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Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
No. 269  January 13, 2020

Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Alexa Busser 
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On November 30, 2018, the US, Mexico and Canada signed an agreement that, if approved, will replace the North America Free Trade Agreement (NAFTA): the United States-Mexico-Canada Agreement (USMCA). USMCA was negotiated under circumstances different from NAFTA. The US stood by its “America first” policy, among other protectionist policies. This ran counter to NAFTA-era neoliberal policies and previous US presidents’ efforts, since World War II, to establish international trade rules, arguing that they would bring stability to the world economy.[1]
The US proposal was to let parties unilaterally decide whether or not to opt in to the investor-state dispute settlement (ISDS) mechanism, and the US made it clear that it would not opt in. Canada’s preference was a more progressive ISDS mechanism akin to that of the EU-Canada Comprehensive Economic and Trade Agreement (CETA). For Mexico, dispute-resolution mechanisms had an essential role; Mexico wanted to retain provisions that contribute to investment transactions. The end result was a limited bilateral ISDS mechanism between the US and Mexico, which Canada did not join. Still, under the USMCA, Canada will have access to the state-to-state dispute settlement, to resolve investment disputes arising out of Chapter 14.
Chapter 14’s uniqueness rests on the claims covered by the bilateral (Mexico-US) ISDS mechanism for two distinct categories of investments. First, general investors can claim breaches only to national treatment, most-favored-nation treatment (only at investment’s post-establishment phase) and direct expropriation. Second, the “Covered Government Contracts” provisions allow investors that have concluded governmental contracts and related activities in oil and gas, power generation, public telecommunications, public transportation, and certain public infrastructure to claim breaches to the above three standards (even during the investment’s establishment phase) plus the minimum standard of treatment (including fair and equitable treatment and full protection and security), transfers, performance requirements, senior management, and indirect expropriation.
Under Covered Government Contracts, Mexico and the US allow claims to all the standard protections in the sectors in which treaty breaches are most frequent. In 2018, ICSID reported that the largest shares of claims involved investments in oil, gas and mining (24%); electric power and other energy (17%); construction (8%); and water, sanitation and flood protection (5%). Altogether, these sectors represented 54% of all cases registered under the ICSID Convention and Additional Facility Rules.[2] The Mexican experience is similar: 40% of the investment arbitration cases against Mexico dealt with investments under Covered Government Contracts.[3] Interestingly, Mexico and the US left out mining, even though, from 1999 to 2016, FDI by US investors in Mexican mining amounted to US$6.8 billion.[4] Instead, they preferred to cover energy and telecommunications, where US investors channeled, respectively, US$4.6 and US$5.9 billion.
Conversely, the US and Mexico decided, through the general investment section, to allow narrower enforcement of protections to the largest FDI flows from the US to Mexico. Between 1999 and 2016, manufacturing accounted for 49% of US FDI inflows.
In the current investment arbitration crisis, USMCA presents a new gold standard to enforce investment protection. First, under general investment, USMCA reduces states’ risk exposure by precluding investors’ access to ISDS for claims of alleged breaches to indirect expropriation and fair and equitable treatment standards, and national treatment and most-favored-nation standards at the investment’s pre-establishment phase. Governments concerned with regulatory chill and the exercise of police powers should adopt the USMCA model, as it reduces the risk of ISDS claims related to the regulation of health, national security,[5] morals, and the environment. Philip Morris, which questioned the “plain packaging” and “single presentation” policies adopted by Australia and Uruguay, would have had no grounds to advance a claim under USMCA. Also, with the Covered Government Contracts, governments will continue protecting the most sensitive sectors in which ISDS cases frequently arise.
A government willing to adopt the USMCA model should identify the sectors that, based on the relevance of investment flows and frequency of investment-treaty breaches, require the broadest protection, ponder the risks associated with these sectors and opt to protect the latter by bearing these risks. For instance, Colombia’s highest 2018 inward FDI shares were in oil, financial services and mining. It should consider protecting the oil and mining sectors under Covered Government Contracts, and subject other industries (such as financial services, agriculture, manufacturing, and construction) to the general investments.[6] Governments should not fear that this results in lower investment flows, as the link between investment agreements and FDI flows remains tenuous.[7]
* The Columbia FDI Perspectives are a forum for public debate. The views expressed by the author(s) do not reflect the opinions of CCSI or Columbia University or our partners and supporters or the author’s law firm. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.
** Orlando F. Cabrera C. ([log in to unmask]) is a Fellow of the Chartered Institute of Arbitrators (CIArb) and Associate at Hogan Lovells, Mexico. The author is grateful to Vernon MacKay, Mélida Hodgson and an anonymous reviewer for their helpful peer reviews.
[5] USMCA Art. 32.2 secures policy flexibility regarding national security through a general exception that applies to the whole treaty.
[7] Although Brazil is not a party to any treaty with ISDS, it leads in attracting foreign investment in Latin America. By contrast, Mexico is a signatory to 31 investment agreements, and it lags far behind.
The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Orlando F. Cabrera C., ‘The US-Mexico-Canada Agreement: the new gold standard to enforce investment treaty protection?,’ Columbia FDI Perspectives, January 13, 2020 . Reprinted with permission from the Columbia Center on Sustainable Investment (” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Alexa Busser, [log in to unmask].
Most recent Columbia FDI Perspectives  
  • No. 268, Xavier M. Forneris, ‘Political risk: Not just the investor’s affair,’ December 30, 2019
  • No. 267, Maria Laura Marceddu, ‘Another brick in the wall: the EU-India investment-facilitation mechanism,’ December 16, 2019
  • No. 266, George A. Bermann and John P. Gaffney, ‘Intra-EU investment protection in a post-Achmea world,’ December 2, 2019
All previous FDI Perspectives are available at

