Foley Attorneys Publish on International Arbitration's Role in Tariff Dispute Resolution

How International Arbitration Could Factor in Tariff Dispute Resolution

This article was originally published in Law360 on April 17, 2025, and is republished here with permission.

With the Trump administration’s emphasis on tariffs, including introducing tariffs against the U.S.’ three biggest trading partners and advocating for an External Revenue Service to collect tariffs and other foreign revenue, members of the business world face increasing uncertainties as they assess and renegotiate the cost of doing business and obligations under a changed economic and political landscape, increasing the likelihood of contract disputes.[1]

In a transnational context, the challenge of enforcing a foreign court judgment leads international parties and practitioners to prefer resolving disputes by international arbitration. With the new tariff environment, international arbitration may play an even greater role in dispute resolution as diplomatic relations between the U.S. and major trading partners become more strained.

To demystify the process of enforcing these awards, this article provides an overview of the enforcement process so that parties to cross-border disputes can plan ahead. It focuses on three major jurisdictions: the U.S., the People’s Republic of China and Mexico.

Enforcement of arbitral awards can be more efficient thanks to the robust legal regime of multilateral treaties in place to facilitate their recognition and enforcement. The most well-known is the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention, but many others have followed in its footsteps.

By contrast, enforcing a foreign judgment is difficult because of the sparse diplomatic agreements supporting such recognition and enforcement.[2] In the absence of a diplomatic agreement, enforcement of foreign judgments is governed by domestic law. Thus, the winning party will need to file and win a second suit in the country to enforce its award.

Overview of the New York Convention

The New York Convention was created to meet the needs of the international business community by providing a standard for the enforcement of arbitral awards. Article III of the New York Convention provides that each “Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules and procedure of the territory where the award is relied upon.”

It then provides a streamlined procedure by which a party can obtain award recognition. The 172 countries that are contracting states have substantially adopted this procedure, providing the international business community a reliable and efficient method to recover arbitral awards.

Along these lines, the New York Convention provides only limited avenues to block enforcement of an award. The unsuccessful party has five grounds by which to challenge enforcement:[3]

1. The parties were “under some incapacity” in entering into the arbitration agreement or the arbitration agreement was otherwise invalid.
2. The party against whom the award is invoked was not given proper notice of the arbitrator, was not given notice of the proceedings or otherwise was unable to present their case in the arbitration.
3. The award falls outside the submission to arbitration.
4. The arbitral authority was improperly composed or the arbitral procedure was faulty or not according to the law of the country in which the arbitration took place.
5. The award is not yet binding on the parties or has been set aside by a court in the country where the award was made.

Courts generally construe these five grounds for refusal “narrowly and have exercised their discretion to refuse recognition and enforcement of foreign arbitral awards under the New York Convention in exceptional cases only.”[4]

Additionally, there is no grant for domestic courts to revisit the merits of the underlying arbitration. Courts may only refuse an award because the dispute “is not capable of settlement of arbitration” under domestic law or because recognition would be “contrary to the public policy.”[5]

These rules for recognition and enforcement are a ceiling, or maximum level of control. While a contracting state may impose more liberal rules, it may not impose stricter rules than those set forth in the New York Convention.[6]

Likewise, many multilateral treaties, such as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, known as the ICSID Convention, and the Inter-American Convention on International Commercial Arbitration, known as the Panama Convention, have established equally, if not more forceful, enforcement mandates.

The Enforcement Process

Most parties voluntarily comply with international arbitral awards. However, when they do not, the successful party can request judicial assistance to enforce its award. The New York Convention, the Panama Convention and the ICSID Convention obligate the courts of contracting states to enforce awards in the same manner as domestic final judgments.

Creation of a Valid Award

The first phase of enforcement is creation of a valid award. This is carried out by the arbitral tribunal under the selected governing law. The most common procedural rules are the UNCITRAL Model Law, the International Court of Commerce and the American Arbitration Association’s International Centre for Dispute Resolution.

Once the arbitral panel issues its final award, the successful party may apply for judicial assistance enforcing the award, usually under the New York Convention.

Enforcement of the Arbitral Award

Under the New York Convention, the country where the arbitral award is first entered, i.e., the seat of arbitration, is considered to have “primary jurisdiction.” Courts in that jurisdiction have implied discretion to set aside the award because the decision was governed by that jurisdiction’s laws.[7] All other contracting states are considered “secondary jurisdictions” and have the limited ability to refuse recognition of an award, but not to set it aside.

