US declines to extend the USMCA: Key considerations for foreign investment protection

On July 1, 2026, the United States declined to extend the United States–Mexico–Canada Agreement (USMCA) in its current form during the treaty’s first scheduled joint review.

The USMCA remains in force through its initial 16-year term, which is scheduled to expire in July 2036, unless the contracting parties agree to extend the agreement. Because the contracting parties did not confirm an extension at the joint review, the USMCA is subject to the annual review process outlined in Article 34.7(4), raising key considerations for many cross-border investors and businesses with long-term capital commitments in North America.

The USMCA Free Trade Commission is a body composed of government representatives from each contracting party to the USMCA. At the USMCA Free Trade Commission meeting on July 1, 2026, US Trade Representative Ambassador Jamieson Greer confirmed that the US would not extend the USMCA in its current form. The Office of the US Trade Representative further explained that the Administration would not “rubber stamp” the agreement “without addressing existing issues” and “shortcomings.” Following the announcement, Mexico Secretary of Economy Marcelo Ebrard stated that Mexico’s priority will be to ensure that its position relative to all countries that trade with the US is “the best.” Dominic A. LeBlanc, Minister of Internal Trade of Canada, highlighted Canada’s interest in pursuing “substantive discussions” with the US to address “sectoral tariffs on Canadian steel, aluminum, autos and lumber.”

Our alert sets out considerations for investment protection in light of the USMCA’s annual review process, as well as information on the USMCA’s provisions regarding investment protection, investor-State dispute settlement (ISDS), and the USMCA review process and potential term extension.

Key considerations for investment protection in light of the USMCA annual review process

At this time, the USMCA remains fully in force. The US decision not to extend the USMCA in its current form does not terminate or suspend the treaty, nor does it initiate the withdrawal mechanism. All existing investment protections and ISDS mechanisms under USMCA Chapter 14 continue to apply.

Through the annual review process, however, the contracting parties will continue discussions regarding the agreement’s operation, including potential changes to its provisions.

While the investment protections of USMCA Chapter 14 remain legally binding and the ISDS mechanisms at Annexes 14-D and 14-E remain available to qualifying foreign investors, the annual review process introduces uncertainty for qualifying investors with long-term capital commitments in North America.

Key considerations that may result from the annual review process include the below.

• Agreement to extend. The contracting parties could ultimately agree to extend the USMCA on its current terms, keeping the existing investment protections and ISDS mechanisms intact. However, recent statements by the US government indicate that it has concerns regarding the agreement in its current form.
  
  
• Renegotiation. The annual review process may provide opportunities for the contracting parties to renegotiate provisions of the USMCA, including those in Chapter 14. Any renegotiation could result in further restrictions on investor protections, modifications to investors’ access to ISDS mechanisms, or changes to the scope of covered contracts or sectors under Annex 14-E.
  
  
• Withdrawal. Under USMCA Article 34.6, a contracting party may withdraw from the USMCA at any time by giving six months’ written notice. Unlike a decision not to extend, withdrawal would terminate the treaty entirely with respect to the withdrawing contracting party before the end of the treaty’s initial 16-year term. If the contracting parties do not resolve their disagreements notwithstanding the annual review process, there is a risk that one of them may withdraw from the USMCA. A contracting party’s withdrawal from the treaty would affect 1) the applicability of Chapter 14 investment protections to qualifying investors, and 2) if the withdrawing party is Mexico or the US, qualifying investors’ access to ISDS mechanisms under Annexes 14-D and 14-E.
  
  
• Termination. If no extension is agreed by July 2036, the USMCA will terminate at the end of its initial term, along with the investment protections in Chapter 14 and the ISDS mechanisms in Annexes 14-D and 14-E.

The treaty’s annual review process may be relevant to businesses investing in North America as recurring reviews could introduce additional considerations for capital-intensive organizations that rely on stable investment protections.

