United States: Update On The NAFTA Renegotiations: What You Need To Know

The cancellation of US involvement in the TPP, and its potential withdrawal from NAFTA have sparked considerable anxiety over the loss of protections and opportunities both investment treaties afford. But there are alternatives.

The Trump Administration has proposed substantial changes to the terms of the North American Free Trade Agreement (NAFTA), a multilateral trade and investment agreement between the United States, Canada and Mexico. During five rounds of negotiations, the representatives of the parties to NAFTA have made some progress, notably on the technical aspects of the agreement in the latest round of talks in Mexico City, such as digital trade, telecommunications, anti-corruption, customs procedures, and health and safety standards for food. They have not, however, managed to make progress on crucial aspects of the agreement, including investor-state dispute settlement.


NAFTA currently provides certain protections for the benefit of investors from all three countries, including

  • Elimination or reduction of tariffs for qualifying products.
  • Cross-border intellectual property protection.
  • Access to government procurement opportunities.
  • Protection against expropriation without compensation and discrimination.
  • The right to fair and equitable treatment.
  • Most-favoured nation and national treatment protection.

Like some other bilateral and multilateral treaties, one of the key protections is that NAFTA provides an investor from the United States, Canada or Mexico the option to enforce its claims in an international arbitration through investor-state dispute settlement (ISDS).


Shortly after his inauguration, President Trump signed a presidential memorandum pulling out of the Trans-Pacific Partnership (TPP). The TPP, which was negotiated for seven years between and among 12 countries (including the United States), remains one of the largest trade agreements ever contemplated. The purpose of the TPP was, among other things, to promote economic growth and enhance labour and environmental protections between and among the 12 countries.

One of the contemplated TPP provisions covers ISDS. Broadly speaking, ISDS is a dispute resolution mechanism that allows an investor from one country (the home state) that invests in another country (the host state) to bring claims that the host state (or an individual, agent or affiliate acting on behalf of or under the authority of the host state) violated the investor's rights granted under a treaty before an independent arbitral tribunal.

The investor does not have to first seek redress in national courts in the host state. This is an advantage, particularly because international arbitral awards are universally recognised and enforceable in over 140 countries worldwide under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also referred to as the New York Convention.

After having scrapped the TPP, President Trump has moved towards undoing NAFTA. Although he has not yet proposed a wholesale termination of NAFTA, US representatives have proposed significant changes to NAFTA, including the following:

  • A proposal that NAFTA should automatically expire after five years unless all three signatory countries agree to renew it, which could impede the aim of providing stability.
  • Changes to "rules of origin" provisions increasing the percentage of parts in cars that must be manufactured in North America in order to avoid import taxes from 62.5 per cent to 85 per cent.
  • Expanding and enhancing intellectual property protections.
  • Changes to provisions relating to agricultural trade, aviation trade and government procurement.
  • An intent to remove ISDS from the agreement or make substantial changes to the dispute resolution mechanism.

President Trump has threatened to terminate NAFTA entirely unless the NAFTA countries can reach a resolution on these revisions.


In addition to the impact on all investors of not having access to ISDS, the loss of the intellectual property protections and guaranteed access to lucrative government procurement contracts are likely to be the most obvious detriment to businesses if NAFTA is terminated.

While IP protections similar to those in NAFTA exist under the World Trade Organization (WTO), private parties lack standing to bring claims under the WTO dispute resolution system. As a result, companies that benefit from the IP protections contained in NAFTA will want to watch the negotiations carefully and determine whether or not investment restructuring is necessary and possible should NAFTA termination become an imminent risk.

Elimination of import permits or licenses, and local content, local production and export performance requirements when shipping products could increase the cost of manufacturing products that are produced partly in one NAFTA country but sold in another. This is most likely to hit exporters from the NAFTA countries and could result in an increase in the cost of imports into the United States and reduce exports from the United States, particularly if Mexico and Canada maintain NAFTA protections with each other.

On the flip side, the elimination of NAFTA could mean an increase in American jobs and less competition in the United States for US-manufactured or grown products, which could provide a boon for investors in US agriculture and manufacturing.

Economists largely agree that NAFTA has provided significant benefits to the North American economies. Regional trade increased over the treaty's first two decades, from roughly US$290 billion in 1993 to more than US$1.1 trillion in 2016. Cross-border investment also increased, with US foreign direct investment (FDI) in Mexico in that period going from US$15 billion to more than US$100 billion. US FDI in Canada during that period rose from US$70 billion to US$392 billion.

Some experts also note that it is difficult to separate NAFTA's direct effects from other factors, including rapid technological change, expanded trade with other countries such as China, and tariff cuts on trade between the United States and most other countries when the US joined the WTO in 1995.

Despite China's arrival on the scene, however, Canada and Mexico remain the two largest destinations for US exports, accounting for more than a third of total exports.

Counterbalancing this is the increase in the bilateral trade deficit between the United States and Mexico, and the loss of hundreds of thousands of jobs in the United States, some of which can be blamed on the decline in US manufacturing jobs that might have occurred even in the absence of NAFTA. The impact of these lost jobs may be outweighed by higher productivity and lower consumer prices.


If the United States withdraws from NAFTA, other trade agreements may kick in that could help to reduce the impact of some of the changes. For instance, because the NAFTA countries are all WTO members, in the absence of NAFTA, each must apply the import tariffs they offer to all other WTO countries.

It is possible that the United States and Canada could revert to the free trade agreement between them that was superseded by NAFTA, to provide for the continuation of certain protections, such as zero tariffs. Canada and Mexico could choose to continue to implement NAFTA between each other.

Unlike the situation regarding tariffs, the three NAFTA countries do not have another bilateral or multilateral investment treaty currently in force to protect investments from one of the NAFTA countries in the other two countries. Once the TPP is enacted, this will resolve the issue between Canada and Mexico, but not between the United States and the other two countries.

In the interim, another alternative is to restructure existing investments in order to continue to try to maintain some of the NAFTA-like benefits available under other trade and investment agreements. The United States, Mexico and Canada maintain a network of investment treaties with other countries that provide many of the same protections as NAFTA.

While keeping an eye on NAFTA renegotiations, companies should also investigate those alternatives to determine whether or not they might provide some measure of additional protection.

Update On The NAFTA Renegotiations: What You Need To Know

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions