Carlos Vejar is a Senior Counsel in Holland & Knight's Mexico City office.
Laura Yvonne Zielinski is a Attorney in Holland & Knight's Mexico City office.
After months of uncertainty, the United States, Mexico and Canada recently reached a new trilateral trade agreement, the United States-Mexico-Canada Agreement (USMCA), to replace the North American Free Trade Agreement (NAFTA). This new agreement is a win for Mexico, who as net importer of Foreign Direct Investment (FDI) managed to include an Investor-State Dispute Settlement (ISDS) mechanism despite strong resistance from the U.S. administration. Under the USMCA, the new protections offered to most U.S. investors in Mexico are much more limited than the ones provided by NAFTA Chapter 11. After long months of uncertainty with respect to the survival of the North American Free Trade Agreement (NAFTA) in general - and its investment chapter in particular - and more recently regarding Canada's continued participation in any updated agreement, Mexico, the United States and Canada finally on Sept. 30, 2018, reached a new trilateral agreement named the United States-Mexico-Canada Agreement (USMCA). However, it leaves Canada out of the new Investor-State Dispute Settlement (ISDS) mechanisms1 agreed to on a bilateral basis between Mexico and the United States.
This new agreement is a win for Mexico, who as net importer of Foreign Direct Investment (FDI) managed to include an ISDS mechanism despite strong resistance from the U.S. administration. As a net importer of FDI, it was crucial for Mexico to maintain at least some reduced protection for U.S. companies investing in Mexico.2
The new investment chapter agreed to between the U.S. and Mexico modernizes NAFTA's Chapter 11 and brings it somewhat in line with other recent trade agreements signed by Mexico, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), although it contains particular provisions that differ from those in other agreements.
Key Points of Interest for U.S. Investors
The key features of the new investment chapter of the USMCA of most interest to U.S. investors in Mexico are the following:3
Legacy claims under NAFTA may still be initiated after the USMCA enters into force (expected in 2020) for a period of up to three years, and ongoing cases will not be affected by the termination of NAFTA and the start of the USMCA. ISDS under the USMCA is much more restricted than under...