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1 1 (April 3, 2019)

handle is hein.crs/govzat0001 and id is 1 raw text is: Congressional Research Service Informing the legislative debate since 1914 USMCA: Investment Provisions Background The United States-Mexico-Canada Agreement (USMCA) is a proposed free trade agreement (FTA) that, if approved by Congress and ratified by Canada and Mexico, would replace the North American Free Trade Agreement (NAFTA). USMCA would retain NAFTA's market- opening measures while adding or updating provisions in areas such as digital trade, intellectual property rights, and worker rights. The proposed agreement would make notable changes to NAFTA's investment provisions-mainly qualifying basic investor protections and limiting the degree to which foreign investors can bring complaints against their host states under the investor-state dispute settlement (ISDS) mechanism. ISDS claims with Canada would be phased out entirely, those with Mexico would be more restricted than under NAFTA. Given the significant changes proposed and the importance of U.S. investment ties with Canada and Mexico, USMCA's investment provisions are likely to be an active part of congressional debate over the USMCA. NAFTA's Investment Provisions Enacted in 1994, NAFTA removed investment barriers, ensured basic investment protections, and provided mechanisms for the settlement of disputes over commitments in the agreement. Since NAFTA entered into force, the stock of foreign direct investment (FDI) between the United States and its NAFTA partners has increased dramatically, although it is difficult to determine whether the increase was the result of NAFTA or other factors (Figure 1). In 2017, Canada and Mexico ranked fifth and thirteenth, respectively, as destinations for U.S. FDI and third and twentieth as sources of FDI in the U.S. In response to criticism that NAFTA's investment protections were too broad, subsequent U.S. trade and investment agreements clarified certain provisions and added new transparency requirements. The proposed USMCA would continue some of these trends. Additionally, the proposed USMCA would place new limits on access to ISDS mechanisms. In general, these changes limit the kinds of claims that foreign investors are able to bring in response to domestic regulations. Definition of an Investment USMCA's investment chapter defines investment more broadly than NAFTA and echoes the language of more recent U.S. FTAs. Whereas NAFTA enumerates what qualifies as an investment, the proposed USMCA defines an investment as an asset that an investor owns or controls that has the characteristics of an investment such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. It then enumerates a non-exhaustive list of examples that could include enterprises, stocks, bonds, derivatives, intellectual property, licenses, or other tangible or intangible property. Figure I. U.S. FDI Positions with NAFTA Partners $30B8 Source: Bureau of Economic Analysis, Hist. Cost Basis, 1993-2017 Investor Protections under USMCA The proposed USMCA contains many of the same core investment provisions as NAFTA, but with new qualifications and provisions that reflect more recent U.S. trade and investment agreements. New limits are placed on what provisions are eligible for ISDS, compared to NAFTA and past U.S. FTAs. Minimum Standard of Treatment (MST). Like NAFTA, the proposed USMCA would require that each party accord covered investments treatment in accordance with customary international law. However, the proposed agreement would add new clarifications, stating that the concepts of fair and equitable treatment (due process) and full protection and security (police protection) do not require treatment in addition to or beyond the minimum standard treatment of aliens under customary international law. Previously, some ISDS tribunals had suggested otherwise. The proposed USMCA would further clarify that an action, such as the implementation of a new regulation, would not be a breach of MST simply because it was inconsistent with an investor's expectations. National Treatment and Most-Favored-Nation (MFN) Treatment. Like NAFTA and other U.S FTAs, the proposed USMCA would include non-discrimination provisions, requiring that each country accord the investors and investments of another country treatment no less favorable than that it accords, in like circumstances, to its own investors or the investors of any other country throughout the lifecycle of the investment. However, the proposed USMCA adds further language noting that whether treatment is accorded in like circumstances depends on the totality of the circumstances, including whether the treatment at issue distinguishes between investors or investments based on legitimate public welfare objectives. https:/crsreports.con, -- -q S April 3, 2019

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