Mercosur and the Broader Latin American Context

The EU-Mercosur Interim Trade Agreement has been provisionally applied since May 1, 2026. This establishes a new framework for trade between Argentina, Brazil, Paraguay, and Uruguay and the European Union. To qualify for preferential tariff treatment, the relevant rules of origin must continue to be complied with, and the necessary proofs of origin must be provided.

Mercosur is only one part of the broader LATAM context. An interim trade agreement with Chile has been in effect since February 1, 2025. Comprehensive trade arrangements are already in place with Colombia, Peru, and Ecuador, as well as with Central American countries. A modernized interim trade agreement with Mexico was signed in May 2026. The EU completed its internal procedures and issued a notification in July 2026; the corresponding notification from Mexico is still pending.

Trade agreements thus facilitate access to the European market. However, they address only some of the key issues for a company. In particular, they provide little insight into the legal and economic conditions under which a specific business model can actually be implemented in Europe.

A hypothetical case

The starting point is a Latin American company that develops and manufactures high-quality industrial products.

Its competitive advantage no longer lies solely in its mechanical engineering. A significant portion of its expertise lies in production processes, software, data, and artificial intelligence. Quality deviations are automatically detected, process parameters are optimized, and maintenance needs are predicted. Machine and production data are analyzed and used for the ongoing improvement of products and processes.

The company now wants to expand into the European market.

A first step could involve exporting through a European importer or distribution partner. However, the business model may require more extensive structures. Short delivery times, local service, components manufactured in Europe, or in-house production may make a long-term presence in Europe necessary.

In this case, the European unit is to employ staff and possibly engage in production itself. At the same time, the company’s technological unit is to be maintained. Software and AI models will be developed centrally; data generated in Europe is to be used for further development, to the extent permitted, and existing know-how is to be protected.

With a business model like this, regulation is not merely a compliance issue to be addressed later on. It is an integral part of the decision to enter the market.

Corporate structure and legal form are determined by function

For the company in the example, the first step is to determine which functions the European unit should assume.

A pure-play distribution company has different tasks and obligations than an importer. A company that manufactures products itself or markets them under its own name assumes greater regulatory responsibility. In turn, different requirements apply to an entity that primarily licenses technology or provides services.

The same applies to the AI systems used. In particular, the roles of the provider and operator, the authority to make changes, and responsibility for functions that may be relevant to production or product safety must be defined.

Only on this basis can a sound decision be made as to whether a separate company is necessary and, if so, in which member state, under what legal form, and with what specific corporate purpose it should be established.

A subsidiary, branch office, importer, or distribution structure are not interchangeable formalities. Depending on the business model and the regulatory division of roles, different corporate law solutions may apply.

Company formation is therefore not the starting point for market entry consulting. It implements, under corporate law, what the business model and regulatory requirements have previously dictated.

The same applies to the tax structure. Tax considerations are an essential part of an international establishment, but should not be the sole factor in determining which operational and regulatory functions the European entity will assume.

Product Law and Marketability

For the industrial products in our example, we must first determine which European product regulations apply and what role the European Union plays in this context.

Product law is largely harmonized across many areas within the European Union. However, this does not result in automatic or easy market access.

Depending on the product, risk assessments, safety requirements, technical documentation, conformity assessments, EU declarations of conformity, and labeling and information requirements may be necessary. Depending on the applicable regulatory framework, external conformity assessment bodies or Notified Bodies may also need to be involved.

Where a CE marking is required, it is affixed at the end of this process. The CE marking is not, in principle, an official approval. Rather, it serves as documentation of the manufacturer’s responsibility to ensure that the product meets the relevant European requirements.

Importers, distributors, and other economic operators may also be subject to their own testing, documentation, and information requirements.

In addition, there are product-specific regulations. For machinery, for example, a significant regulatory change is on the horizon. Regulation (EU) 2023/1230 generally takes effect on January 20, 2027, and replaces the previous regime established by the Machinery Directive.

The European Single Market thus facilitates the distribution of a compliant product. However, it does not replace the regulatory review and documentation required to make the product marketable in the first place.

A distinction must therefore be made between commercial access and regulatory market access.

Production and Operations in Europe

If the Latin American company does indeed relocate part of its manufacturing operations to Europe, mere marketability under product law is not sufficient on its own.

In addition to these requirements, national and, in some cases, regional or local laws apply to the construction and operation of a production facility. Depending on the project, laws governing permits, pollution control, waste management, and energy, as well as occupational safety and construction and site-selection regulations, may be relevant.

This means we need to distinguish between two levels.

Market access for an industrial product may be largely harmonized across Europe. The legal requirements regarding location, production, and operation, however, remain largely determined at the national and local levels.

