The USMCA is Now in Force: Are the NAFTA Chapter 11 Mechanisms Still Available?

In this, the fifth of seven podcasts on international arbitration in Latin America from Baker McKenzie and Trench Rossi Watanabe, Francisco Franco and Emilio Gonzalez, senior associate in the Baker McKenzie Mexico City office and associate in the Guadalajara office, discuss the availability of arbitration under both the USMCA and NAFTA.

Published on 26 September 2022
Francisco Franco, Baker McKenzie, Chambers Expert Focus contributor
Francisco Franco
Emilio Gonzalez, Baker McKenzie, Chambers Expert Focus contributor
Emilio Gonzalez

The NAFTA regime is still available

The investments of US and Canadian investors in Mexico are now subject to the protections of Chapter 14 of the USMCA. Investors who invested in Mexico before July 2022 still have access to the protection of NAFTA Chapter 11 for three years after USMCA's entry into force. These proceedings are more favourable for investors than proceedings under the USMCA.

Disadvantages of the USMCA for investors

The USMCA distinguishes between investors who have contracts with the Mexican central government in the oil and gas, power generation, telecommunications, transportation and infrastructure sectors and those with no covered contracts.

Those with covered government contracts have unrestricted access to arbitration. Those without, the majority, will have limited access.

Investors with no covered government contracts will only be able to file arbitration claims for direct expropriation and discrimination on the basis of nationality. They will not have access to arbitration for claims regarding indirect expropriation or violations of fair and equitable treatment standards.

Procedural challenges and relevant dates for affected investors

Even in direct expropriation or discrimination cases, the investor would first need to bring the dispute to Mexican courts and wait for 30 months before starting arbitration.

US and Canadian investors without a contract, which have a pending grievance over Mexico's treatment of their investments, should consider bringing their claims before the expiry of the NAFTA sunset period.

NAFTA requires investors to try to settle disputes with the Mexican government through negotiations and consultations prior to submitting an arbitration claim. The deadline for submitting such a claim is 30 June 2023, so investors should try to engage with the government by January 2023.

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