When dispute settlement falters: Restoring legal certainty in USMCA

Law or leverage

“The question is, was it ever alive at all?” When U.S. Trade Representative Jamieson Greer was asked in December 2025 whether the rules-based international order had died, his answer cut to the heart of North American trade’s deepest challenge.¹ If rules are merely decorative—“white lies,” as Greer put it, “to paper over the actual power politics”—then USMCA’s dispute settlement architecture is an elaborate fiction. If rules shape behavior by creating enforceable expectations, then the 2026 Joint Review will determine whether North American integration has a future.

USMCA modernized continental trade governance in important ways: It restored state-to-state dispute settlement after NAFTA-era paralysis, introduced the Rapid Response Labor Mechanism (RRM), and updated rules for regional supply chains. Yet it also embedded a fateful structural choice: replacing durability with conditionality. As former White House Senior Advisor Jared Kushner acknowledged, the agreement was designed with the logic of a short-term commercial lease, preserving leverage for the stronger party.² That logic now defines the lived reality of North American trade. Review and withdrawal provisions, rather than functioning as neutral mechanisms of adaptation, have become instruments of recurring uncertainty.

USMCA’s credibility depends on whether dispute settlement functions as law or as a bargain. The 2026 review will set the tone not only for dispute resolution but for the agreement’s future. If review becomes a threat-based renegotiation, dispute settlement becomes ornamentation. If adjudication and compliance are insulated from leverage politics, USMCA can still deliver what trade agreements exist to provide: predictability.

From permanence to conditionality

For nearly three decades, NAFTA anchored investment decisions not because it was substantively flawless, but because it endured. Its indefinite duration insulated trade rules from electoral cycles and political theater. Withdrawal was possible by any Party but was extraordinary. Businesses could make long-term capital commitments confident that market access terms would persist.

USMCA replaced NAFTA’s open-ended duration with a time-limited structure that requires periodic renewal by all three parties. Article 34.6 permits withdrawal on six months’ written notice. Article 34.7 subjects the agreement to termination 16 years after entry into force unless all parties agree to extend it for another 16-year term.³ The July 2026 joint review marks the first test: If the parties do not agree to extend the agreement at that review, they must conduct annual joint reviews thereafter until they reach consensus to renew for a new 16-year period or allow the agreement to terminate on schedule in 2036.

These provisions were defended as modernization tools. As C.J. Mahoney has documented, NAFTA’s permanence made updating difficult; the only mechanism for forcing change was the threat of withdrawal: precisely the leverage that produced the NAFTA-to-USMCA transition.⁴ A predictable review cycle, the argument ran, would normalize adaptation rather than dramatize it. Both interpretations contain truth, and the tension between them illuminates the core challenge.

The question is not whether flexibility should exist, but how it is exercised. Review as scheduled assessment and targeted updates strengthen agreements by keeping them current. Review as leverage for unrelated concessions—full-blown renegotiation rather than calibrated modernization—undermines the predictability that makes trade agreements valuable in the first place. Adaptation mechanisms are necessary; no agreement negotiated in 2018 can anticipate every development in digital trade, critical minerals, or supply chain security through 2036. The problem arises when review functions as implicit renegotiation.

Ambassador Greer’s telling remarks at the Atlantic Council suggest the latter interpretation now predominates. He confirmed conducting only bilateral discussions: “I have not had a meeting this year where I sat with Canada and Mexico in a room, and we sat together and talked about USMCA.” On the review clause itself, Greer was explicit: “Could it be exited? Yeah, it could be exited. Could it be revised? Yes. Could it be renegotiated? Yes. I mean, that is the purpose of that clause. And all of those things are on the table.”⁵

The statement is legally accurate. These options do exist. But treating a review mechanism designed to facilitate updates as an instrument for fundamental renegotiation transforms scheduled maintenance into structural uncertainty. A mechanism designed for preservation becomes a permanent source of uncertainty, discounting legal commitments long before any formal notice is given.

The 2025 National Security Strategy reinforces this approach, framing trade explicitly as leverage: “The United States will prioritize commercial diplomacy… using tariffs and reciprocal trade agreements as powerful tools.” Agreements with dependent partners, it states, “must be sole-source contracts for our companies.”⁶ Read expansively, this language treats allied markets as captive rather than competitive—an approach that may secure short-term concessions while eroding the integrated continental economy that serves American interests over the long term.

Dispute settlement performance

Dispute settlement is a trade agreement’s shock absorber. It is the mechanism that converts political disagreement into juridical resolution, allowing law to substitute for power. USMCA’s record reveals both meaningful progress and worrying fragility.

State-to-state panels

Chapter 31 was designed to restore impartial adjudication after NAFTA’s late-stage paralysis. Panels have been constituted and have issued competent rulings on Canadian dairy quotas, automotive rules of origin, and Mexican energy policy.⁷ The problem is not adjudication but compliance.

Canada implemented the first dairy ruling only after months of delay. When revised measures still fell short, the United States established a second panel in January 2023. Mexico has oscillated between cooperation and defiance on energy regulation. The pattern is consistent: Machinery functions, but compliance remains contingent on domestic political considerations. Where implementation is partial, delayed, or strategically diluted, panel authority weakens. Compliance contingent on political convenience converts binding rulings into bargaining chips. Law renegotiated ex post cannot anchor expectations ex ante.

