Investment chapter summary
The objective of an investment chapter in a free trade agreement (FTA) is to establish a framework that provides investors with a predictable, stable, transparent and rules-based investment climate. It is intended to help ensure that Canadian investors are treated fairly and have an equal chance to compete for business abroad. In the Canada-United States-Mexico Agreement (CUSMA), the investment chapter was updated to bring it into line with the recent treaty practices of the three parties. The chapter contains a comprehensive and robust set of obligations similar to those found in other FTAs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It also includes a corporate social responsibility (CSR) provision that reaffirms the importance of encouraging businesses to respect CSR standards, such as the OECD Guidelines for Multinational Enterprises. This CSR provision provides an illustrative list of CSR areas, including gender equality and Indigenous and Aboriginal peoples’ rights.
CUSMA will not include a trilateral investor-state dispute settlement (ISDS) mechanism. Under CUSMA, the United States and Mexico have agreed to maintain a bilateral ISDS mechanism for a narrow set of disciplines and sectors. The parties have also agreed to a transitional period of three years, during which ISDS under the original NAFTA will continue to apply only for investments made prior to the entry into force of CUSMA. Apart from this transition period for existing investments, U.S. investors will not be able to launch an ISDS claim against Canada. The only recourse will be State-to-State dispute settlement if the U.S. government were to bring a claim against Canada on a U.S. investor’s behalf. However, if successful, such claims would not result in the award of any damages. This is important because, since 1994, U.S. investors have received $205 million in damages and settlement from cases brought against Canada under NAFTA.
Technical summary of negotiated outcomes: Investment
- Supports a predictable, stable and transparent investment environment for investors investing in North America, including through reciprocal, legally binding rights and obligations.
- Removes the trilateral ISDS mechanism that was in place under the original NAFTA, but the original NAFTA ISDS mechanism will remain available to investors with respect to their existing investments for a period of three years after entry-into-force of CUSMA.
- Includes standard investment obligations that align with Canada’s existing treaty practice, including:
- national treatment: an obligation that trading partners should not discriminate against each others’ investors in favour of their own investors;
- most-favoured nation (MFN) treatment: an obligation that trading partners should not discriminate against each others’ investors in favour of investors from any other country;
- minimum standard of treatment: an obligation for countries to provide fair and equitable treatment to investments based on customary international law;
- expropriation and compensation: an obligation that protects all investments from expropriation or nationalization, except in specific circumstances and with full compensation;
- performance requirements: an obligation that prevents conditions from being placed on an investment that favours domestic industry, such as the requirement to purchase local goods, export a certain percentage of goods produced, or transfer technology to the host country;
- transfers: an obligation that allows investors to freely transfer capital and profits related to an investment in and out of the host country, subject to some exceptions, such as in the event of a financial crisis where a country can impose measures to prevent capital flight; and
- senior management and board of directors: an obligation that prevents governments from requiring companies to appoint senior managers of a particular nationality; however, governments can mandate that a majority of boards of directors conform to nationality or residency requirements.
- Preserves parties’ policy flexibility in sensitive areas such as health and Aboriginal affairs by allowing certain existing and future non-conforming measures (which are laws, regulations, procedures or requirements that would otherwise breach one or more obligations of the chapter).
- Reaffirms the importance of encouraging businesses to adhere to internationally recognized standards of corporate social responsibility that have been endorsed by the parties, such as the OECD Guidelines for Multinational Enterprises. The provision provides an illustrative list of CSR areas including labour, environment, gender equality and Indigenous and Aboriginal peoples’ rights.
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