Recent reports indicate that the United States may impose tariffs of up to 25% on imports from Mexico and Canada, which would reportedly enter into force in early March. The United States' International Emergency Economic Powers Act (IEEPA) could provide domestic legal authority for the President Donald Trump to impose tariffs if a national emergency is declared. Although no official executive order has been issued, this possibility raises critical legal and economic questions for North American trade relations. This article examines the legal options available to Canada and Mexico under the United States-Mexico-Canada Agreement (USMCA) and the World Trade Organization (WTO) frameworks, analyzing their applicability, limitations, and strategic implications.

Legal context under the USMCA

The USMCA establishes binding commitments among its parties to ensure predictable trade relations. A unilateral tariff increase by the U.S. on Canadian or Mexican imports would likely contravene several key provisions unless justified under specific exceptions.

Key legal provisions

• Article 2.4: Prohibits increasing customs duties on originating goods beyond the levels specified in Annex 2-B.
• Article 2.10: Mandates most-favored-nation (MFN) treatment for certain goods.
• Article 32.2: Permits actions necessary to protect a party’s essential security interests, offering a potential justification for tariff increases.

A blanket 25% tariff targeting Canada and Mexico would likely violate Articles 2.4 and 2.10 unless the U.S. successfully invokes Article 32.2’s national security exception.

Dispute settlement mechanism: Chapter 31

USMCA Chapter 31 provides a structured state-to-state dispute resolution process for alleged violations:

1. Consultations: Parties must engage in consultations within 30 days of a request (15 days for perishable goods).
2. Panel proceedings: If consultations fail, a panel may be convened to adjudicate the dispute, typically issuing a final report within approximately 180 days.
3. Implementation and retaliation: If the panel finds a violation and no resolution is reached within 45 days of its report, the complaining party may suspend benefits, such as imposing retaliatory tariffs.

Limitations

While Chapter 31 offers a comprehensive framework for resolving disputes, it is not designed for urgent situations. The process—from consultations to panel rulings—can take at least eight months, making it impractical for addressing sudden tariff hikes with immediate economic consequences.

Potential challenges under WTO rules

Canada and Mexico could also challenge U.S. tariffs through the WTO’s Dispute Settlement Understanding (DSU). The General Agreement on Tariffs and Trade (GATT) prohibits Members from imposing tariffs above their bound rates unless justified under specific exceptions, such as Article XXI (security exceptions).

Legal grounds for challenge

• Violation of bound tariff commitments: The imposition of tariffs exceeding bound rates would breach GATT obligations unless justified under an exception.
• Challenge against threats: WTO jurisprudence permits challenges against both implemented measures and credible threats that disrupt trade flows.

National security defense

The U.S. may invoke GATT Article XXI or Article 32.2 of the USMCA to justify the tariffs as necessary for national security. However, recent WTO rulings (e.g., Russia – Traffic in Transit) suggest that, if only partly, such claims are subject to objective review rather than being entirely self-judging.

Limitations

Similar to USMCA mechanisms, WTO dispute settlement procedures are time-intensive. Panels generally take several months to issue rulings, limiting their effectiveness in addressing immediate economic harm caused by abrupt tariff increases. In both cases, a resolution to a dispute may take up to one year, and this is only up to the panel stage.

Strategic considerations

Given the procedural constraints of both USMCA and WTO frameworks, Mexico and Canada may need to adopt complementary strategies to address potential U.S. tariffs effectively:

1. Diplomatic engagement: High-level negotiations with U.S. officials could de-escalate tensions before resorting to formal dispute mechanisms.
2. Parallel legal challenges: Initiating simultaneous disputes under USMCA and WTO rules could increase pressure on the U.S.
3. Proportional retaliation: Canada and Mexico could impose countermeasures under their own national security exceptions or other legal bases while pursuing formal remedies.
4. Engaging U.S. stakeholders: Highlighting the adverse impact of tariffs on U.S. industries and consumers could foster domestic opposition to such measures.

Conclusion

While both USMCA and WTO frameworks offer legal avenues for challenging potential U.S. tariff increases, neither provides an expedited process suitable for emergencies. In light of these limitations, diplomatic engagement combined with strategic use of available legal mechanisms may represent the most effective approach for Mexico and Canada.

Businesses affected by these developments should stay informed about potential legal actions and prepare contingency plans to mitigate disruptions.

De Minimis Law has substantial experience advising clients on WTO and USMCA rules and related trade policies, including those pertaining to national security. For further updates or assistance in navigating these complex trade issues, please contact our office.

Disclaimer:

This article is for informational purposes only and does not constitute legal advice.