Institut Veblen / Veblen Institute

Banking Regulation and Competitiveness of the EU Banking sector

Jézabel Couppey-Soubeyran & Wojtek Kalinowski — 2026-03-13T10:36:47Z

The European Commission's Call for Evidence frames the challenges facing the EU banking sector in terms of regulatory complexity, fragmentation, and burdens on competitiveness.

Our response draws on recent academic and policy research and is structured in 8 sections, each treating a specific aspect of the problem:
– The state of financial stability risks
– Links between capital requirements and competitiveness
– Sources of complexity in finance and financial regulation
– A critical assessment of the ECB's Buffer Simplification Proposal
– An alternative approach to simplification
– Relation between competitiveness of banks and the needs of the real economy
– Relation between bank competitiveness and sustainability objectives
– Financial risks linked to bank sector concentration

This response has been prepared as part of our “Money & Finance” program activities, supported by Charles-Léopold Mayer Foundation and European Climate Foundation.

Executive Summary

In our response to the European Commission's Call for Evidence on Competitiveness in the Single Banking Market, we challenge the framing that regulatory complexity and capital requirements are the primary obstacles to EU banking competitiveness. Drawing on recent research, we argue that complexity stems from financial innovation and from internal models used by banks in order to reduce effective capital requirements. A misconceived simplification agenda risks weakening financial stability without delivering the economic benefits promised. We propose simplification that eliminates redundancies, reduces regulatory arbitrage while preserving — in some areas strengthening — the prudential architecture built since 2008.

Financial stability risks remain elevated. Recent assessments by the IMF (October 2025), the ECB/ESRB (January and February 2026), and others indicate that financial stability risks remain elevated despite improved headline capital ratios. Growing interconnections between banks and non-bank financial intermediaries, stretched asset valuations, and geoeconomic fragmentation all argue for maintaining, not relaxing, prudential buffers. The Commission's assertion that “banks are well capitalised” understates both the complexity of the current risk environment and the heterogeneity hidden behind the average capitalisation level (large banks remain significantly less capitalised than smaller ones, even though they should be more so given their exposure to systemic risks).

Capital requirements do not undermine competitiveness. Our literature overview finds no evidence that capital requirements are the primary drag on bank competitiveness or lending. Better-capitalised banks tend to lend more steadily through cycles, support higher return on assets, and prove more resilient in stress episodes. The SVB failure of 2023 illustrates what regulatory rollback can produce. We propose that the debate be grounded in this independent evidence rather than in industry self-assessments.

Complexity originates in financial “innovation,” internal model discretion. Regulatory complexity has real costs, but its primary source is not excessive prudential ambition — it is the Internal Ratings-Based (IRB) approach, which allows large banks to use their own models to estimate capital requirements. This creates incentives for strategic underestimation of risk, undermines the level playing field, and generates the complexity that supervisors then struggle to manage. We propose that simplification efforts target this structural problem: replacing internal model discretion with transparent, standardised rules, rather than reducing overall capital levels.

The ECB's buffer simplification proposal would make the framework less legible and harder to activate. The ECB's December 2025 proposal to merge the countercyclical capital buffer (CCyB) and the systemic risk buffer (SyRB) into a single releasable instrument conflates two analytically distinct tools addressing cyclical and structural vulnerabilities respectively. This merger would make the framework less legible and harder to activate. We propose that buffer reform preserve the CCyB/SyRB distinction and prioritise more proactive CCyB deployment rather than instrument consolidation.

An alternative: simplify by eliminating internal model complexity. Genuine simplification without deregulation is possible. Le Quang (2025) identifies real redundancies: the LCR and NSFR could be consolidated into a single NSFR-based liquidity requirement. More substantially, replacing the risk-weighted capital ratio — dependent on manipulable internal models — with a well-calibrated simple leverage ratio would reduce complexity, improve transparency, and maintain loss-absorbing capacity. We propose these targeted reforms as a credible alternative to the deregulatory simplification currently on the table.

Bank competitiveness is not the same as economic competitiveness. We propose broadening the definition of “competitiveness” to encompass the banking system's capacity to finance long-term investment and the ecological transition, not only short-term returns.

