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Enter CUSMA: Protecting Cross-Border Investment in North America Post-NAFTA

June 24, 2020


On July 1, 2020, the Canada-United States-Mexico Agreement (CUSMA) will replace the North American Free Trade Agreement (NAFTA), ushering in significant changes for cross-border investors in North America.

This bulletin sets out key considerations for North American investors with current or potential cross-border business investment or operations regarding the legal remedies available to them in the post-NAFTA world, and how to maximize available protections.


NAFTA Chapter 11 contains several significant investment protection guarantees made by Canada, the U.S. and Mexico to investors of the other NAFTA parties in their territories. These include the requirement to compensate investors for expropriation of an investment, a guarantee of “fair and equitable” treatment and guarantees that the cross-border investor will not be treated less favourably than local investors—national treatment—or other foreign investors—most-favoured nation treatment. Where any of these guaranteed protections are breached by the host state, an investor may, under Chapter 11, directly initiate arbitration against that state.


CUSMA Chapter 14 still includes significant investment protection guarantees similar to those in NAFTA Chapter 11. However, as discussed in our October 2018 Blakes Bulletin: USMCA Eliminates Investor-State Arbitration for Canada – What It Means for Investors, the most important change under CUSMA as it relates to cross-border investment protection is the elimination of a direct right of U.S. investors in Canada to arbitrate against Canada, and Canadian investors in the U.S. to arbitrate against the U.S. where one of those guarantees of protection is breached.

That said, businesses with existing cross-border investment between Canada and the U.S. may still have three years to submit claims to arbitration after NAFTA is terminated. Canada, the U.S. and Mexico have consented—with certain limitations and for a period of three years after NAFTA terminates—to arbitration under NAFTA Chapter 11 for “legacy investments” established under NAFTA and existing on July 1, 2020 (the date CUSMA comes into force), subject to certain conditions.

Investors will still need to follow NAFTA Chapter 11’s staged dispute resolution process, including importantly for timing the passage of a six-month “cooling off” period between the events giving rise to the dispute and submission of the dispute to arbitration.


As with investments to or from the U.S., Canadian investors in Mexico will benefit from NAFTA Chapter 11’s three-year legacy investment period. In addition, some arbitration rights will continue to exist under CUSMA for U.S. investors in Mexico and Mexican investors in the U.S., though much more limited in scope than under NAFTA for investments that are not “covered government contracts,” as defined by CUSMA in relation to certain economic sectors.

Aside from CUSMA, however, Canadian investors in Mexico and Mexican investors in Canada enjoy investment protection and arbitration rights under the investment protection chapter of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP Chapter 9), which came into force on December 30, 2018, and to which Canada and Mexico—but not the U.S.—are parties. CPTPP protects cross-border investments made before its coming into force, so long as the investment was still in existence as of the date of entry into force, as well as those made after its coming into force.


Whether or not an international investment protection treaty such as NAFTA Chapter 11 or CPTPP Chapter 9 is available, cross-border investors would be wise to consider other available strategies to protect their foreign investments.

If the investment involves a direct contract with the host state, the parties should carefully consider the contract’s governing law and dispute resolution clauses, and, if appropriate, provide for arbitration of any contractual or related disputes. Depending on the circumstances, for example, the parties can agree to have disputes resolved under the International Centre for Settlement of Investment Disputes (ICSID) Convention, a widely ratified international treaty, specifically designed for disputes between private investors and sovereign states. Parties may also consider stipulating that international law governs the contract alongside applicable national law and has paramountcy in the event of a conflict, thereby importing certain of the protections typically afforded under international investment agreements.

Even where the investment does not involve a contract directly with the host state, the investor may still prefer contractual disputes to be settled by way of international commercial arbitration, which may be more efficient and advantageous than having to have recourse to local courts. This may be particularly prudent where the contractual counterparty is a state-owned or affiliated entity.

Finally, although it no longer provides the same investor dispute resolution remedies as NAFTA, CUSMA still contains investment protection guarantees, and so it remains to be seen whether and how these rights may be enforced in other, domestic, fora—the current Canadian CUSMA implementing legislation seems to leave little room for this—and/or whether an investor’s home state would or could invoke the state-to-state dispute resolution measures under CUSMA Chapter 31, or advance a claim on the investor’s behalf under general international law, where another party acts inconsistently with or fails to carry out its obligations under Chapter 14.


With the clock ticking on NAFTA, cross-border investors should carefully review and consider any existing investment claims they may have, and future investors should carefully consider the structure of their investment in order to maximize available protections and dispute resolution mechanisms.

For further information, please contact:

Iris Antonios                            416-863-3349
Michael Barrack                      416-863-5280             
Paul Blyschak                          403-260-9704
Joe McArthur                           604-631-3383
Michael McCachen                 403-260-9792

or any other member of our Arbitration group.

Please visit our Navigating CUSMA: Key Changes for Businesses hub to learn more about how CUSMA may impact your business.