The United States-Mexico-Canada Agreement (USMCA), which replaces the North American Free Trade Agreement (NAFTA) that has been in place for almost thirty years, goes into effect on July 1, 2020 and will change the way foreign investors can sue to protect their investments.
NAFTA established investor-state arbitration provisions which allowed foreign companies to sue the other member countries’ governments for unfair treatment or violations of NAFTA’s investment commitments. These provisions aimed to provide foreign investors impartial due process related to their investments by allowing investors to make claims before a neutral tribunal. The USMCA eliminates the investor-state dispute settlement (ISDS) mechanism against Canada and limits the use of ISDS between the U.S. and Mexico.
The USMCA changes the ISDS mechanism for foreign investors by:
- Phasing out the mechanism’s application to Canada over a three-year period, after which investors can only sue through Canadian domestic courts or other dispute resolution mechanisms.
- Precludes Canadian investors from bringing ISDS claims against the U.S. or Mexico.
- Limiting the claims U.S. and Mexican investors can make to claims alleging: a breach of national treatment, a breach of most-favored-nation treatment, or direct expropriation.
- Requiring investors to file their complaints in the courts or administrative tribunals of the host country and wait 30 months before initiating arbitration through ISDS.
- Imposing a four-year time limit from the host state’s breach for submitting claims to ISDS, which leaves investors 18 months to submit a claim after they have exhausted the 30-month local litigation requirement.
- Making exceptions to the claim limits and exhaustion of local remedies limitations for investors party to government contracts with the oil and gas, power generation, telecommunication, transportation, and infrastructure sectors. Investors in these sectors can use ISDS for any breach of the agreement.
The changes instituted under the USMCA will not affect ongoing NAFTA arbitrations. Investors will continue to be able to file new NAFTA claims for three years following its termination provided that the claim arises out of investments established under NAFTA and still exists on July 1, 2020. Due to the heightened prerequisites for filing a claim with ISDS under the USMCA, investors should fully understand their options for recourse before making foreign investments under the new trade agreement.
If you have questions about how the USMCA may affect your foreign investment, be sure to contact Berardi Immigration Law to speak to one of our knowledgeable attorneys today!
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