The signing of the MGA marks a significant milestone in the bilateral Mexico–EU relationship. The original agreement, signed in 1997 and in force since 2000, made Mexico the first Latin American country to enter into an Association Agreement with the European Union; however, that instrument did not include investment protections. The Modernized Global Agreement substantially changes this landscape by incorporating a specific investment chapter, which establishes protection standards for investors, jurisdictional rules, and a new institutional dispute-resolution mechanism.
The signing of the MGA marks a significant milestone in the bilateral Mexico–EU relationship. The original agreement, signed in 1997 and in force since 2000, made Mexico the first Latin American country to enter into an Association Agreement with the European Union; however, that instrument did not include investment protections. The Modernized Global Agreement substantially changes this landscape by incorporating a specific investment chapter, which establishes protection standards for investors, jurisdictional rules, and a new institutional dispute-resolution mechanism.
Entry into force, ratification, and provisional application
The Modernized Global Agreement will enter into force once it is ratified by the European Parliament, the legislatures of the 27 Member States of the European Union, and the Mexican Senate. While those procedures are being completed, the parties provide for the application of the Interim Trade Agreement. The MGA also contemplates the possibility of provisional application, in whole or in part, in accordance with each party's internal procedures. Such provisional application will begin once Mexico and the European Union have notified the conclusion of their respective internal procedures. For the purposes of the agreement itself, the “date of entry into force of the MGA” is understood to refer to the date of provisional application. During the period of provisional application, the provisions of the EU–Mexico FTA (TLCUEM) will continue to apply to the extent they are not already covered by the Modernized Global Agreement.
The Interim Trade Agreement: a bridge to the Modernized Global Agreement
The Interim Trade Agreement will replace the EU–Mexico FTA (TLCUEM) as of its entry into force and will remain in effect until the corresponding entry into force of the Modernized Global Agreement. Unlike the MGA, the Interim Trade Agreement falls within the scope of the exclusive competences of the European Union. For this reason, its approval process requires the consent of the European Parliament and the adoption of a Council decision on the conclusion of the agreement, after which it may enter into force. It is important to note that the Interim Trade Agreement does not include the investor–State dispute-resolution system provided for in the Modernized Global Agreement. Nor does it contain the substantive investment protection standards, nor does it replace the bilateral investment treaties currently in force between Mexico and various Member States of the European Union.
A new investment chapter
One of the most relevant modifications of the Modernized Global Agreement is the inclusion of Chapter 10, on investment. This chapter establishes a protection regime for covered investments, with rules on jurisdiction, admissibility, substantive protection standards, and dispute resolution. The investment chapter represents a significant change from the original agreement, which did not provide for investment protections. Under the new regime, investments will be protected through standards such as protection against expropriation, fair and equitable treatment, full protection and security, national treatment, and most-favored-nation treatment.
With respect to dispute resolution, the Modernized Global Agreement introduces a relevant change from the traditional model of investment arbitration. The agreement contemplates the creation of a permanent investment tribunal, whose members will be appointed by a Joint Committee. The tribunal will be composed of nine members: three nationals of Mexico, three nationals of Member States of the European Union, and three nationals of third countries. Its members will be appointed for a five-year term. The agreement also provides for an appeal mechanism. The Joint Committee will appoint six members to the appeal tribunal: two Mexicans, two from the European Union, and two from third countries. Appeals will be heard by divisions of three members. The grounds for appeal include those provided for the annulment of awards under Article 52 of the ICSID Convention, as well as error of law and manifest error of fact, including the application of domestic law. This design increases the level of scrutiny over decisions issued under the new system.
Replacement of bilateral investment treaties
Upon the entry into force of the Modernized Global Agreement, the 14 bilateral investment treaties entered into between Mexico and Member States of the European Union listed in Annex 10-C will cease to have effect and will be replaced by the new agreement. The treaties that will be replaced are: the 1998 Mexico–Benelux BIT; the 2002 Mexico–Czech Republic BIT; the 1998 Mexico–Germany BIT; the 2006 Mexico–Spain BIT; the 2000 Mexico–Denmark BIT; the 1999 Mexico–Finland BIT; the 1998 Mexico–France BIT; the 2000 Mexico–Greece BIT; the 1999 Mexico–Italy BIT; the 1998 Mexico–Netherlands BIT; the 1998 Mexico–Austria BIT; the 1999 Mexico–Portugal BIT; the 2000 Mexico–Sweden BIT; and the 2007 Mexico–Slovakia BIT. Until the Modernized Global Agreement is ratified and the new investment regime begins to apply, the bilateral investment treaties currently in force will continue to govern.
Final considerations
The Modernized Global Agreement represents a substantive update of the legal framework between Mexico and the European Union. With respect to investment, the agreement introduces a more detailed regime than that provided in many traditional bilateral treaties, by defining the protection standards with greater precision, delimiting the scope of jurisdiction, and establishing a permanent tribunal with an appeal instance. Nevertheless, the full entry into force of the investment regime will depend on a potentially lengthy ratification process, as it requires approval both in Mexico and in the 27 Member States of the European Union. In the meantime, the Interim Trade Agreement will function as a transitional instrument, without replacing the existing bilateral investment treaties or incorporating the investment dispute-resolution system provided for in the MGA. For Mexican and European investors, the new agreement will be relevant for foreign companies in planning treaty-based protection of their investments, not only because of the incorporation of substantive protection standards, but also because of the transition to an institutionalized dispute-resolution model, with a permanent tribunal, appeal rules, and reduced participation of the parties in the selection of those who will decide their disputes.
