Mexico - June 2026

On 22 May Mexico and the European Union (EU) signed an updated version of a trade agreement that had been in force since 2000, at the same time as President Claudia Sheinbaum is renegotiating the US-Mexico-Canada Agreement (USMCA) trade pact.

The modernised global agreement (MGA) was signed at a joint Mexico-EU summit in Mexico City (CDMX). It still needs to be ratified by the Mexican senate and by all 27 EU member states before it can fully come into force. However, an interim trade agreement (ITA) will activate the commercial chapter following ratification by the Mexican senate and European parliament, meaning that it will likely come into force in the next few months.

The updated agreement will introduce a number of new rules designed to encourage trade and investment, with tariffs eliminated on most goods and trade barriers on critical minerals removed. The agreement will grant EU firms access to state-level procurement contracts for the first time; introduce independent dispute settlement panels for labour and environmental commitments; and will replace the investor-state dispute settlement (ISDS) international arbitration mechanism with an investment court system (ICS). 

In updating the deal, both parties are aiming to deepen a relationship that has become increasingly important in recent years. EU-Mexico trade has grown by over 75% in the last decade, with Mexico’s exports to the EU totalling €33.9bn (US$39.5bn) in 2025, while imports totalled €52.9bn last year. EU countries have also contributed US$88.7bn in foreign direct investment (FDI) from 2015-2024, 26% of the total for the period, according to an analysis from the Mexican think tank Instituto Mexicano para la Competividad (Imco).

Mexico’s economy ministry estimates that the new deal will increase the volume of exports to the EU by 50% by 2030. Economy Minister Marcelo Ebrard highlighted benefits to the agricultural sector, which will see tariff reductions on 86% of products, as well as the automotive industry, auto parts sectors, and industrial manufacturing in particular.

In addition, the EU announced €5bn in new investment in green and digital opportunities under its Global Gateway initiative at the summit in May, while the new legal and institutional framework under the updated deal will improve business confidence and could help to attract new private investment. Indeed, just days after the deal was signed, Nadia Calviño, the president of the European Investment Bank Group (EIB), the EU’s investment bank, visited Mexico and announced that the EIB was planning to invest €3bn in “strategic projects” in Mexico.

Limitations

However, there are several tensions that could reduce the impact of the deal. In terms of trade, the benefits to Mexico’s automotive and auto parts sectors could be impacted by the EU’s efforts to protect its own automotive sector from competition from Chinese manufacturers, many of whom have set up operations in Mexico. The deal’s impact on attracting investment may also be muted, at least in the medium-term, as the MGA “contains only very limited foreign investment protections,” according to an analysis from German business law firm Noerr. The MGA also lacks any new rules for the energy sector, after negotiators decided to leave it out of the deal following Mexico’s energy reforms in late 2024 so as not to delay an agreement. EU trade committee rapporteur Borja Giménez Larraz called the omission a “disincentive to investment” that should be rectified in future. 

In addition, the deal cannot influence other conditions that have contributed to a slowdown in investment in Mexico, including growing concerns over macroeconomic conditions. For example, on 20 May credit ratings agency Moody’s downgraded Mexico’s sovereign credit rating to Baa3, the lowest investment grade rating, citing “a sustained weakening in fiscal strength that accelerated in 2024 and that we expect to persist, as rigid spending, a narrow revenue base, and continued support to [state-run oil company] Petroleos Mexicanos (PEMEX) limit the government’s ability to stabilize debt in a low-growth environment”. This comes amid other rating downgrades in recent weeks.

Even more important is continued uncertainty over Mexico’s preferential access to the US market, which is a major factor in attracting investment in sectors such as manufacturing, due to the ongoing USMCA renegotiation. Despite the MGA signalling continued efforts to diversify away from a reliance on the US, the EU absorbs only 5% of Mexico’s exports, compared to the 83% which go to its northern neighbour. Mexico’s economic future is therefore inextricably linked to its ability to maintain favourable terms of trade with the US.

As a result, some have argued that the MGA is more important as a strategic lever for the Mexican government than it is as a standalone tool for boosting trade and investment. Negotiations over the MGA were concluded in January 2025, but the signing of the deal was delayed, perhaps due to a desire not to provoke Washington in the run up to the USMCA talks, with Mexico pushing for tariff-free access to the US market. However, US trade officials made it clear that tariffs will form part of US trade policy for the foreseeable future, potentially leading Mexico to change its negotiating position and sign the EU deal less than a week before the start of the first USMCA bilateral negotiation round on 28 May. 

Although the MGA has ostensibly strengthened Mexico’s hand, signalling that it could export critical minerals to the EU rather than to the US, for example, Washington has so far taken a hard line in negotiations. This has been demonstrated by an initial demand that all North American vehicles contain at least 50% US content and the confirmation of the US trade representative, Jamieson Greer, that tariffs will persist. This suggests that the MGA has not helped Mexico achieve greater leverage in negotiations with the US, although this may change if the senate ratifies the ITA before the completion of the bilateral USMCA negotiating rounds ending in late July. 

In conclusion, the MGA will constitute a significant upgrade to the legal and institutional framework governing trade relations between Mexico and the EU when it is fully ratified, but its economic impact will depend on fiscal and political factors inside Mexico that the agreement itself cannot solve. These factors will be influenced by the outcome of the USMCA renegotiation, with the loss of preferential access to the US market almost certain to dampen interest in investing in Mexico.

So far, there are few signs that the MGA has shifted the prevailing dynamic between the US and Mexico. Even if Mexico maintains preferential access to the US market, and succeeds in tamping down concerns over macroeconomic stability, greater trade with and investment from the EU won’t end the country’s overwhelming reliance on the US. Nonetheless, Mexico and the EU have also pledged to increase cooperation on issues such as security, the environment, technology, and human rights, which reflects President Claudia Sheinbaum’s efforts to cultivate diplomatic relationships during a difficult period in US-Mexico relations, which could result in other benefits down the line.