Between wariness and distrust: Exhaustion of local remedies clauses in investment agreements

Recent preferential trade and investment agreements have (re)introduced requirements of exhausting local remedies before submitting a claim to investor-state dispute settlement (ISDS). Such is the case of the United States-Mexico-Canada Agreement (USMCA). In its investment chapter, it foresees the obligation to initiate proceedings in national courts before resorting to arbitration. It represents a departure from the preceding North American Free Trade Agreement (NAFTA). At the same time, ISDS between the United States and Canada is gradually phased-out altogether, meaning claims by foreign investors will have to be heard by national courts. These developments could initially be seen as either a renewed trust in national courts, or an increasing distrust of investment tribunals. However, given how the USMCA also includes exceptions to the obligation of exhausting local remedies, it can be argued that a minimum degree of wariness towards national courts prevails.