As part of the consideration by the WTO's Committee on Regional Trade Agreements of the United States - Mexico - Canada Agreement (USMCA), China asked the USMCA parties about a specific provision of the agreement's investment chapter that could place limits on investor-state dispute settlement (ISDS) claims where Chinese companies "own or control" the investor in question.
When the NAFTA was renegotiated as the USMCA, its provisions related to investment protection and ISDS were scaled back considerably, but remained to some extent as between the United States and Mexico. In the USMCA investment chapter, Annex 14-D governs Mexico-United States Investment Disputes. In its definition section, this Annex defines the term "claimant," and in doing so restricts the ability of a claimant to bring claims where the investor is "owned or controlled by a person" of a third country that either the United States or Mexico "has determined to be a non-market economy ... and with which no Party has a free trade agreement":
claimant means an investor of an Annex Party that is a party to a qualifying investment dispute, excluding an investor that is owned or controlled by a person of a non-Annex Party that, on the date of signature of this Agreement, the other Annex Party has determined to be a non-market economy for purposes of its trade remedy laws and with which no Party has a free trade agreement;
Neither Mexico nor the United States has a "free trade agreement" with China (the U.S.-China Phase One trade deal would almost certainly not qualify). Thus, if a U.S. company who has made an investment in Mexico or a Mexican company who has made an investment in the United States is looking to bring an ISDS claim under Annex 14-D, such a claim could be excluded if these companies were "owned or controlled by a person" of China.
At the WTO Committee, China brought up this provision as follows:
1.11. As mentioned in paragraph 5.33 of the factual presentation, Annex 14-D of the USMCA provides for a mechanism for the dispute settlement of investment between Mexico and the US. The text reads as follows, "Claimant means an investor of an Annex Party that is a party to a qualifying investment dispute, excluding an investor that is owned or controlled by a person of a non-Annex Party that, ... the other Annex Party has determined to be a non-market economy..."
China then asked two specific questions.
First, it said: "Could the US side and Mexican side elaborate what is the consideration of this provision?"
The parties responded as follows:
Response from the Parties
Under USMCA/CUSMA/TMEC Article 14.D.3, a claimant may submit a qualifying investment dispute to arbitration on its own behalf or on behalf of an enterprise of the respondent that is a juridical person that the claimant owns or controls directly or indirectly. Under Annex 14-D, a "claimant" is different from an "investor" because the term "claimant" excludes an "investor that is owned or controlled by a person of a non-Annex Party that, on the date of signature of this Agreement, the other Annex Party has determined to be a non-market economy for purposes of its trade remedy laws and with which no Party has a free trade agreement."
Response from the United States
For the United States, the process for designation of non-market economies for purposes of its trade remedy laws is set forth in 19 U.S.C. 1677(18) and a listing of the eleven countries so designated is available at https://www.trade.gov/nme-countries-list.
Response from Mexico
Mexico does not have a list of non-market economies nor a legal mechanism to designate them.
Mexico's response here that it "does not have a list of non-market economies nor a legal mechanism to designate them" seems to have implications for the scope of the exclusion in relation to investments in Mexico.
Second, China asked "[w]hat problems would the Parties like to solve through this provision? Does this provision violate the spirit of non-discrimination principle of the WTO?"
In response, the parties said:
International investment agreements, such as the USMCA/CUSMA/TMEC investment chapter, prescribe specific limits and conditions upon a respondent State's consent to arbitration. Each State makes a sovereign choice regarding the scope of its consent to investor-State arbitration when entering into an international investment agreement. The United States and Mexico take seriously their WTO commitments and the USMCA provisions are consistent with those commitments.
It is not clear to what extent Chinese companies have investments in Mexico and the United States for which there then exists additional cross-border investment in the other USMCA country. As a result, it is hard to say how many companies would be affected and how often the non-market economy exclusion in this provision will come up. Nevertheless, China's questions here show its interest in the possible impact on its companies who do business in the North American market.