Rolling back supervisory engagement with environmental risk is not financially neutral. We propose that the prudential framework's engagement with climate- and nature-related financial risks be maintained and strengthened.

Consolidation risks compounding systemic fragility. Conventional concentration metrics understate the true degree of concentration. We propose that any consolidation be subject to coordinated prudential and competition scrutiny with an explicit systemic risk assessment, and that structural questions about bank size and activity separation be reopened.

Frozen assets, hot claims: How sanctioned oligarchs & other investors sue over sanctions

Mathilde Dupré & Stéphanie Kpenou — 2025-12-09T00:11:36Z

After Russia's full scale invasion of Ukraine, the EU, Ukraine itself and almost 20 other countries introduced wide-ranging economic sanctions against the Russian state. The sanctions also target companies and individuals closely linked to the regime and the war effort.
These sanctions are now being challenged by Russian oligarchs and companies in private tribunals using a mechanism written into investment treaties, known as investor-state dispute settlement (ISDS). While the cases are in early stages, they are already having a severe impact on EU sanction policy and Ukrainian national security policy.

A clear example is the current standoff over the use of immobilised Russian assets. The European Commission and most EU member states want to use 90 billion euros of Russian assets held at Euroclear to provide financial support to Ukraine. But the Belgian government, where Euroclear is located, has blocked the use of the funds
due to the risk of being sued.

Our analysis reveals that 24 publicly known ISDS cases have been initiated directly challenging sanctions against Russia, out of a total of 28 sanctions- related cases and threats. The cases challenging sanctions include:

The sanctioned Russian oligarch Mikhail Fridman is suing Luxembourg for 16 billion USD for freezing his assets;
Several Russian investors are initiating claims against Belgium over the freezing of Russian-held assets at Euroclear;
Investors are suing Ukraine in two separate cases over the removal of a Russian-linked bank from Ukraine's banking sector, for a combined amount of 1.4 billion USD.

Our analysis also shows that:

Overall, known ISDS claims and threats of claims by sanctioned individuals and entities already amount to 62 billion USD. This is getting close to the 70 billion USD of military assistance the EU has provided to Ukraine since 2022. The true figure is very likely to be significantly higher as in more than half the cases no information about the amounts claimed is available.
More than half of the ongoing, sanctions-related ISDS cases are against Ukraine. The others are targeting other European countries (Belgium, France, Lithuania, Luxembourg and the UK) and Canada.
Seven ISDS cases against Ukraine's sanctions and security policies are based on investment treaties with EU member states and a further two on the Ukraine-UK investment treaty. This shows that the investment treaties that European countries maintain with Ukraine have enabled sanctioned individuals and entities to directly challenge Ukraine's national security policy.
Russian oligarch Mikhail Fridman has filed five claims against sanctions-related measures and threatened a sixth case. Three of the five cases are targeting Ukraine, of which two are based on the investment treaty that Ukraine has with Belgium and Luxembourg and the other on one with the Netherlands.

Of the 24 cases challenging sanctions, 13 have been initiated in 2025 alone, highlighting how investors are increasingly resorting to ISDS to challenge the sanctions policy of Ukraine and its supporters.

The incompatibility of EU countries' investment treaties with EU sanctions policy was previously highlighted by the European Court of Justice in 2009. In three rulings against Austria, Sweden, and Finland, it found that capital transfer clauses in the three countries' investment treaties conflict with the Council's authority to unilaterally impose sanctions on third countries. However in the years since then, the countries and other EU Member States with similar clauses in their treaties have failed to remedy the situation. They have not renegotiated their treaties to include safeguards, nor have they cancelled them.

In view of the increasing weaponisation of investment treaties to weaken the European and Ukrainian sanctions policy, it is paramount that the EU and Ukraine adopt effective measures to neutralize ISDS risks.

