The US-Mexico-Canada Trade Agreement (USMCA), the replacement to the North American Free Trade Agreement (NAFTA), entered into force on 1 July 2020.
On 24 April, 2020 the United States Trade Representative issued a press release confirming that all three NAFTA member states had notified the other parties, in writing, that they had completed the internal procedures required for the entry into force of USMCA. According to Paragraph 2 of the Protocol replacing NAFTA with the USMCA, the USMCA therefore entered into force on the first day of the third month following the last notification, i.e. on 1 July, 2020. Under the sunset clause, NAFTA will remain in effect for three years from this date for legacy investments and pending claims.
Among the differences between the USMCA and NAFTA are the revised Investor State dispute settlement provisions at Chapter 14 of the USMCA. Investor-state arbitration has been removed for Canadian investors and the Canadian state, although there remains potential for investment disputes between Canada and Mexico to be referred to ISDS under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (to which the US is not a party). As between Mexico and the US ISDS remains, but the scope of potential claims are narrowed. Under the USMCA, investor-state claims may be brought for alleged breaches of post-establishment national treatment or most favoured nation treatment, as well as alleged direct expropriations. Claims for fair and equitable treatment and for indirect expropriation are not included. In other changes, the treaty contains a 30-month local remedies requirement, as well as a 4-year limitation period for bringing claims (with a shorter limitation period for certain government contracts). Chapter 14 also includes transparency requirements and “double-hatting” limitations, with arbitrators in one arbitration being forbidden from acting as counsel, expert or witness in any other USMCA proceedings while the arbitration is ongoing (Annex 14-D, Article 6(5)(c)).
For more information or to discuss the implications of the USMCA for you or your business, please contact Christian Leathley, Partner, Amal Bouchenaki, Partner, or your usual Herbert Smith Freehills contact.