Other relevant CCSI news and announcements
  • CCSI announces a call for papers for the Global Research Alliance for Sustainable Finance and Investment (GRASFI) 3rd Annual Conference, hosted by CCSI on September 10-11, 2020. The deadline for paper submission is February 28, 2020. Themes for papers include climate-related risks and finance, the role of the state (e.g., central banks, development banks, and regulators) in advancing sustainable finance, and social and human rights dimensions of sustainable finance, among others. A full list of themes, further information about the conference and submission details can be found on our website
  • CCSI is pleased to announce a call for papers for the 2019 edition of the Yearbook on International Investment Law and Policy, published by Oxford University Press (OUP). The Yearbook monitors current developments in international investment law and policy. Original contributions to be considered for publication in the Yearbook are accepted on a rolling basis until February 2, 2020; more information including submission details is available on our website.
  • CCSI is hiring an Economics and Policy Researcher to help develop and execute the Center’s applied research agenda on energy, extractive industries and sustainable development. Specifically, the incumbent will lead research on the economic and policy frameworks shaping investments in oil, mining and gas globally, and their impacts on sustainable development, as well as on implications for investment of the energy transition. For more details and qualifications, please see our website.
  • Applications are now open for CCSI's June 2020 Executive Training on Extractive Industries and Sustainable DevelopmentExecutive Training on Sustainable Investments in Agriculture, and Executive Training on Investment Treaties and Arbitration for Government OfficialsFor more information about the courses, and to access the applications, please click on the links above.
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
(212) 854-0689
Fax: (212) 854-7946
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Karl P. Sauvant, PhD

Resident Senior Fellow

Columbia Center on Sustainable Investment
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
p(212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask] | t: @CCSI_Columbia

"Making FDI more Sustainable", "Facilitating Sustainable FDI by...", "Report to the Structured Discussions on Investment Facilitation", "An International Framework to Discipline Outward FDI Incentives?", "The Case for an Advisory Centre on International Investment Law", "An Advisory Centre on International Investment Law: Key Features",  "Incentivizing Sustainable FDI: The Authorized Sustainable Investor", "The Potential Value-added of a Multilateral Framework on Investment Facilitation for Development", "Promoting Sustainable FDI through International Investment Agreements", "Determining Quality FDI", "Towards G20 Guiding Principles on Investment Facilitation for Sustainable Development", "Five Key Considerations for the WTO Investment-facilitation Discussions, Going Forward", "International Investment Facilitation: By Whom and for What?", "Towards an Investment Facilitation Framework: Why? What? When?", "Beware of FDI Statistics!", and "Towards an Indicative List of FDI Sustainability Characteristics", are available at and

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