Recommendations
In order to reduce risks for EU and Ukrainian national security and sanction policy and to prevent the outflow of money to sanctioned entities and investors, European policy makers should immediately:

Work with the Ukrainian government on a termination treaty for all investment treaties between European countries and Ukraine, including the elimination of the sunset clauses.
Cancel the 41 investment treaties with Russia and Belarus currently in force and that pose the most immediate danger to Europe's sanctions regime.
Extend the anti-ISDS provisions of the EU's 18th sanctions package to Ukraine. These are meant to limit the ability of sanctioned investors to pursue and enforce ISDS cases, and currently apply to EU countries and Switzerland. Extending to Ukraine should reduce the risk of further use of European investment treaties to challenge Ukraine's sanctions and national security policy.
Ensure that arbitral institutions hosted by or headquartered in EU Member States fully comply with EU law and the EU sanctions packages.
Leverage the EU's diplomatic influence to persuade third countries, such as Singapore, to adopt similar regulations denying legal effects to awards in favour of sanctioned investors (as Switzerland recently did).
Intervene in the ongoing cases against Ukraine and Member States with amicus curiae submissions.
Provide full transparency about the ongoing cases challenging sanctions and the sums involved, to enable policy makers and civil society to fully assess the threat the cases are posing.

Ukrainian policy makers should consider the following steps:

Work with their European counterparts on a termination treaty for the investment treaties between the European countries and Ukraine. This should follow the model the EU countries used to cancel investment treaties between each other. The cancellation would also be necessary if Ukraine accedes to the EU, since EU countries are not allowed to maintain investment treaties with each other.
Withdraw Ukraine from the Energy Charter Treaty and add Ukraine in the EU's interpretative declaration and inter-se agreement including the neutralisation of the sunset clause.
Provide full transparency about the ongoing cases against Ukraine and the sums involved to enable policy makers and civil society to fully assess the threat the cases are posing.

The findings above shed a new light on the risks posed by the controversial ISDS system, revealing that it endangers sovereignty over policy making even on national security matters. To safeguard their policy space, policy makers should therefore:

Undertake an assessment of how other policy priorities related to national security, taxation, climate and environmental protection and other public interest areas are threatened by ISDS provisions in BITs.
Remove ISDS from all existing treaties and stop signing new treaties with any form of ISDS.

Towards a green and transformative public procurement in the European Union : the case of electric cars

Madeleine Péron — 2025-11-14T12:09:45Z

Europe's green industrial transition is at a crossroads. The European Union is attempting to reconcile three demanding objectives at once : restoring industrial competitiveness, strengthening strategic autonomy, and accelerating decarbonisation. To do so, it is deploying a mix of regulatory, financial and trade instruments that mark a shift toward a more interventionist industrial policy—yet one whose contours remain unclear and whose tools are not always aligned.

Among these tools, public procurement stands out as both under-used and full of potential. Representing nearly 15% of EU GDP, procurement markets could become a powerful lever for steering European industry towards environmental, social and economic objectives. But using them strategically brings to the surface tensions between traditional procurement principles—primarily cost-efficiency and competition—and broader industrial ambitions such as resilience, sustainability, and supply-chain transformation.

This brief argues that these tensions can be constructively resolved, and illustrates how through the emblematic case of the automotive sector. If mobilised deliberately, public procurement can act as a catalyst for the transition : by making sustainability a core pillar of industrial strategy ; by treating the 2035 phase-out of internal combustion engines as a critical milestone requiring support for industrial adaptation ; and by reinforcing Europe's strategic autonomy through policies rooted in sufficiency, resource efficiency and the circular economy.

EU US Deal: possible courses of action for the EU Parliament

Mathilde Dupré & Stéphanie Kpenou — 2025-10-28T11:39:02Z

Since the beginning of his second term, Donald Trump has sought to reshape U.S. trade relations in order to reduce the country's trade deficit.

After announcing in April tariff hikes ranging from 11% to 50%, Donald Trump later scaled them back to 10% and imposed a 90-day ultimatum to conclude bilateral agreements.
Under this pressure, several countries — including the United Kingdom, Vietnam, Japan, the Philippines, Indonesia, and China — negotiated tariff reductions or stabilisations with the United States.

In an effort to appease the U.S. administration, the European Union likewise made a series of unilateral concessions:

At the end of June, the EU — together with the other G7 countries — agreed to exempt U.S. multinationals from the 15% global minimum tax provided for in Pillar 2 of the agreement finalised under the OECD framework in 2021.

On 27 July, Ursula von der Leyen and Donald Trump reached a political agreement on tariffs.

