What’s Behind the EU-Mexico Trade Deal?

Welcome back to Foreign Policy’s Latin America Brief.

The highlights this week: Mexico and the European Union update their trade agreement, a Brazilian drug gang travels to Ukraine to get smart on drones, and exiled Venezuelan opposition leader María Corina Machado plans her return.

Top European Union officials were in Mexico City last Friday for the first EU-Mexico summit in more than a decade. They left with something to show for it, signing an expanded free trade agreement expected to be ratified by both sides in the coming months. It comes on the heels of an EU trade deal with South American customs union Mercosur that took provisional effect earlier this year.

The original EU-Mexico deal covered only industrial goods, but the updated pact adds services and farm produce. It also includes measures to ease cross-border investments and allow European companies to bid for some Mexican government contracts.

The EU will additionally mobilize around $5.8 billion in investments in Mexico that are aligned with President Claudia Sheinbaum’s Plan Mexico economic development strategy, European Commission President Ursula von der Leyen said.

Taken together, these announcements mean that Mexico and EU countries now have more options for doing business as they are rattled by U.S. President Donald Trump’s tariffs. European Council President António Costa said the deal was about more than just trade, calling it a “true geopolitical statement” and proof of a joint commitment to “rules-based cooperation.”

The EU and Mexico are currently in different trade tussles with the United States. Brussels appears to be heading toward resolution with Washington after EU countries agreed to move forward on a draft U.S. trade deal this month. But Mexico remains in limbo as it kicks off a review process of its trade agreement with the United States and Canada, known as USMCA.

More than 80 percent of Mexico’s exports currently go to the United States. Though both Mexico and Canada have said they support extending USMCA with few changes, Trump administration officials have floated the possibility of exiting the deal.

Against that backdrop, Mexico’s agreement with the European Union “comes at a more than opportune moment,” former Mexican trade official Juan Carlos Baker wrote in Animal Político last week. “Depending on only one market (especially one that unilaterally imposes rules with constant changes) is a major risk that Mexico should mitigate through strategic diversification.”

That dependence was on display on Wednesday, when Mexico’s central bank lowered the country’s economic growth forecast for this year from 1.6 percent to 1.1 percent, saying that investment was weak partly due to uncertainty about the USMCA review.

The EU is Mexico’s second-largest source of foreign investment behind the United States. But European investment has not reached its full potential because of uncertainty about Mexico’s regulatory environment, Valeria Moy, the general director of the Mexican Institute for Competitiveness, wrote on Tuesday.

One of Sheinbaum’s first acts as president was a sweeping overhaul of the judiciary that featured direct elections for judges and shook investor confidence. The new EU-Mexico deal aims to address such concerns. It says that legal disputes over foreign investments will be handled by a new special investment court; courts of this nature in EU trade deals generally include judges from both sides as well as third countries.

With the EU deal finalized, the Sheinbaum administration is turning to the USMCA review. Although it is a trilateral agreement, the United States began bilateral talks with Mexico first. One round of negotiations takes place Thursday and Friday in Mexico City, followed by two more in mid-June and mid-July—just as the three countries cohost the FIFA World Cup.

Public comments by U.S. Trade Representative Jamieson Greer this week suggest that despite Mexico’s desire to keep the USMCA unchanged, the Trump administration seeks to maintain some of its tariffs on Mexico. As a result, Mexico might see reason to lean even harder into its growing trade relationship with Europe.

Sunday, May 31: Colombia holds first-round presidential elections.

Monday, June 1: Countries sending teams to the World Cup hit a deadline for announcing their full rosters.

Sunday, June 7: Peru holds a presidential runoff election.

Drones and drug gangs. Brazilian police are investigating suspected members of the drug gang Red Command, who traveled to Ukraine to learn about drone techniques deployed in the war against Russia, a police official told Brazilian news outlets.

The official said that police had monitored the men’s travel and communications with other suspected gang members and provided the media with a video of a purported gang-led drone training in Rio de Janeiro. On Thursday, the Trump administration designated the Red Command as a terrorist group.

Brazilian civilians have traveled to Ukraine to fight for both sides in the war. But the presence of drug traffickers highlights how nonstate actors are seeking to increase their use of drones. The Red Command used drones against Brazilian police during a government raid in Rio de Janeiro last October; their origin was unclear.

Armed groups in Colombia and Ecuador have also used drones against security forces in recent years; Colombian police have started developing their own drone tactics to fight back. In Haiti, a military contractor hired by the government has used drones to kill hundreds of people in anti-gang raids that have also killed civilians, according to reports cited by Human Rights Watch.

Caribbean travel freedoms. Barbados and Guyana will soon allow their citizens to travel between the two countries without a passport, their leaders announced on Tuesday. The new policy is set to take effect on July 1. Guyanese President Irfaan Ali said the measure aimed to increase tourism and business travel and was part of broader plans for regional integration.

Travelers will be required to use a digital ID card. The announcement is the latest step in travel liberalization in the Caribbean, which has gone against the grain of broader regional migration restrictions, citing economic development needs.