Originally from The American Review of International Arbitration

PREVIEW PAGE

ABSTRACT

The United States-Mexico-Canada agreement (USMCA) presents an innovative investment chapter addressing some concerns of States. Mexico and the United States limit their risk exposure and investment protection to “some” of the most sensitive sectors in which investors and States encounter conflict. It offers new solutions to many of the States’ concerns with the exercise of regulatory powers and ISDS in general. The USMCA’s investment chapters may set a new benchmark for investment protection as they address many concerns.

The USMCA was negotiated under very unique circumstances. Investment arbitration is in a compromising situation. Different States have expressed concerns, which generate diverse proposed solutions. The ICSID Convention, which was once considered to be the most efficient mechanism for resolving investment disputes, is now under severe scrutiny by UNCITRAL Working Group III. Despite the States’ concerns, Canada, Mexico, and the United States negotiated the USMCA, which has now replaced NAFTA.

This article, explores how USMCA Contracting States addressed some of the current ISDS concerns in the treaty text. First, it examines the circumstances surrounding the USMCA negotiations, including a description of the current state of the art in investment treaty protection, the particularities of the United States, rolling back decades of trade policy to “put America first” and the extreme circumstances of the USMCA negotiations. Second, it analyzes the uniqueness of the USMCA investment chapter and explains how the USMCA addresses and resolves some of the current investment concerns. Finally, the article closes with the findings. 

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This article is timely because the USMCA addresses many of the concerns raised by States in UNCITRAL Working Group III and offers some solutions that merit reflection. NAFTA terminated as of July 1, 2020; however, the USMCA extended NAFTA’s Chapter 11 ISDS rights for three years for legacy investment claims.   That three-year window recently came to an end. Therefore, the innovations under the USMCA will soon come into play.

There are numerous questions about the USMCA’s potential impact on the ISDS arena. For instance, will the USMCA double ISDS system for claiming breaches of the treaty become the gold standard of investment protection? How likely is it that States will decide to adopt the solutions proposed by this treaty to solve some of the ISDS concerns? How efficient will the solutions presented by the treaty be in addressing the concerns?

This article provides answers to some of these questions. However, much remains to be seen. The main objective of this article is to present the alternatives and solutions that the USMCA brings to the ISDS field. The reader should be aware that USMCA’s text is the product of aggressive negotiations in an environment of discontent and doubt experienced by all participants and, most notably, the United States’ protectionist policies. This article makes no attempt to analyze the novel treaty provisions of which investors should be aware. There is a wealth of literature that achieves this goal. The intent of this article is to approach this subject matter with profound intellectual curiosity to understand how the USMCA Contracting States addressed some of the current ISDS concerns in the treaty text.

First, the circumstances surrounding the USMCA negotiations will be outlined, and a description of the current landscape of investment arbitration will be provided. Second, the article will discuss the approach adopted by the USMCA to address various investment concerns raised by UNCITRAL Working Group III. These concerns relate to arbitrator conflict of interest; the consistency, coherence, predictability, and correctness of arbitral decisions; concerns with the regulatory chill and States’ risk exposure; concerns about costs and the duration of investment arbitration cases; and concerns about transparency.