New Trade Agreements with Mercosur and Mexico – Strategic Considerations for European Investors

Strategic Considerations for European Investors

The EU’s new agreements with Mercosur and Mexico open major opportunities for European investors. For foreign investment protection, investors, however, still have to rely on older international investment agreements and contract-based protection. Investors should be aware of investment risks and proactively protect their investments - through treaty planning, careful structuring and robust contracts.

Mercosur and Mexico: Two Key Markets for European Investors

Mercosur and Mexico are major markets for European investors that appear to be particularly interesting in times of global economic and political changes that challenge established business relationships.

The Mercosur is a commercial block in South America comprising Argentina, Brazil, Paraguay and Uruguay. Combined, these four countries constitute the 6^th largest economy in the world. The European Union (EU) was the second largest trading partner in goods for the Mercosur in 2024 and the Mercosur was the 10^th largest trading partner in goods for the EU that same year. The main goods exported by the EU to the Mercosur are machinery, pharmaceuticals and chemical products whereas the Mercosur mostly exports agricultural products, minerals and paper products to the EU. The trade in services between the two blocks reached over EUR 42 billion in 2023. The EU is also the largest investor in the Mercosur, with EUR 390 billion invested in 2023.

In turn, Mexico is the 12^th to 15^th largest economy in the world and the second largest in Latin America (behind Brazil). In 2025, the EU was Mexico’s third-largest trading partner and Mexico’s second-biggest export market with bilateral trade in goods amounting to EUR 86.8 billion. The EU’s key imports from Mexico are machinery and appliances, mineral products, chemical products, transport equipment and base metals. Services exported by the EU to Mexico in 2024 amounted to EUR 20.3 billion and consisted mainly of business services, transport services, travel services and telecommunications, computer and information services. The EU is the second-largest investor in Mexico and the EU’s investment stocks in Mexico amounted to EUR 206.6 billion in 2024, while Mexican investment in Europe amounted to EUR 24.6 billion.

New Trade Agreements: Where Things Stand Today

In recent months, the EU has signed two new trade agreements with Mercosur and Mexico. The EU-Mercosur Partnership Agreement (EMPA) was signed on 17 January 2026, and the EU-Mexico Modernised Global Agreement (MGA) was signed on 22 May 2026. Both agreements require separate approval by the European Parliament and Member States before they can enter into force. However, in the meantime, two interim trade agreements, one for the EMPA and one for the MGA, which cover only those parts of the EMPA and the MGA that do not need individual ratification by the Member States, can already be applied. The interim trade agreement related to the EMPA has already entered into force on 1 May 2026.

New Opportunities but Investment Risks Remain

Both new agreements are critical to the EU’s strategy to diversify its trade relations and strengthen economic and political ties with like-minded partners around the world. They aim to strengthen value chains and help the EU to widen its range of reliable sources for critical inputs and raw materials. The EMPA will create the world’s biggest free trade zone and reduce often prohibitive Mercosur duties for EU exports, including on key industrial products such as cars, machinery and pharmaceuticals. The EMPA will also make it easier for EU companies to invest in key supply chains, including for critical raw materials and related goods. The MGA will remove tariffs on EU agri-food exports to Mexico and will also provide important access to critical raw materials. The new agreements aim to increase trade and investment by creating more stable and predictable rules, including in the areas of intellectual property rights, food safety standards and regulatory practices.

While these new opportunities are very promising, they need to be accompanied by appropriate risk management strategies. Foreign direct investments are typically made over a long investment horizon. Consequently, European investments in the Mercosur and in Mexico will be exposed to political risk in a region that has been characterized by repeated periods of political instability. However, the EMPA does not include an investment chapter, and the MGA contains only very limited foreign investment protections. Neither does provide for Investor-State Dispute Settlement (ISDS), also called international investment arbitration.

International investment arbitration is generally viewed as an important procedural tool for foreign investors who are wary of having to litigate potential disputes that can arise with the host State over regulatory changes in the local court system, where foreign investors may face language barriers, procedural uncertainty and concerns about neutrality.

Fortunately, in the absence of an investment chapter in the case of the EMPA, and as long as the investment chapter has not been ratified by all EU Member States, in the case of the MGA, existing bilateral investment treaties (BITs) in force between EU Member States and Mexico, and BITs in force between EU Member States and Mercosur Member States, continue to apply.

BIT Protection Remains Critical

Germany, France, Spain and Italy, for example, all have BITs in force with Argentina, Paraguay, Uruguay, and with Mexico. All of these BITs are so-called “first-generation” BITs, signed in the 1970s, 1980s and 1990s, and include very broad protections for foreign investors and their investments.

They guarantee fair and equitable treatment by the host State, protect against unlawful expropriation, even if the expropriation is indirect, protect against discrimination and against arbitrary treatment by the host State. Importantly, they also offer access to international investment arbitration.

The exact protections offered always depend on the wording of each treaty and differ from one agreement to another. The treatment guaranteed by the BITs signed by Germany with Mexico and the different Mercosur Member States, for example, is broader than the treatment offered by the BITs France signed with Mexico, Argentina and Paraguay. Certain of the BITs signed with Argentina and Uruguay allow for international investment arbitration only after litigating in national courts for 18 months. Some BITs force foreign investors to choose between pursuing their claims before local courts or before an international tribunal. Finally, some BITs, such as the France-Mexico BIT, exclude tax measures from their scope of application, while others do not – an important distinction, as an increasing number of investment disputes arises out of tax obligations.

While the scope again varies from one BIT to another, usually, BITs protect direct shareholders in the underlying investment, indirect shareholders, ultimate beneficial owners, and sometimes even lenders. To ensure BIT protection, if necessary, investors can (re-)structure their investments through a jurisdiction that has a bilateral or multilateral investment treaty in place with the host State of their investment. Importantly, corporate (re-)structuring for investment protection purposes is allowed only before a dispute with the host State has become foreseeable and should therefore be done at the outset of an investment. Finally, corporate structuring to increase investment protection should also always take into account other considerations such as tax policies.

Contract-Based Investment Protection as an Alternative

Contrary to the other Mercosur Member States and Mexico, Brazil does not have any international investment agreements in force with access to international arbitration or any of the common substantive investment protections. It therefore requires a different protection toolkit. For EU investors in Brazil, contract-based arbitrations can present an efficient alternative to BIT protections. Contractual agreements can anticipate disruptions and include corresponding protections, such as force majeure and stabilization clauses. In some cases, contracts can even mirror treaty protections or include protection under public international law. Contracts can also provide for a neutral dispute settlement mechanism in the form of international arbitration. Specific attention should be paid to the seat of any future arbitration, as well as to the applicable law and the selection of the arbitrators.

Practical Advice for European Investors

European investors who wish to take advantage of the new trade and investment opportunities offered by the EMPA and MGA are well advised to actively manage political risk through strategic investment treaty planning and pro-active contract-based protections. In particular, EU investors should:

• Monitor geopolitical developments to identify vulnerabilities;
• Map existing BITs and consider corporate restructuring to enhance investment protection if necessary;
• Review all contracts on whether they include an efficient dispute settlement mechanism as well as clauses that provide protection against regulatory changes such as stabilization and force majeure clauses;
• Always seek legal advice before initiating any legal action relating to an investment dispute, as in some cases claims before local courts can preclude access to international investment arbitration under a BIT.