Beyond the Horizon: the EU's New Agreements with Mexico and Mercosur States (Argentina, Brazil, Paraguay and Uruguay)

On 3 September 2025, the European Commission (the Commission) submitted two proposals for the signing and provisional application of comprehensive agreements with key Latin American trading partners (collectively, the Agreements):

1. The Modernised Global Agreement (MGA), officially titled the Political, Economic and Cooperation Strategic Partnership Agreement, between the European Union (the EU) and its Member States, and Mexico; and,
2. The EU–Mercosur Partnership Agreement (EMPA), between the EU and its Member States, and Argentina, Brazil, Paraguay, and Uruguay.

These Agreements reflect the EU's strategic objective of broadening and diversifying its network of trade partners, with a particular focus on engaging major economies in Latin America.

Background

The EMPA and the MGA aim to deepen political dialogue, enhance cooperation, and foster the EU’s trade and investment relations with Mexico and the Mercosur States. 

The Agreements are comprehensive and ambitious in scope.

The MGA

The MGA is set to replace the 2000 EU-Mexico Economic Partnership, Political Coordination and Cooperation Agreement, bringing the bilateral framework up-to-date with two decades of economic, political, and technological developments.

The MGA foresees the removal of tariffs on agri-food imports to Mexico, boosting EU suppliers’ competitiveness in the Mexican market. Among others, it also envisions easier access to key raw materials (such as fluorspar, antimony and cooper), increased opportunities for EU companies to participate in public tenders in Mexico, as well as the protection of EU intellectual property. The MGA also integrates enforceable commitments to promote sustainable development.

One crucial aspect of the renewed EU-Mexico agreement is tackling corruption. In its proposal to conclude the MGA, the Commission notes how the incorporation of a protocol dealing with combating and preventing corruption in trade and investment is a first. To ensure robust monitoring and implementation of these anti-corruption measures, the MGA mandates the establishment of a dedicated Sub-Committee on Anti-Corruption on Trade and Investment.

The EMPA

In turn, the EMPA is an unprecedented agreement, as the EU does not have any preferential trade agreement with the four Mercosur founding States.

From a trade perspective, the EMPA foresees the removal of Mercosur tariffs currently affecting EU exporters (eg on car parts, textiles, and pharmaceuticals), as well as levelling the playing field for EU companies when it comes to public procurement. The expected effect is that EU companies will face less barriers when engaging in trade or investment in the four Mercosur States. 

At the same time, the EMPA also focuses on sustainability and social responsibility. This is codified in the agreement, for instance, by commitments to comply with the Paris Climate Agreement and by provisions prohibiting the attraction of investment through unfair labour standards. Compliance with those obligations can be enforced through formal government consultations or, if unresolved, an independent panel of experts.

Next steps for entry into force

The next steps involve the signature and ratification of the Agreements:

• As both the EMPA and the MGA are "mixed agreements," covering areas of both exclusive EU competence and shared competence with Member States, their full entry into force requires ratification by all EU Member States;
• Pending definitive entry into force, the EU Commission also proposed the conclusion and signature of interim trade agreements covering trade and investment liberalization to be ratified in a simplified procedure involving only EU ratification procedures; 
• Press outlets indicate that Mexican officials reported in December 2024 that Mexico "could" sign the MGA by 2025, which would also require ratification by the Mexican Senate;
• Reports concerning the EMPA are varied, with, for example, Brazilian President Lula da Silva recently reaffirming his interest in the agreement being signed in 2025, whereas President Milei's stance appears less definitive.

The steps taken by the Commission have put the EU approval process in motion, but constant monitoring is essential as comprehensive agreements are not without complication. The experience with the Comprehensive Economic and Trade Agreement (the CETA) between Canada and the EU is illustrative of this. Devised as a single mixed agreement, the CETA has been only provisionally applicable since 2017 due to the absence of full ratification by all relevant EU Member States.

Readers may also recall the failed negotiations concerning the comprehensive Transatlantic Trade and Investment Partnership (TTIP) and its directives which were declared “obsolete and no longer relevant”. This led the Commission to suggest the negotiation of “a more limited agreement”.

New approaches to dispute resolution

Comprehensive agreements such as these typically include provisions on international investment protection, together with mechanisms that allow investors to access neutral fora for the adjudication of disputes arising from breaches of any of their protected rights — a process commonly referred to as investor–State dispute settlement (ISDS).

The MGA provides for such an option (albeit in a more complex, institutionalised system structured in different tiers). This involves mandatory consultations between the investor and the respondent State (either Mexico or the EU, and, where identifiable, the relevant EU Member State). Where consultations are unsuccessful, the investor and the relevant respondent State may opt for mediation. 

Should amicable resolution prove unfruitful, the dispute then proceeds to arbitration before a division of a permanent Tribunal, comprising of nine members: three nationals of EU Member States, three nationals of Mexico, and three nationals of third countries. The members will be appointed for five-year terms by the Joint Council – composed of ministerial representatives of the EU with responsibility for trade and investment, and the Mexican Ministry of Economy. Cases will be heard in divisions of three members, with one EU national and one Mexican national, the chair being the national of a third country.

This represents a significant departure from the traditional model of international investment arbitration, where parties retain the right to appoint their own co‑arbitrators – a feature long considered one of the system’s main attractions. The MGA’s approach removes that discretion. At the same time, it incorporates safeguards against state influence, including strict ethics provisions requiring its members to be independent beyond doubt and not affiliated with any government.

Moreover, the permanent Tribunal’s awards will be subject to review by a permanent Appeal Tribunal (another departure from the common ISDS features), constituting of six members, equally subject to the above-mentioned strict ethics provisions. This body will be tasked with reviewing Tribunal decisions with respect to (i) their interpretation of the law; (ii) their factual findings; and (iii) any of the grounds set forth in Article 52 of the ICSID Convention for annulment of ICSID awards (namely the improper constitution of the arbitral tribunal, an excess of powers, corruption, serious breaches of due process, and a failure to provide an award’s reasons). 

The inclusion of this appeal mechanism by a permanent body fits within the pattern of EU dispute resolution policy when it comes to foreign investments: a trend aiming at improving consistency in interpretation and application of the law (showcased, for example, by the Multilateral Investment Court project).

This is, undeniably, a push for change in the ISDS landscape. Whether such an ambitious structure can be implemented swiftly and operate as intended remains to be seen. Nevertheless, it warrants close attention, as it may signal a deliberate response to the long-standing criticisms of ISDS. 

In contrast, the EMPA, in line with Brazil’s scepticism to investor-State arbitration, does not provide investors with access to ISDS. Notably, its dispute resolution clauses include a WTO-inspired “rebalancing mechanism”, which allows for claims against measures that “nullif[y] or substantially impai[r] any benefit accruing to it under the covered provisions in a manner adversely affecting trade between the parties”, whether such measure conflicts with the relevant provisions of the EMPA. Since its proposed incorporation to the EMPA, the rebalancing mechanism’s impact on regulatory powers has been heavily debated.

Subsequent blog posts will examine both the EMPA’s rebalancing mechanism and the MGA’s substantive investment protection provisions in detail.