美国

The U.S. is a signatory to the New York Convention and adopted the Convention as Chapter 2 of the Federal Arbitration Act.[8] Enforcement of foreign and nondomestic arbitral awards under Chapter 2 is straightforward. All enforcement actions must be brought in federal court within three years after an arbitral award.[9]

A party seeking to confirm an arbitral award must submit a copy of the award and the parties’ arbitration agreement to the court.[10] For recognition of an award seated in the U.S., the party must apply to the relevant district court using the same procedures as recognition of a domestic arbitral award under Section 9 of the FAA, and the court “must grant such an order unless the award is vacated, modified, or corrected.”[11]

中国

The People’s Republic of China, also a signatory to the New York Convention, has historically had a bad reputation when it comes to enforcement. While uncertainty continues to exist, it appears the landscape may be improving for enforceability. A study conducted from 2012-2022 revealed that Chinese courts “fully recognized and enforced over 90% of the foreign awards submitted.”[12]

In general, New York Convention procedure applies to foreign awards made by other signatories, though Chinese courts will also recognize and enforce foreign awards not covered by the New York Convention according to relevant treaties or based on reciprocity principles.[13]

Enforcement jurisdiction rests with the Intermediate People’s Courts in either the place of domicile of the party against whom enforcement is sought or the location of the property or assets against which enforcement is sought.[14]

Generally, a party must submit the following within two years of the last day of the period of performance stipulated in the award:

• A written application identifying the basis for enforcement and identifying the specific property against which enforcement is sought;
• The original arbitral award or notarized copy;
• The original arbitration agreement or notarized copy;
• Proof of the applicant’s identity; and
• Valid power of attorney for the lawyers representing the applicant.[15]

The submission must be in Chinese or accompanied by a certified translation, and any documents not originating in mainland China must be notarized and certified by diplomatic or consular officials.[16] Based on this submission, the Chinese court will determine whether the circumstances in Article V of the New York Convention exist; if they do not, the award is enforced.[17]

墨西哥

Mexico is a signatory to the New York Convention, the Panama Convention and the ICSID Convention, and has adopted 64 articles into its Commercial Code based on the UNCITRAL Model Law.[18] When Mexico holds primary jurisdiction, a federal court of first instance or the local courts of the seat are competent to preside over the enforcement or setting aside of arbitral awards.[19]

When Mexico has secondary jurisdiction, the competent courts for the application are located where the respondent is domiciled or where the assets subject to execution are located.[20] In either case, the successful party must submit a written request for execution along with the authenticated award and the arbitration agreement, or certified copies of such, in Spanish to the court.[21]

An arbitral award, regardless of the seat, shall be recognized as binding and executed after the submission of a written request to the judge unless challenged.[22]

Challenging Enforcement

Challenges to an arbitral award may be launched in the primary jurisdiction or secondary jurisdiction. The challenges made in a primary jurisdiction are based in domestic arbitration law and can vary greatly from jurisdiction to jurisdiction. The challenges made in a secondary jurisdiction, where that country is a signatory to the New York Convention, are limited to challenges under Article V.

美国 

While U.S. federal law does not permit appeal of an arbitral award, a party may seek vacatur if the award was rendered in the U.S., i.e., governed by U.S. law. A court may only vacate an arbitral award if it finds one of the following:

The award is a result of corruption or fraud;

Evidence of partiality or corruption of an arbitrator;

Arbitrator misconduct;

Arbitrator(s) exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award was not made.[23]

U.S. courts do not take vacatur lightly, as shown by decisions finding that even if the tribunal committed an error or incorrectly interpreted an agreement, those errors are insufficient to set aside an award.[24] When the U.S. is the secondary jurisdiction, U.S. courts will generally defer to a primary jurisdiction’s decision to set aside an arbitral award.[25]

中国

In China, the New York Convention applies to set aside awards made in other signatory countries, so a party against whom enforcement is sought can seek to challenge enforcement on any of the grounds provided for in the New York Convention and as delineated in Article 291 of the Civil Procedure Law.

However, Articles 70 and 71 of the Chinese arbitration law state that Chinese courts “shall” refuse, rather than “may” refuse, to enforce awards if an Article V nonenforcement ground is established. Therefore, unlike U.S. courts, Chinese courts have no discretion over whether to enforce a foreign award if the party establishes a ground under Article V.

Under its supervisory reporting system, China subjects any decision for nonenforcement to several levels of review.

First, a party seeking enforcement must “apply to the Intermediate People’s Court of the place where the party subjected to enforcement has his domicile or wherever his party is located.”[26] If a lower court intends not to recognize a foreign arbitral award, it must report the case and its proposed grounds for nonenforcement to the High People’s Court of its jurisdiction for review. If the High People’s Court agrees with nonenforcement, it then reports the case to the Supreme People’s Court for further review.

墨西哥

Under Mexican law, an arbitral award may not be appealed. The Commercial Code only provides six reasons, which track Article V of the New York Convention, why Mexican courts may nullify (Article 1457) or deny recognition (Article 1462), none of which allow the court to review the merits.[27] The burden of proof is on the party challenging enforcement.