Planning considerations for businesses investing in North America

Investors may wish to monitor developments affecting ISDS mechanisms, which currently provide qualifying investors with access to international arbitration for certain investment-related claims. Investors and businesses with significant North American operations or planned investments may consider reviewing their risk assessments and structuring options in light of the potential outcomes of the annual review process.

USMCA Chapter 14 provisions on investment protection and ISDS

Negotiated under the first Trump Administration, the USMCA entered into force on July 1, 2020, replacing the 1994 North American Free Trade Agreement (NAFTA). The USMCA governs one of the largest global trilateral trade relationships. In 2022, combined foreign direct investment between the US and the other contracting parties exceeded USD1.1 trillion.

Chapter 14 of the USMCA establishes the legal framework for protecting investments made by investors of one contracting party in the territory of another contracting party. Key substantive protections found in USMCA Chapter 14 include:

• National treatment (Article 14.4)
  
  
• Most-favored-nation treatment (Article 14.5)
  
  
• The minimum standard of treatment, including fair and equitable treatment (Article 14.6)
  
  
• Protection against expropriation (Article 14.8)

Chapter 14 of the USMCA provides for three mechanisms related to ISDS:

1. Annex 14-C allowed for “legacy investment” claims, that is, claims arising from investments made between January 1, 1994 and the termination of NAFTA on July 1, 2020, and which remained in existence on that date. Legacy investment claims could be submitted to arbitration until July 1, 2023. This mechanism applies to claims initiated by investors of any of the three contracting parties against another contracting party.
   
   
2. Annex 14-D contains an ISDS mechanism that applies only between the US and Mexico. Under this annex, investors from the US and Mexico may submit claims against the other contracting party for breaches of three standards of protection: 1) national treatment, 2) most-favored-nation treatment, and 3) protection against expropriation, but only with respect to direct, as opposed to indirect expropriation.
   
   
3. Annex 14-E provides for a separate ISDS mechanism that also applies only between the US and Mexico, under which investors from the US and Mexico may submit claims against the other contracting party. Unlike the narrow list of protections available under Annex 14-D, Annex 14-E allows claims for breaches of all the substantive standards of protection in Chapter 14, including the minimum standard of treatment, and protection against indirect expropriation. However, these protections are available only to claimants with “covered government contracts” in specified economic sectors, including oil and natural gas, power generation, telecommunications, and transportation (as defined in paragraph 6 of Annex 14-E).

USMCA provisions on review and term extension

Under Article 34.7(1), the USMCA has an initial term of 16 years. Accordingly, the agreement is intended to remain in force until July 1, 2036. Article 34.7 also establishes a mandatory “joint review” mechanism. On the sixth anniversary of entry into force (i.e., July 1, 2026), the USMCA Free Trade Commission was required to:

• Conduct a joint review of the agreement’s operation
  
  
• Review any recommendations for action submitted by a contracting party, and
  
  
• Decide on any appropriate actions.

During this review, each contracting party was to confirm whether it wished to extend the USMCA for an additional 16-year term (i.e., until July 1, 2042).

Under Article 34.7(3), if all contracting parties had confirmed such extension in writing, the agreement would have been automatically extended, with the next joint review occurring at the end of the following six-year period.

However, because one of the contracting parties did not confirm the extension, the USMCA Free Trade Commission must conduct additional joint reviews on an annual basis until either:

• All contracting parties agree to extend for a new 16-year period or
  
  
• The USMCA reaches the end of its initial 16-year term and terminates on July 1, 2036 (Article 34.7(4)).

Article 34.7(4) also provides that the contracting parties may still agree to automatically extend the term of the USMCA for another 16 years at any point between the conclusion of a given joint review and the expiry of the agreement.

The outlined joint review process is separate from the withdrawal provisions in Article 34.6. The withdrawal provisions permit any contracting party to unilaterally withdraw from the agreement at any time, provided that it gives the other contracting parties six months’ written notice. Upon the withdrawal of a contracting party, the treaty will remain in force for the remaining contracting parties.

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For more information about these developments and their implications, please contact the authors.

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