its landmass still forested, yet it is clearing these ancient woodlands at a faster pace than the Amazon rainforest. Despite this, Sweden automatically qualifies for “low risk” status by virtue of being an EU member.

MSPO began as a voluntary scheme in Malaysia, the world’s second-largest palm oil exporter, and became mandatory in January 2020, with independent third-party audits ensuring compliance. According to the certification body, MSPO “gives buyers and regulators the confidence that certified palm oil is legally sourced and deforestation-free,” while its digital tracking system “enables full supply chain visibility and strengthens trust among global stakeholders.”

Reacting to the EU announcement, the Malaysian Palm Oil Council (MPOC) stated:

“The Malaysian Palm Oil Council (MPOC) welcomes the European Union’s decision to delay the implementation of the EU Deforestation Regulation (EUDR) by 12 months until December 2026.

However, the Council questions the regulation’s viability without a clear implementation path, particularly after companies have invested heavily in compliance preparation. This additional time provides a crucial opportunity for the EU to address these concerns alongside significant operational and structural flaws while recognising the substantial progress Malaysia has made in sustainable palm oil production”.

Ms Belvinder Sron, Chief Executive of MPOC, added:

“Despite the challenges posed by the current EUDR framework, the Malaysian palm oil sector remains committed to sustainable production and constructive engagement with the EU. However, given the many issues arising from the implementation of EUDR, and unless the EU develops a very clear understanding of on-the-ground realities, we question whether this regulation is truly workable in its current form.

“Companies across our industry have invested time, money and resources preparing for EUDR compliance at great cost, yet the continued uncertainty about the regulation’s direction creates an unsustainable burden for responsible businesses. We call upon European policymakers to use this additional time wisely to create a more equitable and scientifically sound classification system that truly reflects environmental performance and provides the clarity that industry desperately needs.”

A problematic EUDR classification system

Against this backdrop, the EU recently announced a new trade deal with Indonesia that includes a zero-tariff quota for palm oil exports. The agreement represents a shift from the stricter approach taken during the first von der Leyen Commission, when the anti-deforestation regulation was introduced. It follows a series of conciliatory steps by Brussels, including its recognition of the Malaysian Sustainable Palm Oil (MSPO) certification as a credible standard for compliance with EU deforestation rules. Indonesia also recently won World Trade Organization cases against EU renewable energy restrictions on crop-based fuels.

Critics of the deforestation law say the bloc’s classification system is inconsistent and burdens importers with excessive bureaucracy. Supporters of the new trade deal argue it signals a more pragmatic EU trade policy.

The policy shift also comes amid a broader decline in enthusiasm for green measures across Europe. Environmental NGOs that once wielded significant influence over EU policymaking are facing mounting challenges, with subsidies under scrutiny and green parties struggling in polls across the continent.

Analysts say the EU’s decision to postpone the deforestation law, combined with its softer trade stance toward Southeast Asia, underscores a recalibration of the bloc’s priorities as it seeks to maintain its global trade standing.

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