On 5 August, the European Commission (EC) adopted a regulation removing the additional tariffs that the EU was to impose on U.S. goods in response to Trump's unilateral tariffs on EU products.

On 21 August, the EC and the United States issued a Joint Statement announcing that they had agreed on a “Framework on an Agreement on Reciprocal, Fair, and Balanced Trade.”

Finally, on 28 August, the EC published two draft regulations to implement the EU's commitments on tariffs: one concerning the elimination of tariffs on lobster, and another providing for the elimination and reduction of tariffs on U.S. industrial and agricultural goods.

This note, based on a legal analysis conducted by Clémentine Baldon and Nikos Braoudakis, members of the Paris Bar, together with Juliette Robert (Baldon Avocats), analyses the content of the Joint Statement and the draft regulation on the elimination and reduction of tariffs on U.S. industrial and agricultural goods.
It identifies a series of incompatibilities with EU law and outlines possible courses of action for Members of the European Parliament.

Towards a green and transformative public procurement in the EU : the case of electric cars

2025-09-30T08:24:59Z

The European Union is currently facing a threefold challenge : the urgency of the climate crisis ; rising competition from China ; and, the need to preserve its industrial sovereignty. The automotive sector is at the center of this challenge.

In this context, public procurement is a powerful but still underused lever.In the car sector, the volumes may seem modest — around 2.5% of new registrations in countries like France and Germany — but public demand can still play a strategic role. It can set the example, create stable and predictable markets, and drive industry toward sustainability

French investment protection agreements: an obstacle to the ecological transition

Mathilde Dupré & Stéphanie Kpenou — 2025-07-16T22:30:00Z

The IPCC and IPBES have identified investment protection treaties as an obstacle to the implementation of ambitious public policies on climate and biodiversity. However, the issue remains largely overlooked by policymakers, who believe the problem has been resolved with the withdrawal from the Energy Charter Treaty.

France is party to 90 investment protection agreements with 94 countries, 84 of which are currently in force (6 have been terminated, but the survival clause remains active). The geographical reach of France's treaty network could expand further if the CETA agreement with Canada is eventually ratified.

These agreements protect a significant volume of fossil fuel investments
France ranks third among countries whose investment treaty network protects the largest amount of fossil emissions, according to a July 2024 study by E3G, with 188 million tonnes of potential CO₂eq emissions, or 9.4% of the global total.
Our new study reveals which treaties are the most protective in this regard. After the Energy Charter Treaty—which France withdrew from in 2023—the most impactful bilateral investment treaties (BITs) are those with the United Arab Emirates, Qatar, China, Nigeria, Iraq, Mozambique, Kazakhstan, Libya, Argentina, Namibia, and Russia. In these countries, French fossil fuel investments protected by investment treaties are likely to generate more than 5 Mt of CO₂eq annually.

Sanctioned Russian oligarchs are using these treaties to sue France

Severgroup and KN Holdings v. France (2021) involves two Russian investment firms owned by an internationally sanctioned oligarch. They filed a claim against France after the government refused to extend the open-pit gold mining concession in French Guiana (Montagne d'Or project). In July 2025, three civil society organisations (the Collectif des Premières Nations, the Organisation des Nations Autochtones de Guyane, and Guyane Nature Environnement) submitted amicus curiae observations before the international arbitral tribunal. (See our detailed case study)
A new case was registered in June 2025, based on the France–Armenia treaty. It opposes S. Karapetyan, a Russo-Armenian businessman and owner of one of Russia's largest industrial and construction conglomerates—Tashir Group—against France, following the seizure of his real estate assets under suspicion of money laundering.

Some agreements are particularly outdated

The BITs with Serbia and Montenegro (inherited from the 1974 France–Yugoslavia treaty) are non-reciprocal. They include a stabilisation clause protecting French investors from changes in national regulations and an unlimited survival clause that ensures the treaty remains in effect even after termination.
A large number of these treaties are retroactive, extending protection to investments made before the treaties were even signed.

France's treaty network is incompatible with EU law and international climate commitments, particularly:

Article 2.1(c) of the Paris Agreement, which requires financial flows to align with the climate objectives of the signatories.
Opinion 1/17 of the CJEU on CETA, which defined compatibility criteria absent from older treaties.
The European Parliament resolution on the future of EU international investment policy (June 2022).

