Canada: USMCA Eliminates Investor-State Arbitration For Canada – What It Means For Investors

On September 30, 2018, Canada, Mexico and the United States announced that they had reached an agreement on a new treaty, the United States-Mexico-Canada Agreement (USMCA), which will replace the North American Free Trade Agreement (NAFTA) that has been in force since 1994.

While the trade provisions of the USMCA have been garnering the most attention, the USMCA contains notable changes for Canadian investors in the United States and United States investors in Canada. For more information about the trade provisions of the USMCA, please see our October 2018 Blakes Bulletin: The Ins and Outs of Canada's New Trade Agreement and NAFTA Replacement, the USMCA.

The availability of investor-state arbitration in the investment protection chapter of the USMCA is limited to Mexico and the United States, subject to a three-year phase-out period once the USMCA comes into force for investors to commence claims for "legacy" investments under NAFTA Chapter 11.

INVESTOR-STATE ARBITRATION LIMITED TO U.S. AND MEXICO

Both Chapter 11 of the current NAFTA and Chapter 14 of the draft proposed USMCA accord certain protections to covered investments of investors from one NAFTA or USMCA party in the territory of another NAFTA or USMCA party.

Under Chapter 11 of NAFTA, investors may commence arbitration proceedings against the host state, where the host state has violated the investment protection obligations agreed to in Chapter 11, including fair and equitable treatment, full protection and security, national treatment, and most-favoured nation treatment. The USMCA provides much more limited recourse to arbitration, and no independent arbitration right at all in the case of investors from, or in, Canada.

Mexican and U.S. investors will continue to have recourse to investor-state arbitration under USMCA Chapter 14 (Annex 14-D), though in a diluted fashion. The new chapter significantly reduces the scope of arbitration available for investments that are not "covered government contracts", defined in the agreement in relation to certain economic sectors, reducing the guaranteed standard of treatment and requiring that the investor first seek recourse in domestic courts.

There have been no official statements explaining why Canada is not a part of the investor-state dispute arbitration provisions in the USMCA. However, Canada has been subject to more investor-state claims under NAFTA Chapter 11 than either the U.S. or Mexico and Canada's Chief Negotiator, Minister of Foreign Affairs Christina Freeland, had previously voiced a desire to reform the investor-dispute settlement process to expressly ensure that governments have the ability to regulate in the public interest.

That Canada is not a party to the investor-state arbitration annex will chiefly impact U.S. investors in Canada and Canadian investors in the U.S. Mexican investors in Canada and Canadian investors in Mexico may still have recourse to investor-state arbitration provisions under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) treaty when, and if, it comes into force. Both Mexico and Canada are parties to the CPTPP and have each consented to investor-state arbitration in that agreement. The U.S., however, withdrew from the original TPP agreement in early 2017.

REMAINING REMEDIES

Investors from all three NAFTA and USMCA state-parties have three years to commence arbitration proceedings against a host state under NAFTA Chapter 11 in respect of legacy investments, being investments established or acquired between January 1, 1994 and the termination of NAFTA, and in existence at the time that the USMCA comes into force. That said, such clams will remain subject to each of the three-year time bar, six-month "cooling off" period and 90-day notice period included in NAFTA Chapter 11. Beyond these sunset provisions, the recourse of U.S. investors in Canada and Canadian investors in the U.S. will be to Canadian or U.S. courts, respectively. It remains to be seen whether investors in Canada will be able to bring private claims against the government for breaches of the treaty in Canadian courts (which will depend on Canada's legislation implementing the treaty), and the extent of remedies available where, for example, there is a conflict between Canada's obligations under the treaty and domestic law.

Canada remains party to the state-to-state arbitration provisions, now at USMCA Chapter 31. Under this Chapter, Canada, the U.S., or Mexico may bring a claim against one of the other USMCA parties on behalf of one of its investors, provided the claim falls under the scope of Chapter 31. The degree to which this state-to-state mechanism is employed will therefore be interesting to watch, particularly where a Canadian investor in the U.S. or Mexico, or a U.S. or Mexican investor in Canada, encounters governmental interference in violation of the treaty. Investor-state arbitration was intended to replace state-to-state dispute resolution, including to depoliticize investment disputes, as home states often did not have either the resources or inclination to assume such an advocacy role, and to provide meaningful protection to small and medium-sized businesses (whose cause a home state was even less likely to embrace).

TAKEAWAY

Once the three-year period to bring claims under NAFTA Chapter 11 expires, the loss of investor-state arbitration rights is something that U.S. companies investing in Canada and Canadian companies investing in the U.S. will have to consider when implementing their investment strategy, including where the investment is in a highly-politicized sector of the economy. Investors dealing directly with a Canadian government, for example, may seek to protect themselves through more robust and customized governing law and dispute resolution clauses, which if properly drafted, can provide many of the same protections included in NAFTA Chapter 11. Alternatively, investors may consider structuring investments through subsidiaries in states with which Canada has investment treaties that still provide recourse to investor-state arbitration.

It will also be interesting to see whether Canada revisits its position in the future, and if so, whether Chapter 14 and its annexes (as currently drafted) are ever amended to allow Canada to become party to the investor-state arbitration provisions. At the very least, the text of the current draft USMCA does not appear to preclude this possibility.

For permission to reprint articles, please contact the Blakes Marketing Department.

© 2018 Blake, Cassels & Graydon LLP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
16 Oct 2018, Seminar, Toronto, Canada

Join Blakes lawyers for our 10th annual overview of recent legal and regulatory developments and practical strategies to navigate the changing regulation of Canada’s payments industry.

26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions