Canadian, Mexican and United States investors considering bringing a claim under the North American Free Trade Agreement (NAFTA) against a NAFTA State Party should be aware that the three-year window for notifying their claim will soon come to an end. They must therefore take quick action to notify their claim by the end of March 2023 to be in a position to submit their request for arbitration before July 1, 2023, the final deadline for the submission of legacy NAFTA investment claims.
The NAFTA was terminated on July 1, 2020, with the entry into force on that same date of the United States-Mexico-Canada Agreement (USMCA). The USMCA Parties recognized the importance of a smooth transition from the NAFTA to the USMCA, particularly with regard to investors who had invested on the understanding that NAFTA’s Chapter Eleven (Investment) protections would be in place. Annex 14-C of the USMCA therefore maintains NAFTA provisions on the protection and promotion of legacy investments for a period of three years post entry into force of the new agreement. These provisions are consistent with the practice of Canada, the United States, and Mexico to provide a sunset period for investment protection under their bilateral investment agreements.
Annex 14-C notably confirms USMCA Party consent to the submission of a claim to arbitration in accordance with the investor-State dispute settlement (ISDS) provisions of the NAFTA with regard to breaches of an obligation under NAFTA Chapter Eleven. Pursuant to Annex 14-C, paragraph 3, of the USMCA, a Party’s consent shall expire three years after the termination of NAFTA, i.e., three years after 1 July 2020.
In order to qualify, a claim under the USMCA transitional provisions must relate to a legacy investment, as defined in the USMCA. A legacy investment is an investment of an investor of a NAFTA Party in the territory of another NAFTA Party that was established or acquired between January 1, 1994, and July 1, 2020 (i.e., the date of termination of the NAFTA). The investment must have existed on the date of entry into force of the USMCA. The claimant must also qualify as an investor under the relevant provisions of NAFTA Chapter Eleven itself.
The scope of coverage of this sunset period extends to the full scope of potential NAFTA Chapter Eleven claims. This includes claims of expropriation of covered investments without adequate compensation (Article 1110 of NAFTA); claims of a breach of the customary international law Minimum Standard of Treatment of investors (including such things as manifestly arbitrary treatment, unfair targeting, and denial of justice) (Article 1105(1) of NAFTA); and failure to provide either National Treatment or Most Favored Nation Treatment (Articles 1102 and 1103 of NAFTA, respectively).
The standing offer to arbitrate under NAFTA must also be accepted by a prospective claimant, within the three-year window provided under the transitional provisions of USMCA Annex 14-C. This requires instituting arbitral proceedings in accordance with the NAFTA. Investors should be aware of the time limits set out in the NAFTA that pose additional limitations to the time-period during which a legacy NAFTA Chapter Eleven claim may be filed under USMCA’s transitional provisions.
NAFTA Chapter Eleven notably imposes a six-month cooling off period between the adoption of an impugned measure and the formal launch of a NAFTA claim. A prospective claimant investor must first file a Notice of Intent to submit a claim to arbitration. The investor must then engage in consultations with the respondent NAFTA State Party. Not less than 90 days after filing its Notice of Intent, an investor may then file a Notice of Arbitration. It is only once that Notice of Arbitration is filed that an investor has actually accepted the standing offer. Acceptance must take place prior to 1 July 2023.
Moreover, pursuant to NAFTA Chapter Eleven rules, a claim cannot be filed if more than three years have elapsed from the date on which the investor first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that the investor has incurred loss or damage.
Read together, these provisions make clear that a qualifying measure must have been adopted at the latest by the end of December 2022, in order to grant a claimant investor sufficient time to comply with the NAFTA six-month cooling off period between the adoption of the impugned measure and the filing of claim to arbitration, which is permissible until July 1, 2023. Moreover, as of the date of writing, claims based upon measures adopted prior to February 2020 would also be out of time.
Overall, US, Mexican, and/or Canadian investors will need to file their notice of intent by Friday, March 31, 2023, or at the very latest by Sunday, April 2, 2023, in order to be able to submit their request for arbitration by July 1, 2023.
Several Requests for Arbitration have been filed to date under the legacy provisions of USMCA. Filed claims have concerned measures taken both before and after the entry force of the USMCA. Thus, while the sun is setting on NAFTA Chapter Eleven, many investors have continued to avail themselves of this powerful mechanism.
Beyond the above dates, US and Mexican investors can avail themselves of the more restrictive investment protection mechanisms in the USMCA, in relation to their investments in the other States. Canada and the US decided to omit such protections in the USMCA for investments that were made after its entry into force between their two countries. Canada and Mexico, for their part, have in effect extended an updated NAFTA Chapter Eleven investment protection to investments between the two countries, through the investment protection chapter of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Indeed, if the United States ultimately re-joins CPTPP, NAFTA Chapter Eleven will well and truly be updated between the three jurisdictions. Meanwhile, CPTPP currently extends NAFTA-like investment protections to investors as between Canada, Mexico, Japan, Vietnam, Malaysia, Singapore, Australia, New Zealand, and Peru, with entry into force currently pending for Brunei and for Chile. Moreover, the United Kingdom has formally requested accession to the CPTPP and the CPTPP Commission has already commenced accession negotiations with the United Kingdom.