For these reasons, the French High Council on Climate should assess the compatibility of these BITs with France's climate commitments.

The French government should also unilaterally terminate the 76 treaties whose initial terms have expired and plan to denounce the others as soon as it becomes legally feasible.

If France fails to act, the European Commission should call on France and other Member States to terminate these outdated BITs.

“French MEPs, MPs, and the government played a leading role in the battle over the Energy Charter Treaty, calling for ambitious reform and choosing withdrawal when that failed. But in the realm of investment protection, the ECT is just the tip of the iceberg. France still has a major clean-up to do with its stock of old treaties that pose the same, if not greater, challenges.”
— Stéphanie Kpenou, Advocacy Officer for EU Trade Policy Reform at the Veblen Institute

“These investment treaties are largely a legacy of decolonisation, designed to protect French corporate interests in the Global South. Today, they hinder and inflate the cost of climate, environmental and public health efforts, both in partner countries and in France. It is high time they were dismantled.”
— Mathilde Dupré, Co-director of the Veblen Institute

The French state before an arbitration tribunal over “Montagne d'Or”

Mathilde Dupré & Stéphanie Kpenou — 2025-07-09T23:30:00Z

The French state is being sued by two Russian investment companies (controlled by a sanctioned oligarch) through a confidential Investor-State Dispute Settlement (ISDS) procedure, in connection with the “Montagne d'Or” mining megaproject in French Guiana. The investors are reportedly claiming over $4.5 billion in compensation, marking the first major investment arbitration case against France.

The complaint was initiated in 2021 on the basis of the 1989 France-Russia bilateral investment treaty, following the French government's withdrawal of support for the project, which was deemed in 2019 by the Ecological Defence Council to be incompatible with the environmental standards set by the executive.

This case arises in a context of growing tension between the obligation to protect foreign investments and the need to safeguard the environment. It raises questions about the ability of states to redefine their priorities in terms of sustainable development and ecological transition, given the commitments made under investment treaties.

Analysis of the “Rebalancing Mechanism” of the EU-MERCOSUR Free Trade Agreement

Mathilde Dupré & Stéphanie Kpenou — 2025-06-05T15:02:17Z

Florian Couveinhes Matsumoto and Sabrina Robert, Professors of Public Law and International Law, have produced for the Veblen Institute an in-depth analysis of the “Rebalancing Mechanism” of the EU-MERCOSUR Free Trade Agreement.

Of the many concerns raised by the current version of the EU-Mercosur Free Trade Agreement adopted on 6 December 2024, those relating to the inclusion of a “rebalancing mechanism” in the chapter on dispute settlement (article XX.4 (b)) are perhaps the most serious. This mechanism was added in response to a request from Mercosur Member States that the EU give them greater policy space for their industrial development. This mechanism raises questions about the risks it may pose to the efforts of the EU and its Member States to address the environmental emergency and, more generally, to reconcile social, economic and environmental issues within the framework of EU trade policy.

1. At this stage, the scope of the rebalancing mechanism in the EU-Mercosur FTA remains unclear. However, it is particularly broad, covering future measures and those already adopted by the lawmaker but not yet fully implemented.

The notion of “measure” is defined by the Agreement in a broad manner and is not limited to measures adopted after the conclusion or entry into force of the Agreement, but includes all measures that have not yet been “fully implemented “by the end of the negotiations (i.e. on 6 December 2024). This definition extends the scope of the Agreement beyond what is usually provided for. It is almost certain that the mechanism can be used against the EUDR, given that the implementation of half of its provisions, relating to the private sector, has been postponed until 31 December 2025 and that its application requires the EC to implement several information and certification systems, etc. Other environmental regulations that are currently under discussion or have already been adopted but require implementing regulations could also be affected. The use of the rebalancing mechanism to challenge the operation of the CBAM is also predictable. Most health and environmental regulatory measures are necessarily progressive, adaptable, and evolving. As a result, identifying the date for their full implementation is tricky and there is a risk that the mechanism could be used against most of these regulations.

