United States 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 for its initial 16-year term, which is scheduled to end in July 2036, unless the parties agree to extend the agreement. Because the parties did not confirm an extension during the joint review, the USMCA is now subject to the annual review process set out 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 USMCA party. At the July 1, 2026 meeting of the USMCA Free Trade Commission, Ambassador Jamieson Greer, the United States Trade Representative, confirmed that the United States would not extend the USMCA in its current form. The Office of the United States Trade Representative further explained that the Administration would not "simply approve" the agreement "without addressing the existing problems [and deficiencies]." Following the announcement, Mexico’s Secretary of Economy, Marcelo Ebrard, stated that Mexico’s priority would be to ensure that its position in relation to the group of countries trading with the United States is "the best." Dominic A. LeBlanc, Canada’s Minister of Internal Trade, highlighted Canada’s interest in engaging in "substantive discussions" with the United States to address "sectoral tariffs on Canadian steel, aluminum, automobiles and lumber."

Our alert presents investment-protection considerations in light of the USMCA annual review process, as well as information on the USMCA provisions concerning investment protection, investor-State dispute settlement (ISDS), and the process for reviewing and potentially extending the term of the USMCA.

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

For the time being, the USMCA remains fully in force. The United States’ decision not to extend the USMCA in its current form does not terminate or suspend the treaty, nor does it trigger the withdrawal mechanism. All existing investment protections and ISDS mechanisms under Chapter 14 of the USMCA continue to apply.

However, through the annual review process, the parties will continue discussions on the operation of the agreement, including possible changes to its provisions.

Although the investment protections in Chapter 14 of the USMCA remain legally binding, and the ISDS mechanisms in 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 arise from the annual review process include the following.

Agreement to extend. The parties could ultimately agree to extend the USMCA on its current terms, preserving the existing investment protections and ISDS mechanisms. However, recent statements from the United States government indicate that it has concerns regarding the agreement in its current form.

Renegotiation. The annual review process may provide opportunities for the parties to renegotiate USMCA provisions, including those in Chapter 14. Any renegotiation could result in greater restrictions on investor protections, modifications to investors’ access to ISDS mechanisms, or changes to the scope of the contracts or sectors covered by Annex 14-E.

Withdrawal. Under Article 34.6 of the USMCA, a party may withdraw from the USMCA at any time by providing six months’ written notice. Unlike a decision not to extend, withdrawal would terminate the treaty in full with respect to the withdrawing party before the end of the treaty’s initial 16-year term. If the parties do not resolve their disagreements despite the annual review process, there is a risk that one of them may withdraw from the treaty. Withdrawal by one party would affect 1) the applicability of the investment protections under Chapter 14 for qualifying investors and 2) if the withdrawing party is Mexico or the United States, qualifying investors’ access to the ISDS mechanisms under Annexes 14-D and 14-E.

Termination. If no extension is agreed before July 2036, the USMCA will terminate at the end of its initial term, together with the investment protections in Chapter 14 and the ISDS mechanisms in Annexes 14-D and 14-E.
The treaty’s annual review mechanism may be relevant to companies investing in North America, as recurring reviews could introduce additional considerations for capital-intensive organizations that depend on stable investment protections.

Planning considerations for companies with investments 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 companies with significant operations in North America, or with planned investments, may consider reviewing their risk assessments and structuring options in light of the possible outcomes of the annual review process.

The USMCA Chapter 14 provisions on investment protection and ISDS mechanisms

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 world’s most important trilateral trade relationships. In 2022, combined foreign direct investment between the United States and the other parties exceeded US$1.1 trillion.

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

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

Chapter 14 of the USMCA establishes three ISDS-related mechanisms.
Annex 14-C permitted claims concerning "legacy investments," meaning claims arising from investments made between January 1, 1994 and the termination of NAFTA on July 1, 2020 that remained in existence on that date. Claims concerning legacy investments could be submitted to arbitration until July 1, 2023. This mechanism applies to claims initiated by investors of any of the three parties against another party.
Annex 14-D contains an ISDS mechanism that applies only between the United States and Mexico. Under this annex, investors from the United States and Mexico may bring claims against the other party for breaches of three protection standards: 1) national treatment, 2) most-favored-nation treatment, and 3) protection against expropriation, but only in respect of direct, not indirect, expropriations.
Annex 14-E establishes a separate ISDS mechanism that also applies only between the United States and Mexico, under which investors from the United States and Mexico may bring claims against the other party. Unlike the limited list of protections available under Annex 14-D, Annex 14-E permits claims for breaches of all substantive protection standards in Chapter 14, including the minimum standard of treatment and protection against indirect expropriation. However, these protections are available only to investors 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.

The USMCA provisions on reviewing and extending the term of the treaty

Under Article 34.7(1), the USMCA has an initial term of 16 years. The agreement is therefore scheduled, in principle, to remain in force until July 1, 2036. Article 34.7 also establishes a mandatory "joint review" mechanism. On the sixth anniversary of its entry into force—July 1, 2026—the USMCA Free Trade Commission was required to:
- Conduct a joint review of the operation of the agreement
- Review any recommendation for action submitted by a party, and
- Decide on any appropriate action.

During this review, each party was required to confirm whether it wished to extend the USMCA for an additional 16-year term, until July 1, 2042.
Under Article 34.7(3), if all parties had confirmed the extension in writing, the agreement would have been extended automatically, and the next joint review would have taken place at the end of the following six-year period.

However, because one party did not confirm the extension, the USMCA Free Trade Commission must conduct additional joint reviews annually until:

- All parties agree to extend the treaty for a new 16-year term, 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 parties may still agree to extend the term of the USMCA automatically for another 16 years at any time between the conclusion of a joint review and the termination of the agreement.

The joint review process described above is separate from the withdrawal provisions in Article 34.6. Those provisions allow any party to withdraw unilaterally from the agreement at any time, provided that it gives the other parties six months’ written notice. Following the withdrawal of one party, the treaty will remain in force for the remaining parties.

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

Written by: Kate Brown de Vejar, Ricardo Alarcón, David Blackman, Raúl Quintero