As names go, USMCA is worse than NAFTA. So are the protections afforded by USMCA to most investors.

When NAFTA went into effect in 1994, the trade agreement between the U.S., Canada, and Mexico included important protections for investors. Among other investment protections, under Chapter 11 of NAFTA, U.S. companies investing in Mexico or Canada could bring their disputes before investor-state arbitration tribunals rather than being forced to bring claims in national courts.

The proposed text of the United States-Mexico-Canada Agreement (USMCA) severely curtails those protections. If implemented — the trade agreement must first be approved by the U.S. Congress — the USMCA would significantly limit the recourse investors would have to settle their grievances in international arbitration. It’s no wonder that, in the wake of the October release of the USMCA text, some investors rushed to file claims under NAFTA.

“USMCA marks a veritable sea change in investor-state dispute settlement in the region,” said Robert Reyes Landicho, a senior associate at V&E who focuses on international dispute resolution and arbitration.

Not all investors are equally affected by USMCA. For claimants with arbitrations already filed under Chapter 11 of NAFTA, the current text of USMCA would allow their NAFTA arbitrations to proceed. But for investors considering filing claims in the future, there are important takeaways. Here are three things you need to know.

Canada and Mexico: Two countries, two different frameworks for dispute settlement

Under USMCA’s Chapter 14, which would replace NAFTA’s Chapter 11, future investor-state arbitration between U.S. and Canadian parties would not exist under the new free trade agreement. U.S. investors in Canada with grievances would have fewer options, and may be forced to bring their claims in Canadian courts.

That’s not the case in Mexico, where investor-state arbitration would remain an option under the USMCA, under limited circumstances. But U.S. investors in Mexico — with some exceptions — would have to first bring claims in Mexican courts and wait 30 months before initiating arbitration.

The types of claims U.S. investors could bring against Mexico before an international tribunal would be limited to claims of direct expropriation, and claims for violations of national treatment. Also allowed are claims for violations of the most-favored-nation (MFN) provision of the USMCA, except for any MFN or national treatment claims “with respect to the establishment or acquisition of an investment.” Claims for indirect expropriation are no longer on the table for most investors, even though they were frequently raised under NAFTA.

Under the current USMCA text, you may have more time than you might think to bring a claim under the old NAFTA investment protections

Once NAFTA is terminated, the current USMCA text allows investors to still file NAFTA claims within three years of termination, provided the investments were validly made in accordance with Chapter 11 of NAFTA.

While it is possible that the USMCA text may undergo further changes during the U.S. congressional approval process, this three-year “grace period” might be an important consideration for investors with grievances who are thinking about the right time to file a claim.

“There’s concern among some investors who think ‘I need to bring a claim now,’” Landicho said. “While it is understandable that some investors may want to bring NAFTA claims before the USMCA landscape shifts any further, investors with potential claims under the NAFTA should carefully weigh the potential benefits of bringing a claim now, as opposed to a later time when the investor’s claims and damages might be easier to demonstrate.”

Oil and gas industry investors and others with government contracts in Mexico come out ahead

Investors in Mexico who fit into certain “covered sectors” do not have to take their claims to national courts before initiating investor-state arbitration.

Falling into this group are investors with qualifying government contracts that are involved in certain oil and natural gas activities, power generation, telecommunications, transportation and infrastructure activities.

These industries are repeat players in international arbitration, and the USMCA parties recognized the importance of strong dispute-settlement provisions for these sectors during the negotiation stage.

“Overall, USMCA represents a pullback on protection for investors,” noted Andrea Cohen, a V&E associate who focuses on international dispute resolution and arbitration. “But if you are in one of these covered categories, you’re in a better position than others.”

It is, of course, uncertain how future international tribunals will interpret the USMCA’s carve-out provisions for “covered sectors” — assuming that these provisions survive the congressional approval process.

To learn more about how USMCA alters the dispute resolution landscape for investors, click here.