2. The mechanism provided for in the current version of the EU-Mercosur Agreement is much less precise than that of GATT or of the Trade and Cooperation Agreement with the United Kingdom (TCA).

A Party to the TCA can react to what it sees as a destabilisation of the trade or investment relationship established by the treaty, due to a change in the regulations of the other Party. However, it only permit reactions based on significant divergences “with respect to labour and social, environmental or climate protection, or with respect to subsidy control”. The use of the mechanism is mainly envisaged for the benefit of the Party that is strengthening its environmental, social or health regulations, and with the aim of protecting its national production from unfair competition arising from the lower standards of the other Party. The TCA also describes in great detail the procedure involving searching for an amicable solution and, failing agreement, recourse to an arbitration tribunal.

In contrast, the mechanism of the EU-Mercosur Agreement is already the subject of disagreement over its interpretation on both sides of the Atlantic. For the EU, the mechanism “only concerns trade effects of measures that the complainant could not have expected when the deal was closed”. On the Brazilian side, the government maintains that the mechanism is intended precisely to counterbalance the implementation of regulations adopted between 2019 and 2023.

3. This mechanism places additional pressure on the regulator, thereby presenting a risk of inhibiting the regulator's ability to set standards or even compromising its independence.

It applies to measures of any kind that may be adopted after the entry into force of the Treaty, but also to “omissions and legislation that have not been fully implemented by the conclusion of negotiations of this Agreement and its implementing acts”. This gives the Agreement a retroactive effect, which makes it difficult to assess the extent to which the measure could have been anticipated, the core criterion when reviewing the admissibility of complaints in non-violation situations.

In environmental and health protection, the context of growing insecurity requires public authorities to adopt emergency measures, sometimes experimental, innovative and progressive, that have not been anticipated over the long term. The rebalancing mechanism could be an obstacle to the regulatory discretion needed by public authorities to implement effective and efficient protection measures.

On the other hand, the rebalancing mechanism was clearly introduced into the EU-Mercosur Agreement in response to the EU's tendency towards unilateralism in the face of multilateral inertia. However, the text of the Agreement provides for numerous regulatory cooperation disciplines designed precisely to neutralise this unilateralism (see chapters on SPS, TBT, Transparency, Dialogues; the Cooperation Protocol and the TSD Annex). These disciplines aim to establish an ongoing dialogue between the contracting parties on the development of their respective regulations. They require each Party to pay close attention to the other Party's assessment of the impact of the regulation on trade or of its environmental or health requirements. Each Party will, therefore, have to take into account the capacities, needs and expectations of the other Party when devising regulations.

Given the importance attached to this cooperative approach under the EU-Mercosur Agreement, it is clear that the reciprocal pressure on regulators is strong. And if, despite all these dialogue mechanisms, a contracting Party were to adopt a unilateral measure that did not take account of the outcome of these dialogues, the rebalancing mechanism could be mobilised. In other words, the potential invocation of Article XX.4 b) adds to this pressure and the risk of the regulator being captured.

Recent fossil fuel arbitration claims based on the ECT highlight the urgency of neutralizing the sunset clause

Mathilde Dupré & Stéphanie Kpenou — 2025-05-15T10:02:29Z

The Veblen Institute publishes a briefing on new cases of investor-State disputes based on the Energy Charter Treaty (ECT).

Despite the exit of the EU and 11 Member States, as well as the UK from the ECT, the briefing highlights that the agreement continues to be massively used by investors:

firstly because it takes a year for the exit of a party to become effective after notification
but also because, under the so-called sunset clause, investments protected on the exit date remain protected for a further 20 years. And the States that have withdrawn to date have taken no steps to neutralise this clause, at least among themselves.

Since the finalisation of negotiations for the modernisation of the Treaty, 24 new cases have been officially registered.

EU Member States (or the EU itself) are respondents in 20 of the 24 cases.
In 14 cases, the investors are from an EU Member State, and in 8 cases from the UK.
Half of the cases (12) are intra-EU cases, involving at least one investor from an EU Member State against another EU Member State. Yet in 2021, the Court of Justice of the European Union (CJEU) ruled that such intra-EU disputes based on the ECT are incompatible with EU law.
16 cases concern activities linked to investments in fossil fuels (8 are described in more detail in the annex).

