International Investment Agreements

US-Mexico-Canada Agreement (USMCA)

USMCA replaced NAFTA on July 1st, 2020. Like NAFTA, USMCA also includes an investment chapter, however, significant changes were introduced, notably, limitations to initiate arbitration and the scope of claims.

Investment protection disciplines were subject to review, updating and clarifying certain concepts and standards such as the definition of investment, fair and equitable treatment (FET), among other matters. 

Can Canadians Bring an Investor Claim under USMCA?

We highlight that Canadian investors or their investment cannot submit a claim to arbitration against Mexico per USMCA. Rather, they can do so under the Comprehensive and Progressive Transpacific Partnership (CPTPP). Hence, only US investors and their investments may submit an Investor-State dispute against Mexico under USMCA provisions, specifically per Annex 14-D.

NAFTA Legacy Investment Claims

Nevertheless, an investor from the US or Canada may submit a claim to arbitration per Chapter 11 NAFTA before July 1st, 2023, since Annex 14-C USMCA introduces provisions on “legacy investment claims” but with some significant caveats for investors if they qualify as an “investor” in Annex 14-E, discussed below. 

New ISDS Condition: Exhaust Local Remedies

USMCA introduces, as a general rule, a condition to exhaust local remedies in order to submit a claim to arbitration. In other words, US investors or their investments will have to resort to local litigation prior to initiating the arbitration. Article 14.D.5 USMCA establishes five conditions, and we highlight the following three:

1. The investor or his investment must first initiate a proceeding before a competent court or administrative tribunal.  
2. The investor or his investment must obtain a final decision from a court of last resort in Mexico or 30 months (2.5 years) have elapsed from the date the court proceeding was initiated.
3. No more than four years have elapsed from the date on which the investor or his investment first acquired knowledge of a violation and the loss or damage.

In addition to the aforementioned conditions, the Mexican attorney of the investor or their investment must take into account USMCA’s Appendix 3 before initiating any court proceeding. If an attorney submits certain claims before a Mexican court, an arbitration tribunal may decide that it does not have jurisdiction on the investor’s claim to arbitration.

USMCA streamlines Investor Claims

Moreover, we note that USMCA restricts investment protection standards as compared to NAFTA. Notably, Investors and their investments that resort to ISDS under USMCA may not submit “fair and equitable treatment” as well as indirect expropriations claims.  

Covered Sectors under USMCA

Notwithstanding the foregoing, Annex 14-E USMCA excludes the application to exhaust local remedies for certain covered investments. Namely, if a US investor or investment is a party to a “government contract” in a “covered sector”, i.e. government contracts that relate to oil and natural gas, power generation, telecommunications services, transportation services, and ownership and management of infrastructure.

The investor or investment may submit a claim to arbitration when he or she considers that Mexico has breached any obligation of USMCA’s investment chapter in no less than six months or more than three years from the relevant events. 

For more information, we consider this summary may be of your interest: USMCA Investment Provisions.