The Rapid Response Labor Mechanism

The RRM is USMCA’s most innovative enforcement tool. Over thirty cases against Mexican facilities—primarily automotive, but also glass, leather, and ammunition—have produced corrective action, including worker reinstatement and independent union recognition.⁸ As Kathleen Claussen has documented, the facility-specific approach enables rapid, targeted enforcement that traditional dispute settlement cannot achieve.⁹ It demonstrates that accelerated compliance is possible when institutional design aligns incentives properly.

Yet enforcement flows largely in one direction—United States toward Mexico—reflecting American priorities and the structural power imbalance within the agreement. Unless Canada and Mexico also deploy the RRM to protect their own labor interests, the mechanism risks appearing as selective discipline rather than systemic enforcement. Asymmetry undermines legitimacy, even when outcomes are normatively attractive.

Trade remedies

In antidumping and countervailing duty disputes, the USMCA performs the worst. Softwood lumber epitomizes the failure: decades of litigation, victories without enforcement, and panel decisions effectively ignored.¹⁰ Legal outcomes are circumvented through new administrative determinations or additional tariffs. Where dispute settlement exists in theory but not in consequence, firms rationally revert to political lobbying, unilateral retaliation, or domestic litigation outside the agreement. The cumulative effect on investor confidence is significant: When adjudication is treated as advice rather than obligation, capital factors in political risk premiums—precisely the dynamic the original free-trade vision sought to eliminate.

Across all mechanisms, a pattern emerges: Adjudication functions; compliance remains discretionary. In an agreement already shadowed by potential termination, that discretion is magnified.

The 2026 review as stress test

The Joint Review was designed as an institutional health check. It now risks becoming brinkmanship’s focal point. If review signals renegotiation, parties will rationally withhold compliance today to strengthen their bargaining position tomorrow.

The asymmetry is structural. Canada and Mexico cannot credibly threaten withdrawal without catastrophic cost. The United States can. This shapes expectations throughout the agreement’s life—no overt coercion required. The principal danger is not that USMCA terminates in 2026, but that it functions as though it might, permanently discounting legal commitments. In such an environment, dispute settlement becomes theater: Invoked when convenient, ignored when costly.

Ambassador Greer’s remarks also signal possible bilateralization: “Our economic relationship with Canada is very, very different than our economic relationship with Mexico. The labor situations are different. The import-export profile is different. The rule of law is different. So, it makes sense to talk about things separately with Canada and Mexico.”¹¹ Some bilateral discussions are legitimate. But wholesale bilateralization transforms a unified economic space with common rules into hub-and-spoke arrangements, with the United States negotiating separately with each partner on potentially different terms. For businesses operating integrated North American supply chains, this would introduce substantial complexity and uncertainty.

The overlay of unilateral trade measures compounds the problem. Section 232 tariffs on steel and aluminum, Section 301 actions, and emergency measures under IEEPA have been deployed against USMCA partners for matters that might otherwise be channeled through the agreement’s dispute settlement provisions. These unilateral actions—more than any single negotiating episode—represent the most problematic erosion of USMCA’s rule of law. When legal frameworks can be bypassed through executive action, they cease functioning as credible constraints.

Re-anchoring legal certainty

Restoring predictability does not require rewriting USMCA. It requires disciplining the use of existing provisions and strengthening compliance mechanisms.

• Automatic compliance: Model mechanisms on WTO negative consensus: panel reports binding unless all parties reject them, with automatic compliance reviews and fixed timelines to increase transparency about implementation.
• Procedural insulation: Pending disputes cannot fold into review bargaining. The firewall between adjudication and negotiation must hold if dispute settlement is to retain authority.
• Enforcement symmetry: The RRM and similar instruments must function as reciprocal tools available to all parties, not unilateral levers reflecting the priorities of the strongest economy.
• Disciplined emergency measures: Expedited consultations, defined security criteria, automatic sunsets, and compensation mechanisms can prevent emergency authorities from becoming routine leverage without eliminating genuine flexibility.
• Review as maintenance: Clarify that six-year reviews target updates, not wholesale renegotiation. Reverse the default: automatic extension unless all parties agree to terminate. This alone would allow businesses to plan beyond six-year horizons and restore the foundation for long-term investment that NAFTA once provided.

Conclusion: The fulcrum

USMCA’s greatest achievement was not market access but the institutionalization of law over power. Its greatest risk is the quiet erosion of achievement through design choices that privilege leverage over certainty. This is key for dispute resolution.

Ambassador Greer’s question—“was [the rules-based order] ever alive at all?”—deserves a serious answer. If rules were merely decorative, states would not invest enormous diplomatic resources negotiating them, litigating under them, or demanding compliance with them. The United States itself has been the most frequent user of WTO dispute settlement, NAFTA Chapter 19 panels, and now USMCA mechanisms—behavior inconsistent with a view that rules do not matter. Rules matter because they create expectations, and expectations shape behavior.

The 2026 review will reveal whether North America remains committed to rules-based integration or accepts a future of perpetual recalibration. Dispute settlement is the fulcrum. If it holds, the agreement endures. If it falters, no amount of modernization elsewhere will compensate.

Law does not replace leverage; it channels it productively. Within established frameworks, partners know what to expect; economies align accordingly. When leverage operates unpredictably, partners hedge, supply chains fragment, and the integrated continental economy that benefits American consumers and producers begins to fracture.

The choice facing North America is not between rules and power. It is between productive leverage and destructive uncertainty—between a continental economy built on credible stable commitments and one perpetually discounted by the threat of their withdrawal. Destructive uncertainty that serves no one’s long-term interests.¹² That choice will be made, one way or another, in 2026.