USMCA Trade Deal and the Environment

Written by on October 22, 2018. Posted in Environmental laws

On September 30, 2018, the United States, Mexico, and Canada announced the completion of negotiations of a new United States-Mexico-Canada Agreement (“USMCA”) that will replace the North American Free Trade Agreement (“NAFTA”).

While much commentary has already been written about the winners and losers in the new USMCA, the results for the environment are less than obvious. As expected, USMCA includes a chapter on environmental cooperation (Chapter 24).  It replaces the former North American Agreement on Environmental Cooperation (“NAAEC”), which was a side treaty to NAFTA.

The purpose of Chapter 24 is to “promote mutually supportive trade and environmental policies and practices”.  The Agreement recognizes that is “inappropriate” to either (1) “establish or use… environmental laws… in a manner which would constitute a disguised restriction on trade or investment” or to (2) “encourage trade or investment by weakening or reducing the protection afforded in their respective environmental laws.”

The environmental organization has criticized the USMCA as being weak on environmental protection, in particular, because it does not directly address climate change.

However, as we wrote headed into the renegotiating of NAFTA, success from an environmental perspective may focus on the re-think of NAFTA Chapter 11. (See: NAFTA Reform, Investor-State Dispute Settlement, and Environmental Regulation, July 28, 2017).  There had been much public and academic criticism of the way NAFTA’s investor-state dispute settlement (“ISDS”) system in Chapter 11 had been used to challenge Canadian environmental decision-making.

Since NAFTA came into force in 1994, Canada has been a defendant in 41 ISDS appeals by foreign companies claiming Canadian policies and decisions have violated their rights under NAFTA. According to the Canadian Centre for Policy Alternatives, about 60 percent of these have challenged Canadian environmental regulations or resource management policies.

Many commentators believed that this threat of NAFTA litigation has had a chilling effect on environmental regulation in Canada because new or enhanced environmental regulations that affect investment-backed trade expectations could result in a challenge under Chapter 11.

The success of the USMCA, from an environmental perspective, may therefore be that Canada will no longer be subject to the ISDS system. The change will not be immediate.  NAFTA Chapter 11 ISDS has been grandfathered for three years following the ratification of the new Agreement. This means that foreign investors can still initiate ISDS claims for investments made during the NAFTA period.