Why Now Is the Right Moment for the EU–Mexico Agreement

Mexico is no longer merely a promising destination for foreign investment. It has become one of the central beneficiaries of the reorganization of global production.

Nearshoring, North American economic integration, geopolitical fragmentation, and the search for more resilient supply chains have pushed foreign direct investment in Mexico to unprecedented levels. In 2025, the country received US$40.87 billion in FDI, setting a new annual record for the fifth consecutive year.

That sustained growth shows that international companies already believe in Mexico’s industrial potential. But the next stage will be more difficult. Attracting capital is not the same as converting it into new factories, electricity generation, transmission networks, water infrastructure, logistics platforms, data centers, and advanced manufacturing ecosystems.

Those investments require more than opportunity.

They require legal predictability.

This is why the modernization of the EU–Mexico Global Agreement arrives at precisely the right moment. Its most important contribution may not be the removal of another tariff or the expansion of another export quota. It may be the creation of a more modern, transparent, and enforceable legal framework for long-term investment between Mexico and Europe.

Europe Is Already Invested in Mexico

Europe is not entering Mexico for the first time.

The European Union is already Mexico’s second-largest source of foreign investment after the United States. EU investment stocks in Mexico reached approximately €206.6 billion (US$236 billion) in 2024, compared with €24.6 billion in Mexican investment stocks in Europe.

European companies are deeply embedded in Mexico’s productive economy. German businesses have helped build the country’s automotive and advanced-manufacturing base. Spanish capital has played a prominent role in banking, telecommunications, infrastructure, energy, and tourism. French companies are active in aerospace, transport, pharmaceuticals, consumer goods, and engineering. Italian, Dutch, Belgian, Nordic, and other European investors participate across logistics, chemicals, financial services, food production, technology, renewable energy, and industrial equipment.

The modernized agreement is therefore not about creating an economic relationship from nothing. It is about protecting, diversifying, and expanding an investment relationship that already exists.

During the last two decades, European companies helped construct Mexico’s manufacturing platform. During the next two, they may help build the energy and infrastructure systems that power it.

Why the Modernization Adds Legal Certainty

Companies do not invest billions simply because labor costs are competitive or market demand is growing. They invest when they can reasonably predict the legal environment in which their assets will operate over the next 20 or 30 years.

This is especially important for capital-intensive projects. A manufacturing plant, electricity-generation facility, transmission network, port terminal, railway, or water-treatment system cannot be relocated easily when regulations change. Such projects require large upfront commitments, permits, land rights, financing arrangements, long-term contracts, and confidence that public authorities will apply the rules consistently.

Once fully ratified, the modernized EU–Mexico framework is expected to strengthen that confidence through substantive and procedural investment protections.

At the substantive level, modern investment-protection provisions generally protect covered investors against discriminatory or arbitrary state conduct. They establish rules governing matters such as unlawful expropriation, fair and equitable treatment, non-discrimination, and the treatment of investors relative to domestic or third-country competitors.

Protection against expropriation does not prevent a government from taking property for a legitimate public purpose. It requires that expropriation occur under due process, without unlawful discrimination, and with appropriate compensation. The distinction is particularly relevant in regulated sectors such as energy, transport, telecommunications, and infrastructure.

Fair and equitable treatment is also important. Although its precise application depends on the treaty text and the facts of each case, the standard is generally intended to protect investors against conduct such as manifest arbitrariness, denial of justice, fundamental breaches of due process, or targeted discrimination.

National-treatment provisions address discrimination between foreign and domestic investors in comparable circumstances, while most-favoured-nation treatment concerns discrimination among foreign investors from different countries. Together, these standards are designed to ensure that European investors are not placed at an unjustified disadvantage merely because of their nationality.

However, legal certainty does not mean freezing regulation.

The European Union’s modern investment policy expressly recognizes the state’s right to regulate in pursuit of legitimate public objectives. These may include environmental protection, public health, labor standards, consumer protection, climate policy, and energy security.

This balance is essential. Investors need protection against arbitrary state action, but governments must retain the authority to regulate in the public interest. A modern investment agreement should clarify that boundary rather than remove regulatory sovereignty.

From Ad Hoc Arbitration to an Investment Court

The procedural reforms may be just as important as the substantive protections.

Traditional investor-state dispute settlement, or ISDS, generally relies on arbitral tribunals created separately for each dispute. Critics have argued that this ad hoc structure can generate inconsistent interpretations, concerns over arbitrator independence, limited appellate review, and insufficient transparency.

