This blog series provides Baker McKenzie’s insights and strategic advice on the 2026 USMCA review, including how businesses should prepare for changes to this trilateral agreement. Baker McKenzie’s North American customs team includes trade professionals, attorneys and economists in Canada, the US and Mexico. We have a reputation for delivering strategic and practical advice to optimize supply chains under the USMCA, foster compliance, and address commercial concerns arising from Chapter 31 disputes.
President Trump proposed to implement 100% tariffs on Canadian origin goods if it “makes a deal with China”. It was initially unclear if the President referenced the newly announced Canada-China Strategic Partnership (we write about it here), where restrictions on imports of Chinese origin EVs were softened in exchange for China’s claw back of tariffs on Canadian agricultural exports or a possible Canada-China free trade agreement (FTA). President Trump’s concerns, described as Canada becoming a “’Drop Off Port’ for China to send goods and products into the United States” were subsequently clarified by US Treasury Secretary Scott Bessent as relating to a Canada-China FTA.
Prime Minister Carney has unequivocally stated that Canada is not pursuing an FTA with China. Entering into an FTA with China would trigger a notification to both Mexico and the United States under Article 32.10 of the USMCA, permitting those parties to withdraw from the agreement under certain conditions. Given the pending USMCA review, and the volatile US-China trading relationship, it is unlikely that Canada will pursue duty-free access for Chinese goods into the Canadian market in the near future. This position reduces the likelihood that the US will increase existing 35% ad valorem tariff rate on non-USMCA qualifying Canadian-origin goods to 100%.
Article 32.10: Conditional Exit Mechanism
The USMCA, includes restrictions on the Parties’ ability to negotiate FTA with “non‑market economy” countries. The restriction is set out in Article 32.10, which establishes a conditional exit mechanism – not an outright prohibition. Article 32.10 requires parties that intend to negotiate or conclude an FTA with a “non‑market country” (defined by reference to whether any USMCA party treats that country as a non‑market economy) to notify the other parties at least 30 days prior to engaging in negotiations on an FTA, to provide information on the objectives and scope of those negotiations, and to provide each party with a copy of the FTA text after signing.
If an FTA with a non‑market country enters into force, the otherparty/ies may terminate the USMCA vis‑à‑vis the offending party/ies with six months’ notice and replace it with a bilateral agreement on substantially identical terms. While Article 32,10 does not prohibit entering into FTAs with non-market economies, it transparency-based notification obligation aims to deter trade integration by parties with non‑market economies. Accordingly, parties must weigh the benefits of the tri-lateral trading block against the benefits of any FTA with a non-market economy.
US Treatment of China and Obligations under Article 32.10
The U.S. Department of Commerce formally designates countries as non-market economies under §771(18) of the Tariff Act of 1930 for AD/CVD proceeding. China is a listed non-market economy and in order for this status to be revoked, would require a statutory review by Commerce. While China has argued that its accession into the WTO in 2016 permit it to be treated as a market economy, Commerce has still declined this change China’s designation under US law. Accordingly, China would qualify as a non-market country for purposes of Article 32.10. Negotiating an FTA with China would trigger the notification requirement and potentially result in withdrawal by the US.
Will Canada’s Strategic Partnership with China trigger Article 32.10?
The newly announced Strategic Partnership with China will not trigger notification obligations under Article 32.10. The Prime Minister confirmed that Canada does not intend to negotiate an FTA with China at this time. It has been almost a decade since Canada explored the possibility of an FTA with China, years prior to the implementation of the USMCA in July 2020, with the newly inked Article 32.10. In September 2016, Canada and China initiated exploratory discussions and a joint feasibility study on an FTA. While multiple rounds of exploratory discussions were held and a feasibility study was completed in December 2017, relations between China and Canada cooled significantly in the years following. The FTA discussions were paused in January 2018.