This is why the Veblen Institute urges France and the other parties that have exited the ECT to draw up an agreement to deactivate the ECT's sunset clause and to revisit the other bilateral treaties to which they are party and which contain provisions quite similar to the ECT.

Notes

The Energy Charter Treaty (ECT) is the world's most widely used investment treaty.

Despite efforts to modernise it since 2009 - leading to an agreement in principle in June 2022 and formal adoption in December 2024 - the treaty remains inconsistent with the Paris Agreement, according to France's Haut Conseil pour le Climat and the UK's Committee on Climate Change.

In 2022, the European Parliament labelled the ECT an obsolete instrument that hinders the EU's climate ambitions. In 2023, the European Commission stated that the ECT was incompatible with initiatives such as the European Climate Act, and proposed a coordinated EU withdrawal from the Treaty. This proposal was adopted by the European Parliament on 24 April 2024 and received the final green light from the Council on 30 May 2024.

At the same time, several States have already formally left the ECT or announced their intention to withdraw: France, Germany, Poland, Luxembourg, Portugal, Slovenia, Spain, the Netherlands, the United Kingdom and Denmark have formally withdrawn, while Ireland and Lithuania have expressed their intention to do so.

Finally, since the formal adoption of the modernised treaty on 3 December 2024, the International Secretariat could relaunch the process of geographical expansion of the treaty, which had been suspended during the modernisation phase.

EU-Mercosur Agreement : A ticking time bomb for forests

Mathilde Dupré & Stéphanie Kpenou — 2025-04-01T13:16:16Z

Negotiations between the EU and Mercosur countries, which began in 1999, reached an agreement in principle on trade in 2019. Further negotiations took place in 2023 and 2024, and the final text was published in December 2024. In this note, Canopée and the Veblen Institute take stock of the impact of the implementation of the agreement on deforestation, as well as European regulations on the fight against deforestation. The note also analyses the relevance of the proposed safeguards.

The EU-Mercosur agreement will lead to massive deforestation.

While Mercosur countries are among those most affected by deforestation, the reduction of over 90% in customs duties, the creation of new tariff quotas, and the abolition of export taxes provided for in the Agreement will increase exports of beef and pork, poultry, sugar, bioethanol, and soy, consequently leading to deforestation. The note points out that the agreement could lead to an initial deforestation of 700,000 hectares for beef alone, followed by continued degradation due to loss of land productivity.

The EU-Mercosur agreement threatens the European regulation against deforestation

The annex to the trade and development chapter of the agreement limits the controls provided for in the European Anti-Deforestation Regulation (EUDR). It compromises the independence of the control authorities.
In addition, the EU undertakes to take account of the existence of the EU/Mercosur agreement when assessing the risk of deforestation in Mercosur countries. However, given the weak guarantees offered by the agreement, it is clear that it is in no way an indicator of a low risk of deforestation.
Finally, the mechanism for rebalancing concessions in the Agreement could neutralise the EUDR. This mechanism could dissuade the European authorities from fully applying the European regulation, which will come into force in December 2025. Based on data from 2020 to 2022, the risk posed by the rebalancing mechanism on deforestation amounts to almost 69,000 hectares per year. This figure is probably underestimated because it does not consider indirect deforestation and does not include the risk of deforestation linked to wood imports. This deforestation would result in the emission of at least 11.8 million tonnes of CO2 per year.

A semblance of safeguards

The commitment by States “to implement measures, in accordance with its national laws and regulations, to prevent further deforestation and to enhance efforts to stabilise or increase forest cover by 2030” is very limited in scope. This is not least because countries are only committing themselves—in a non-binding way—to enforcing their laws, even though the impact of deforestation is the same whether it is legal or not.

There's still time to reject this agreement.

The agreement must be ratified, and the complete ratification procedure to be proposed by the European Commission is not yet known. It could split the political and commercial components of the agreement, thereby circumventing any vetoes from Member States. But regardless of the procedure chosen, the agreement could be blocked if it does not receive the approval of the Council or the European Parliament. Everything will, therefore, depend on the votes of the Member States and MEPs.