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Hey there, curious minds and all-around Brussels enthusiasts!
This time, we take a closer look at the latest developments in international trade. The EU is currently considering sanctions against Israel, which could include the suspension of trade concessions. At the same time, the EU is seeking to strengthen global partnerships and has just concluded its largest Comprehensive Economic Partnership Agreement (CEPA) to date with Indonesia. Finally, there is news on the Carbon Border Adjustment Mechanism (CBAM): the European Parliament has approved a new simplification of the scheme.
Plenty to catch up on, so strap in for a ride through the riveting world of European economic policy with us!
Written by Leonie Gruber, Ruben Krebs and Philipp Breer
Editorial deadline: 21. September, 23:59
Trade
EU-SANCTIONS: SUSPENSION OF TRADE CONCESSIONS WITH ISRAEL
Written by Leonie Gruber
On Wednesday, 17th September, Commission President Ursula von der Leyen put forward a long-awaited proposal to the Council: the suspension of trade-related provisions in the EU-Israel Association Agreement. The ongoing military operations in Gaza constitute a breach of Article 2 of the agreement, which upholds human rights and democratic principles as core conditions for cooperation.
If adopted, the measure would end Israel’s preferential access to the EU single market, subjecting its exports to standard duties. While symbolically significant, the practical impact may be limited.
Limited Leverage?
The EU remains Israel’s largest trading partner, yet the sanctions would only affect 37% of Israeli exports – roughly €5.8 billion annually. In real terms, the financial loss is estimated at just €227 million per year. This is largely due to the outdated scope of the 2000 agreement, which applies only to goods, leaving services – an increasingly important sector – untouched.
The second hurdle is political: von der Leyen’s proposal still requires a qualified majority in the Council – 15 out of 27 member states. All eyes are now on Germany, which has historically resisted punitive measures against Israel. Berlin has not endorsed claims of genocide, nor has it supported recognition of Palestinian statehood. CDU leader and German chancellor Friedrich Merz has said a final decision is expected by the EU summit in Copenhagen this October.Reacting to the proposal, Israeli Foreign Minister Gideon Saar posted on X, calling the European initiative “morally and politically distorted,” and expressing hope that it would ultimately be rejected.
BALI BREAKTHROUGH? EU AND INDONESIA SEAL THEIR LARGEST TRADE PACT YET
by Ruben Krebs
After years of negotiations, the EU and Indonesia are on the brink of concluding a Comprehensive Economic Partnership Agreement (CEPA) that could reshape trade relations between Europe and Southeast Asia. With a political agreement already announced back in July this year, a formal signing is set to take place in Bali this week on 23 September 2025.
The deal’s scale is significant: The EU is Indonesia’s fifth-largest trading partner, with bilateral trade valued at over 30 billion Euro annually. Under the CEPA, approximately 80% of Indonesian exports – notably textiles, footwear, fisheries, and palm oil derivatives – will gain duty-free access to European markets within just two years of implementation. In return, the EU will see improved access for exports to Indonesia, a market of 270 million people.
Much like the EU-Mercosur negotiations, the CEPA is not free from controversy. One of the most contentious issues is palm oil and deforestation. The EU’s new Deforestation Regulation (EUDR) requires proof that commodities entering its market are not linked to forest degradation – a standard Indonesia argues discriminates against smallholder farmers. While Brussels frames the rule as indispensable for its Green Deal and climate leadership, Jakarta warns of disproportionate burdens particularly for small- and medium-sized enterprises.
Beyond trade in goods, the agreement also has a clear geostrategic dimension. By securing privileged access to Indonesia’s rich deposits of critical minerals such as nickel and copper, the EU is diversifying away from reliance on China as the dominant supplier of critical raw materials. Indonesia, meanwhile, expects its exports to the EU could increase by up to 50% within three years, a boost that would further benefit its industrial upgrading and job creation.
However, hurdles still remain. Ratification by all 27 EU member states and the European Parliament is far from guaranteed, given the environmental sensitivities and protectionist pressures seen in other negotiations. If successful, however, the CEPA could come into force by 2027.
For European policymakers, the EU-Indonesia CEPA is more than a trade agreement. It is a test of whether Brussels can find the balance between economic pragmatism and environmental integrity – without alienating crucial partners in the Global South.
EUROPEAN PARLIAMENT APPROVES CBAM SIMPLIFCIATION
by Philipp Breer
On Wednesday, 10th September, the European Parliament adopted a package of simplifications for the Carbon Border Adjustment Mechanism (CBAM). According to the EP, key adjustments were made to ease administrative burdens without weakening the instrument’s climate ambition.
As a part of the European Green Deal, CBAM targets a 55% reduction in greenhouse gas emissions by 2030 compared with 1990 levels. Under the new rules, a threshold of 50 tonnes per year exempts small or occasional importers from CBAM obligations. This spares roughly 90% of importers, mostly SMEs, from quarterly reporting, while larger operators benefit from simplified procedures for emissions calculation, verification, and liability. Crucially, about 99% of emissions embedded in EU imports of iron, steel, aluminium, cement, and fertilisers remain covered, ensuring that the environmental core of CBAM remains intact. Additionally, with CBAM charges projected at €65–85 per tonne of CO₂, the fiscal pressure is significant.
From 2026, the EU applies default emissions values to imports from ten countries, with benchmarks differentiated by production technology. Thus, EU regulators estimate average intensities based on these defaults until verified data is available. Looking ahead, the European Commission aims to adopt said values in an implementing act before the end of the year.
Reactions from outside the EU on the adjusted mechanism remain mixed. India, for example, secured that the carbon price it already pays domestically will be deducted under CBAM for exporters, which especially benefits Indian producers who are decarbonising their CBAM-covered goods. South Africa’s exports, by contrast, are still threatened by CBAM. Across the continent, potential African export losses amount to $27 billion annually, while alone the costs of monitoring, reporting, and verification could amount to 0.5–1.5% of GDP.
Ultimately, CBAM’s new reforms underline the global challenge of marrying climate ambition with trade fairness. The handling of default values and the (limited) support offered to vulnerable exporters will decide whether CBAM evolves into a global climate benchmark or a barrier in trade relations.
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