Investors Must Act Quickly or Waive Rights to Claims Under Soon-Expiring NAFTA Chapter 11 | Hogan Lovells

Introduction

Currently, NAFTA Chapter 11 protects U.S. investors and their investments in Canada and Mexico, Canadian investors and their investments in the U.S. and Mexico, and Mexican investors and their investments in the U.S. and Canada . Foreign investors, including corporate investors and individuals, have rights that could result in damages to compensate for damages caused by the United States, Canada or Mexico to the investments of such foreign investors. Investors could file ISDS arbitration claims seeking compensation for expropriation, violation of fair and equitable treatment, and/or discriminatory treatment in violation of national treatment and nation la more favored.

NAFTA ended on July 1, 2020. However, the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA, extended NAFTA Chapter 11 ISDS rights for three years for legacy investment requests.1 This three-year window is coming to an end. end and investors must file a request for arbitration before July 1, 2023or they will lose all claims under NAFTA Chapter 11.

Effective July 1, 2023, the protections contained in NAFTA’s successor agreement, the USMCA, will remain. The USMCA eliminated ISDS fees for American investors in Canada or Canadian investors in the United States. It only protects American investors in Mexico and Mexican investors in the United States, and reduced those rights from those that currently exist under NAFTA. In addition, Canadian investors can bring investment disputes against Mexico under the high-level Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

NAFTA Article 1119 also requires the aggrieved foreign investor to deliver to the United States, Canada, or Mexico written notice of intent to submit claims to arbitration (notice of intent) “at least 90 days before the claim is submitted”. Under this procedural rule, the deadline for filing a notice of intent and triggering the start of a NAFTA legacy dispute is earlier than April 1, 2023.

What steps should investors take before starting arbitrage?

Under NAFTA, a Notice of Intent is a preliminary document used to initiate discussions with the foreign government seeking to resolve the dispute amicably. He intends to put the government on notice of a dispute. The notice of intention is a preliminary step to filing requests for arbitration. The notice of intent initiates the reflection or consultation period. Filing a Notice of Intent is not the same as filing Requests for Arbitration – it is simply a mechanism to start the clock on waiting times specified in treaties and to facilitate negotiation with the host government to resolve the dispute. During this period, investors will attempt to resolve the dispute amicably before commencing any ISDS arbitration as a formal disputed matter.

If 90 days have passed after the Notice of Intent was filed and a settlement has not been reached, the investor may file the Request for Arbitration, a more detailed document formally beginning the arbitration. If the arbitration proceeds, the parties will select arbitrators and exchange written submissions and document disclosures. The panel of arbitrators will hear the parties’ arguments and ultimately render a decision in the form of a binding arbitration award.

Why file claims under NAFTA before the deadline?

Because of NAFTA’s substantive strong protections, significant procedural advantages, and the large number of proven investment arbitration cases under NAFTA, NAFTA is a leading international organization as the basis for investment claims. When legacy NAFTA claims are no longer available, investors can lose valuable rights and damage claims.

The USMCA is another international agreement that could serve as a basis for filing ISDS claims. However, NAFTA contains a broader scope of substantive protections, broader ISDS rights, and fewer procedural hurdles. USMCA protection standards, on the other hand, are more limited.

The USMCA’s investment arbitration mechanism covers two distinct categories of investments. In the first category of the USMCA, general investors can only claim discrimination and direct expropriation. In the second category, only investors in specific sectors can claim the broader treaty protections. NAFTA does not make this distinction and grants equal protection to different types of investments.

For more details on the USMCA Investment Chapter and associated ISDS rights, see our previous article: “The USMCA Goes Into Force: A Snapshot of Its Investment Chapter.”

Under the USMCA, the governments of the United States, Canada, and Mexico will still have access to state-to-state dispute settlement to resolve investment disputes. However, there are very few examples of state-to-state disputes under international investment agreements.

Additional Considerations

NAFTA allows investors to seek damages involving harmful actions taken by the United States, Canada and Mexico. In order to successfully pursue a claim under NAFTA, an investor must prepare a detailed factual record to establish treaty violations. The first step in claiming such damages is to submit a Notice of Intent before April 1, 2023 so as not to lose these rights.

References

1 USMCA, Annex 14-C provides that a protected “legacy investment” is an investment of a U.S. investor in Mexico established or acquired before the end of NAFTA that already existed on the effective date of the NAFTA. USMCA on July 1, 2020.

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