By: Llandan Mulrooney
Since the mid-1990s, the largest economies in North America have been in agreement under what is known as the North American Free Trade Agreement (NAFTA). To be exact, the accord came into being in 1994 on the first day of the year. At its core the accord strived to promote trade relationships between the three most favoured nations recognized by all the signing parties; the United States, Canada and Mexico. The established relationship between these three nations consequentially worked to enhance relationships and trade between all countries in the agreement. NAFTA gave privileged regime investors virtually the same protections. This category of investors includes individuals who are “party to a covered government contract” and are associated with five different covered sectors. In contrast, nonprivileged regimes are subject to long dispute times and limitations. The creation of NAFTA also sought to remove certain trade barriers such as tariffs, and enacted specific protocols or procedures to deal with any trade disturbance or controversy. Although it strived to promote economic growth and activity for many years, NAFTA ended in 2020.
The concluding process of NAFTA was lengthy, along with a substantial amount of negotiation over the course of a few years. As a result, the longstanding agreement was later replaced by the United States Mexico Canada Agreement (USMCA). The USMCA was enacted on July 1st, 2020, and although it was given a revised name, its objectives were largely the same as its predecessor. Like NAFTA, the USCMA sought to promote economic success and positive trade relationships between its members. Although similar, their differences are stark when examining how they confronted issues such as workers’ rights and safety in Mexico, the proposed elimination of tariffs, improved environmental policies and the investor-state dispute settlement (ISDS) procedure.
What Is ISDS?
The most pressing change between the two accords was in their approach of investor-state dispute settlement (ISDS). ISDS gives foreign investors the right to seek arbitration against the country or state in which it has invested. The shift to USMCA worked to diversify the circumstances in which investors are able to enact an arbitration settlement. Following the introduction of the USMCA, the previous ISDS mechanisms were limited, preventing US and Canadian investors from enacting an ISDS procedure against the state. Years later, after much deliberation, negotiators decided that the new agreement gave too much power to investors, and suppressed sovereign government powers. Additionally, within this relationship, the two countries are forced to use the local judiciary systems for approximately 28–30 months to arrive at a settlement. After that set period, they will be allowed to seek international routes if a solution is not reached.
Expanding Partnership
As part of the CPTPP, or Comprehensive and Progressive Agreement for Trans Pacific Partnership, Canada and Mexico will also be able to access dispute claims in a much different way. If an investment occurred prior to the introduction of the USMCA on July 1st, 2020, investors of all types will still be able to file NAFTA dispute claims.
Several changes have been made to the investor-state dispute settlement system since the transition from NAFTA to USMCA. Today, investment arbitration is viewed as a more complex process with the prerequisite of local remedies rather than international. Investors involved or associated with “covered government contracts” now have more protections, due to the alterations in USMCA, which introduced a treatment standard. Overall, the changes made to this accord since its original version — NAFTA — has significantly enhanced economic prosperity among all three parties, safeguarded the assets of all members and worked towards improving weak clauses.
referenced works
- Amirfar , C., Donovan , D. F., Friedman , M. W., & Goldsmith , L. (2020, May 7). From NAFTA TO USMCA: Main changes to the Investor-State Dispute Settlement System. Debevoise. Retrieved June 16, 2022, from https://www.debevoise.com/insights/publications/2020/05/from-nafta-to- usmca-main-changes-to-the-investor
- Kenton, W. (2022, February 8). North American Free Trade Agreement (NAFTA). Investopedia. Retrieved June 16, 2022, from https://www.investopedia.com/terms/n/nafta.asp
- Reuters , T. (2019). Investor-state dispute settlement (ISDS) — practical law. Practical Law . Retrieved June 17, 2022, from Investor-State Dispute Settlement (ISDS) | Practical Law (thomsonreuters.com)
- Valasek , M., FitzGerald , A., & Anne de Jong , J. (2018, October). Major changes for investor-state dispute settlement in New United States-Mexico-canada agreement. Canada | Global law firm | Norton Rose Fulbright. Retrieved June 16, 2022, from https://www.nortonrosefulbright.com/en/knowledge/publications/91d41adf/ major-changes-for-investor-state-dispute-settlement-in-new-united-states- mexico-canada-agreement
