The new EU agreements with Mexico and Mercosur are now a reality. Yet the central insight remains: the agreements open the door. Businesses must walk through it themselves. Tariffs fall – but contracts, structures and market presence do not materialise of their own accord.
With the modernised EU–Mexico Agreement and the EU–Mercosur Interim Agreement, provisionally applied since 1 May 2026, two of the largest trading areas between Europe and Latin America have become reality. In our previous contributions, we have set out the foundations of both agreements (see here and here). A free trade agreement lowers tariffs and market access barriers – but it does not conclude contracts, establish companies or win disputes. Access to the European single market and economic success depend not solely on price or product quality, but on an understanding of EU regulation.
Free trade agreements harmonise tariff rates and market access rules. They do not harmonise contract law, company law or procedural law in the participating states. Whoever supplies, invests or cooperates continues to move between different legal systems, each with its own formal requirements, liability regimes and enforcement mechanisms. As the number of business relationships increases, so too does the number of situations in which well-balanced contracts, company law structures and enforceable claims are decisive. The choice between direct distribution, commercial agent, joint venture or subsidiary – the trade agreements do not relieve businesses of this decision. This initial structuring determines liability, tax burden, control and the later exit option.
With the trade agreements, the Brussels Effect also becomes a reality for businesses from outside the EU. This refers to the de facto extraterritorial reach of EU regulation beyond the EU's borders. For European regulation – whether stemming from the EU Deforestation Regulation, the due diligence duties on sustainability regulation or the carbon border adjustment mechanism – often takes indirect effect through contracts in the form of indemnity clauses, audit rights and supplier exclusion clauses.
The EU–Mercosur Agreement contains no investment chapter. With the EU–Mexico Agreement (MGA), which does contain its own legal protection system for investments, existing bilateral investment protection agreements continue to apply initially. These bilateral investment protection agreements often provide different protection than the system under the EU–Mexico Agreement. For other countries (Brazil), by contrast, there are no international investment protection agreements with EU Member States that provide access to international arbitration. Where no investment protection agreement exists, contractual investment protection provisions – such as force majeure clauses – can therefore provide a safeguard.
With respect to Mexico, it should be noted that bilateral investment protection agreements may lose their validity earlier than expected – namely through provisional application of the MGA's investment chapter, without awaiting ratification by all 27 national parliaments. Should the Council of the European Union decide this, a three-year transition period runs, during which claims can still be made under the respective old investment protection agreement. Those who fail to document and evaluate potential violations of investment protection standards before this period expires may lose the protection of the old agreements.
Trade agreements open doors. You must walk through them yourself and the first step is rarely the tariff, but rather the contract and the right structure behind it. The same applies both to European companies expanding into Latin America and to Latin American companies entering the European market: those who put the right legal framework in place early on will transform a tariff advantage into sustained commercial success.
Our Spanish & LatAm Desk supports you on both sides of the Atlantic – in contract drafting, corporate structuring and the enforcement of claims.
Dr Philipp Sahm
Chiara-Lucia Peterhammer