A product may therefore be marketable throughout the entire internal market, even though the requirements for its manufacture or for the operation of the associated facility vary from one Member State to another.

These requirements are therefore a factor in their own right when deciding on a location and, in some cases, may be more important for attracting businesses than individual tax benefits.

AI as a Component of Industrial Value Creation

In this example, AI is not merely used as an additional software feature. It is an integral part of the production and value-creation processes.

For legal classification purposes, therefore, its specific function is decisive. A distinction must be made, for example, between whether the system serves exclusively to optimize internal processes, influences production processes, performs safety-related functions, is an integral part of the product, or can be operated and modified by the end customer.

The AI Act allocates responsibilities along the AI value chain. In the case of high-risk AI, the regulatory role of a party may also change under certain conditions. Distributors, importers, operators, or other third parties may be considered providers themselves, particularly following a significant change to a high-risk system or a relevant change in its intended use.

In the case of an AI-powered industrial product, the technical system architecture thus also becomes a matter of legal organization and the allocation of responsibility.

Data, Expertise, and Cybersecurity

In this example, machine and production data from Europe are also to be used for the further development of products and AI models. This makes the data structure itself part of the market entry strategy.

Connected industrial production continuously generates machine status data, process and quality data, error reports, maintenance information, and usage data. This information can have significant economic value.

For connected products and associated services, the Data Act establishes rights and obligations regarding access to and use of such data. The regulation has generally been in effect since September 12, 2025; for certain connected products, additional requirements regarding the technical accessibility of product data have been in effect since September 2026.

The company must therefore clarify, in particular, whether and under what conditions the European entity may transfer data to the parent company in Latin America, who is authorized to use it to improve products and models, what access rights customers have, and which usage rights must be contractually regulated.

At the same time, it is essential to prevent protected production know-how or proprietary technology from being devalued economically through data access or technical interfaces.

In addition, cybersecurity is becoming increasingly important. The Cyber Resilience Act establishes a separate European regulatory framework for products with digital components. Certain reporting requirements for actively exploited vulnerabilities and serious security incidents have been in effect since September 2026; the regulation will take full effect in December 2027.

Data sovereignty is therefore not just a compliance issue. It directly affects the economic value of the business model.

Structuring Market Entry

A market entry of this kind is not solely a legal undertaking.

Depending on the project, in addition to legal, tax, and customs advice, technical experts, conformity assessment bodies or Notified Bodies (as appropriate), patent attorneys, and local specialists may be required. To ensure commercial success, sales, market development, financing, technology implementation, and operational execution are also essential.

Especially when it comes to cross-border projects, good consulting does not mean trying to answer every single question yourself. Rather, it is crucial to ask the right questions in the right order, coordinate the points of interface, and involve the necessary specialists early on.

For the example shown, this means first defining the business model and regulatory roles. This is followed by an assessment of product compliance as well as location and operational requirements. Next, AI, data, IP, and technology must be legally structured. Only on this basis should the company’s formation, legal structure, contract structure, and further investments be determined.

In simple terms, this results in the following order:

Business Model → Regulatory Role → Product Compliance → Location and Operations → AI, Data, and IP → Company Formation, Legal Structure, and Contracts → Investment

The goal is not only a legally sound market entry, but also an economically successful one.

Eight Questions to Ask Before Making Your First Major Investment

1. What exactly is supposed to take place in the target market—sales, importing, production, operations, service, or development?
2. What regulatory role should the European entity assume?
3. Which product regulations apply, and who is responsible for conformity assessment and marketability?
4. What permits and site requirements apply to production or operations?
5. What role does AI play—internal optimization, production control, safety-related functions, or as a product component?
6. What data is generated, who is allowed to use it, and how may it be used between Europe and Latin America?
7. Where are the software, AI models, brands, patents, and know-how located, and are the intellectual property, licensing, and freedom-to-operate structures robust?
8. Which corporate, legal, and contractual structure best reflects the identified roles while also supporting efficient sales operations?

A legally sound structure is of little value if the product fails to find a market in the new market, is positioned incorrectly, or does not function effectively from an operational standpoint.

Conclusion

Trade relations between Europe and Latin America are creating new economic opportunities. The Mercosur agreement is currently making this development particularly evident.

However, as soon as a company plans to do more than simply export a finished product, customs tariffs and company formation alone are not sufficient for structuring its market entry.

Whether a European company relocates its operations to the UAE or a Latin American company enters the European market, this does not fundamentally change the situation. While the specific legal issues differ significantly, the methodological approach is comparable.

The starting point is the business model and the product. Building on that, regulatory roles, product compliance, location, data, and technology must be determined. Only then can corporate, contractual, and tax structures be designed effectively.

A successful market entry therefore requires that the product, technology, regulatory requirements, organization, and market development be considered as a unified whole from the very beginning.