What is Canada's legal recourse in the throes of a trade war?

Sean Stephenson chairs the Canadian Bar Association’s international law section. He specializes in international trade and sanctions, government contracts, investment arbitration, and public international law at Dentons Canada LLP in Toronto.

He spoke to National shortly after the Trump administration imposed 25 per cent across-the-board tariffs on Canada and Mexico, as well as a 10 per cent levy on Canadian energy.

This interview has been edited for length.
 

As a veteran specialist in international law, did you ever think you would see this day?

 

“It’s not surprising, frankly. This should have been on everyone's radar after the first Trump presidency. Of course, there’s always irritants in trading relationships between every country,” Stephenson says.

“You look at softwood lumber: it’s an ongoing dispute we’ve had for 25-plus years. But it hasn’t been detrimental to the entire trading relationship.”

“What we’re looking at right now, and the folks that Trump has put around himself — who have significant influence over U.S. trade policy — are people that are challenging the fundamental architecture of the international trading system.”

“While I thought there would be tariffs on select sectors or industries, I did not expect the across-the-board tariffs we are seeing today.”

Stephenson says these are issues the CBA’s international law section has discussed at length.

“We’re deeply concerned by the U.S. administration’s actions and the slow drift away or breach from their international norms and treaty obligations.”

What are Canada’s legal options now that the Trump administration has imposed these tariffs?

 

Canada could file challenges with the World Trade Organization, under the Canada-United States-Mexico Agreement (CUSMA), and in domestic U.S. courts.

In the previous Trump administration, WTO challenges were filed vis-à-vis the steel and aluminum tariffs, and a decision was rendered.

“Specifically, they dealt with the United States’ claim of national security. It’s the same claim they’ve made with these tariffs (under) the IEEPA (International Emergency Economic Powers Act) that this is a national security measure. And that’s what they’re using to try and justify or get out from under their trade obligations,” Stephenson says.

“The (WTO) panel in the steel and aluminum cases looked at the WTO exceptions on national security, which (involve) a measure taken in times of war or other emergency in international relations, and they said: ‘This is not an emergency in international relations.’ And they effectively rejected the U.S. claim and said: ‘You have breached your obligations.’”

The U.S. declared those December 2022 findings flawed and appealed. However, the WTO Appellate Body lacks the judges needed for quorum since the first Trump administration blocked appointments of new judges in 2019. The Biden administration did not reverse course as it also wanted changes to the WTO dispute resolution process.

Stephenson says this creates a situation of “appealing into the void.”

“You essentially file your appeal, and then nothing happens because they don’t have enough judges to create quorum to form a panel.”

That said, he believes there’s good reason to file a WTO case.

“It will still be a panel decision on record which is pushing back against the United States’ claim of national security and how that falls into the trading regime,” Stephenson says.

“But you’re not going to get a final and binding decision on the matter through the WTO recourse.”

He adds: “The United States has a long history of saying that these types of exceptions should be self-judging. In other words, when you invoke it, it can’t be challenged. What the WTO has done in these decisions is push back against that.”

A challenge under the CUSMA may be more difficult. Stephenson says the Trump administration renegotiated the agreement with different wording regarding the security exception.

“It’s much more favourable to the U.S.’s position that these things are self-judging, and when somebody makes a claim of national security, you can’t really contest that.”

Domestic legal challenges would be based explicitly on U.S. laws and the limits of tariffs imposed under the IEEPA.

“This is a first for these types of tariffs to be imposed under that legal authority. Significant legal scholars have said there’s a case to be made against these. On the other hand, some say this is within the purview of that statute.”

 

When the CUSMA is up for renegotiation what is Canada’s position to argue for better legal protections?

 

“We have the legal protections there,” Stephenson says. “We have bound tariff rights. Those obligations were under the NAFTA and are now under the CUSMA.”

However, arguing that the security exception should be altered won’t be easy.

“I think we’d be in a significantly more difficult place at this point, given that the text is there. We had just agreed to it. This is a sticking point for the United States, and it’s a long-held U.S. conviction that these things are, in fact, self-judging. I think we’d be in a difficult position to try and get out from under essentially what we agreed to in the CUSMA negotiations,” he says.

“We need to, as many people have said, rethink our overall trade policy in Canada. Hopefully, we come out of this with a really significant push by the Government of Canada and Canadians on trade diversification.”

We have a strong trade agreement with Europe, a strong trade agreement with Asia-Pacific, and strong trade agreements with many South American and African countries.

“Now we really need to harness the power” of those deals with increased trade missions, Stephenson says. 

 

What if Ontario Premier Doug Ford blocks energy exports?

 

“Certainly, I think there could be contractual pushback, claims brought against Canada — even in Canadian courts — if Doug Ford were to abruptly shut power off. Ontario would have to look at the defences it would have in that particular situation.”