Backgrounder: Canada wins Canada-United States-Mexico Agreement dispute settlement challenge regarding U.S. solar safeguard tariffs on imports from Canada

Canada has won the Canada-United States-Mexico Agreement (CUSMA) solar safeguard dispute. In its final report, the CUSMA panel:

• took jurisdiction over the dispute, overruling the key defence of the United States that Canada’s claim should have been challenged under NAFTA, which is no longer in force
• found that the United States violated article 10.2 of CUSMA by failing to exclude imports from Canada from its solar safeguard measure
• found that the United States violated article 2.4.2 of CUSMA by impermissibly increasing tariffs on imports of solar products from Canada 

The CUSMA panel consisted of:

• Mario Matus Baeza, chair of the CUSMA panel and an international trade lawyer and diplomat who was previously Chile’s ambassador to the WTO and chairman of the WTO’s General Council
• Jennifer A. Hillman, an international trade law professor at the Georgetown University Law Center, a former WTO Appellate Body member and a former commissioner on the United States International Trade Commission
• Donald M. McRae, a professor emeritus in international trade law, a former dean at the University of Ottawa Faculty of Law and a former member of the International Law Commission.

The administration of former U.S. president Donald Trump failed to exclude Canada from the solar safeguard measure in 2018 when it imposed these tariffs on imports of solar cells, modules, and panels from all sources. This failure to exclude Canada occurred despite the explicit ruling by the United States International Trade Commission that imports from Canada did not meet the standard for inclusion under article 802.1 of NAFTA. Canada sought to resolve the dispute under NAFTA, but the United States failed to respond to Canada’s request for consultations under NAFTA, thereby exploiting a loophole in NAFTA and effectively blocking the formation of a NAFTA panel. This loophole was addressed in CUSMA, whereby a panel is automatically established upon receipt of a panel request.

Canada initiated the CUSMA dispute settlement process through a request for consultations on December 22, 2020, and a request for a panel was made on June 18, 2021. An in-person hearing was held before the panel in Washington, D.C., on November 10, 2021. The panel’s final report was provided to the parties on February 1, 2022, and, following confirmation that any confidential information had been properly redacted, the parties agreed to release the report publicly on February 15, 2022.

The United States’ central defence to Canada’s claims focused on challenging the panel’s jurisdiction. The United States claimed that because its safeguard measure was first imposed when NAFTA was in force, Canada’s claims could not be properly made under CUSMA. The panel found that the U.S. safeguard measure constituted continuing conduct by the United States against Canadian goods, which Canada alleged is presently in breach of CUSMA. Therefore, Canada’s claims had been properly made under CUSMA and were within the panel’s jurisdiction.

Canada demonstrated to the panel’s satisfaction that all of the evidence showed that the United States is required to exclude imports from Canada from the U.S. safeguard measure under the terms of CUSMA. The panel agreed with Canada that the evidence demonstrated that imports from Canada were not a “substantial share” of total imports and that they could not have “contributed importantly” to any serious economic injury claimed to be suffered by U.S. producers of solar products. Furthermore, the panel agreed with Canada that this violation of article 10.2 of CUSMA meant that the United States had also violated article 2.4.2 of CUSMA by impermissibly increasing tariffs on imports from Canada.

The CUSMA panel’s findings confirm that the United States was and is required to exclude from its safeguard measure imports of solar products from Canada. On February 4, 2022, President Joe Biden issued a proclamation extending this safeguard measure for an additional 4 years and instructed the United States Trade Representative to negotiate a suspension of the safeguard measure with Canada. The CUSMA panel’s findings confirm that only a full exclusion for imports from Canada, as was originally recommended by the United States International Trade Commission in 2018, can ensure that the United States is compliant with its obligations under CUSMA.