The End of NAFTA's Sunset Period Approaches

Investors with "legacy investments," under NAFTA can bring claims until July 1, 2023, which means that notices of intent must be filed no later than April 1. (Image by Library of Congress)

Thursday, March 16, 2023

Perspectives

The End of NAFTA's Sunset Period Approaches

Mexican, U.S., and Canadian investors have until April 1, 2023, to submit a notice of intent.

BY MARGARITA R. SÁNCHEZ, RICHARD A. MOJICA AND MARY H. MIKHAEEL

On July 1, 2020, the United States-Mexico-Canada Agreement (USMCA) entered into force, replacing NAFTA. Annex 14-C to the USMCA (the NAFTA legacy investment provision) allows investors with "legacy investments," under NAFTA to bring claims until July 1, 2023, under NAFTA's dispute resolution system rules, which means that notices of intent must be filed no later than April 1, 2023.

NAFTA legacy investments are investments in the territory of the U.S., Mexico, or Canada, established or acquired during the NAFTA treaty period (January 1, 1994, through July 1, 2020), that were still in existence at the time the USMCA went into effect on July 1, 2020. Filing a NAFTA legacy claim may be beneficial as the USMCA's arbitration rules are much more restrictive and the NAFTA legacy investment provision allows investors to take advantage of NAFTA's more lax standards.

KEY TAKEAWAYS

Last Minute Investor Claims are Starting to Trickle In: As a good indication that investors should be taking advantage of the NAFTA legacy claims before they expire, we are beginning to see several notices of intent filed. For example:

A U.S.-based company reportedly recently initiated a claim against Canada related to a decision from Canadian authorities to deny environmental permits for their liquid natural gas (LNG) project in Québec, which the U.S company claims was done for political reasons.

A Canada-based company lodged a claim against Mexico in connection with its ongoing litigation against a Mexican company over issues with a gold mining project in which both companies hold a 50 percent interest. The Canadian company is claiming that the Mexican court's inaction in their litigation is harming the investment.

Ongoing Issues Related to Mexico's Energy Reforms May Be of Particular Interest to U.S Investors: The U.S. and Canadian governments have been in consultation with Mexico over measures that allegedly favor its state-owned electrical utility (Comisión Federal de Electricidad (CFE)) and petroleum company (Petróleos Mexicanos (Pemex)) and negatively impact U.S. investors operating in Mexico. We previously detailed the status of current consultations and discussed the USMCA's inter-state process timeline and potential scenarios if the U.S. and Mexico do not reach an agreement, emphasizing the importance to foreign investors of closely following the evolution of the consultation process while considering the timing of their potential claims, as the USMCA offers less protections to foreign investor than NAFTA.

Canadian Investors with Investments in Mexico or the U.S. Should Consider Taking Advantage of the NAFTA Legacy Claims Framework: Canada has withdrawn from Investor-State Dispute Settlement (ISDS) under the USMCA, so investment claims under the USMCA/NAFTA framework will expire on July 1, 2023, for Canadian investors. Canadian investors may still be able to raise investor disputes under the Comprehensive and Progressive Trans-Pacific Partnership (CPTTP), but the CPTTP's ISDS framework is far less investor-friendly than NAFTA's framework. Canadian investors seeking to bring claims in the U.S. will need to rely on legal avenues in the U.S. to access similar remedies unless the Canadian government seeks remedy for those issues under the USMCA's State-State Dispute Settlement (SSDS) framework.

U.S. and Mexican Investors with Investments in Canada Should Consider Taking Advantage of the NAFTA Legacy Claims Framework: Another consequence of Canada's withdrawal from the ISDS under the USMCA is that Mexican and U.S. investors will no longer be able to bring a claim against Canada. However, Mexican investors have the same avenues under the CPTTP discussed above.

Margarita R. Sánchez is the International Arbitration Practice Lead at Miller & Chevalier, Richard A. Mojica is the firm's Customs & Import Trade Practice Lead and Mary H. Mikhaeel is a Senior Associate in the International department.

This article is based on an overview by Miller & Chevalier. Republished with permission.