The modernized EU–Mexico agreement replaces the older model with an Investment Court System. According to the European Commission, the new structure is intended to improve investor protection while replacing traditional investor-state arbitration with a more institutionalized system.

Rather than allowing each party to select conventional party-appointed arbitrators for an individual case, the ICS model uses a standing adjudicative structure with publicly appointed members, defined ethical obligations, and greater institutional continuity. It also includes an appellate mechanism capable of reviewing legal errors and promoting more consistent interpretation.

For investors, this matters because predictability is not produced only by the wording of legal protections. It also depends on how those protections are interpreted and enforced.

A permanent or semi-permanent adjudicative structure can gradually develop a more coherent body of decisions. Greater transparency allows governments, investors, lawyers, and the public to understand how treaty standards are being applied. Ethical rules and limits on conflicts of interest are intended to reinforce the legitimacy of the process.

No treaty can eliminate political, regulatory, or commercial risk. But it can reduce legal uncertainty by creating clearer rules, enforceable commitments, and more predictable procedures for resolving disputes.

For infrastructure investments measured in decades rather than years, that difference is fundamental.

Plan México Needs Mixed Investment

The timing of this legal modernization is particularly significant because Plan México requires enormous levels of investment.

The strategy seeks to strengthen national supply chains, increase domestic content, support advanced manufacturing, encourage technological development, and attract productive investment. It also contemplates development hubs, infrastructure projects, and incentives for fixed assets, technology, research, and workforce training.

Crucially, Plan México recognizes that public funding alone will not be enough. It proposes mixed-investment schemes for infrastructure projects requiring at least MXN100 billion in private investment.

These models can combine public-sector planning and strategic control with private capital, technology, construction capabilities, and operational experience.

That combination will be essential in energy.

Mexico’s Strengthening and Expansion Plan for the National Electric System for 2025–2030 anticipates approximately MXN624.6 billion in investment and the addition of around 29,000MW of generation capacity through public and private participation.  The Mexican government has also described an electricity expansion program involving more than US$22 billion in projected investment, with additional capacity from both CFE and private investors.

This is not merely energy policy.

It is industrial policy.

Factories need electricity. Data centers require stable and increasingly low-carbon power. Electric vehicles require charging infrastructure. Industrial parks need transmission lines and substations. Battery and semiconductor production need resilient grids. Green hydrogen requires large volumes of renewable generation.

Nearshoring without sufficient electricity is only a geopolitical promise.

Electrification is what turns it into factories, employment, exports, and lasting industrial capacity.

The Next European Investment Wave Will Be Led by Electrons

My prediction is that the next major wave of European investment in Mexico will not be led exclusively by automotive manufacturing.

It will be led by electrons.

Europe possesses many of the companies, banks, pension funds, development institutions, infrastructure investors, and technology providers needed to support Mexico’s energy expansion. European businesses already have expertise in renewable generation, grid equipment, energy storage, transmission technology, industrial efficiency, electrified mobility, water infrastructure, and sustainable finance.

Mexico has the complementary ingredients: expanding industrial demand, strategic geography, access to the North American market, a large manufacturing base, and a growing pipeline of energy and infrastructure projects.

If Mexico can produce bankable projects, efficient permitting, understandable regulation, and stable contractual structures, European capital is likely to flow into generation, storage, transmission upgrades, substations, industrial energy systems, distributed generation, sustainable fuels, and infrastructure serving new development hubs.

The modernized agreement cannot build a power plant or transmission line by itself. Nor can it replace domestic energy regulation, permitting reform, project preparation, or effective public administration.

What it can do is lower part of the perceived legal and political risk surrounding long-term capital allocation. It can give investors clearer substantive protections, more transparent dispute-resolution procedures, and greater confidence that the economic relationship between Mexico and Europe rests on enforceable commitments rather than political goodwill alone.

The agreement’s signature is therefore not the final achievement.

Implementation will determine its value.

Mexican authorities and project sponsors must present opportunities in ways that satisfy European financial, technical, governance, and sustainability requirements. European investors must look beyond familiar sectors and recognize the scale of Mexico’s infrastructure needs. Business organizations, banks, legal advisers, development institutions, and specialized platforms must help connect capital with credible projects.

Mexico does not lack industrial potential.

Europe does not lack capital, technology, or infrastructure expertise.

What has often been missing is the bridge between them.

The modernized EU–Mexico Agreement can help provide that bridge by transforming legal certainty into investment confidence—and investment confidence into energy, infrastructure, and productive capacity.

Trade built the first chapter of the modern EU–Mexico economic relationship.

European investment could electrify the next one.