结论

Although the robust legal infrastructure supporting international arbitration may appear intricate, the structure provides a more solid base for recovery of rewards than for foreign court judgments. As tariffs complicate international business contracts and other agreements, international arbitration provides recourse for parties in a complex and changing political landscape.

Foley & Lardner summer associate Macey McCann contributed to this article.

This article was originally published in Law360 on April 17, 2025, and is republished here with permission.

[1] See, “Top Trading Partners – January 2025,” U.S. Census Bureau (last visited, March 28, 2025), https://www.census.gov/foreign-trade/statistics/highlights/topyr.html. See also, America First Trade Policy, The White House (Jan. 20, 2025), https://www.whitehouse.gov/presidential-actions/2025/01/america-first-trade-policy/.

[2] For instance, neither the United States nor the People’s Republic of China have any federal policies or bilateral treaties for the enforcement of foreign court judgments. See Enforcement of Judgements, U.S. Department of State (last visited, Jan. 30, 2025),https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/internl-judicial-asst/Enforcement-of-Judgements.html.

[3] The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, art. V, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 (“New York Convention”).

[4] UNCITRAL Secretariat, Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, United Nations, Article V, at 125, available at https://newyorkconvention1958.org/pdf/guide/2016_Guide_on_the_NY_Convention.pdf (“New York Convention Guide”).

[5] New York Convention, art. V.  

[6] In most pro-arbitration jurisdictions, “the ordinary rules governing the recognition and enforcement of awards are more liberal and … routinely applied without any need to refer to the Convention.” (New York Convention Guide, at 2).

[7] See New York Convention, art. V(1)(e).

[8] See FAA, 9 U.S.C. § 201 (providing the New York Convention “shall be enforced in United States courts in accordance with” other provisions of the FAA).

[9] Id. §§ 203, 207.

[10] New York Convention, art. IV.

[11] FAA, 9 U.S.C. § 9.

[12] Sam Li, et al., Recognition and Enforcement of Foreign Arbitral Awards in China Between 2012-2022: Review and Remarks (Part II), Kluwer Arbitration Blog, (Sept. 12, 2023), https://arbitrationblog.kluwerarbitration.com/2023/09/12/recognition-and-enforcement-of-foreign-arbitral-awards-in-china-between-2012-2022-review-and-remarks-part-ii-2/.

[13] See Notice of the Supreme People’s Court Regarding the Implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, available at: https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=11&menu=568&opac_view=-1.In November 2024, a draft Amendment to the PRC Arbitration Law was released for public comments. Among the proposed revisions is the addition of Article 78, which clarifies the “seat” of an arbitration. The location of the “seat” will determine the procedures for enforcing an award, so this is a key amendment to follow.

[14] Civ. Proc. L. of China, at art. 269.

[15] See Yang Chen, Li Lan, Lin Mujuan, and Zuo Tianyu, Challenging and Enforcing Arbitration Awards: China, Global Arbitration Review at Questions 2,7, 23 (last verified Mar. 7, 2024), https://globalarbitrationreview.com/insight/know-how/challenging-and-enforcing-arbitration-awards/report/china#:~:text=In%20China%2C%20an%20application%20for,of%20China%2C%20article%20250).

[16] Id. at Questions 8, 23.

[17] Id. at Question 27.

[18] See Cecilia F. Rueda, Challenging and Enforcing Arbitration Awards-Country Report: Mexico, Global Arbitration Review at Question 17 (last verified Apr. 10, 2024), https://globalarbitrationreview.com/insight/know-how/challenging-and-enforcing-arbitration-awards/report/mexico.

[19] Codigo de Comericio, art. 1422 (2018), English translation available at: https://www.global-regulation.com/translation/mexico/560098/commercial-code.html; Rueda, supra note 24 at Question 21 (federal and local courts have concurrent jurisdiction over applications for recognition and enforcement).

[20] Id. at art. 1422.

[21] Id. at art. 1461.

[22] Id.

[23] FAA, 9 U.S.C. § 10.

[24] See, e.g., Republic of Argentina v. AWG Grp. Ltd. , 211 F. Supp. 3d 335, 343 – 44 (D.D.C. 2016), aff’d, 894 F.3d 327 (D.C. Cir. 2018).

[25] See, e.g., Esso Expl. and Prod. Nigeria Ltd. v. Nigerian Nat’l Petroleum Corp. , 40 F.4th 56 (2d Cir. 2022) (“[T]he district court may exercise its discretion to enforce a set-aside award only where the primary jurisdiction’s judgment vacating the award is ‘repugnant to fundamental notions of what is decent and just’ in the United States, a standard that we have cautioned is ‘high, and infrequently met.'”) (quoting Corporación Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploración y Producción, 832 F.3d 92, 106 (2d Cir. 2016)).

[26] Civ. Proc. L. of China, at. 269.

[27] Codigo de Comercio, Art. 1462.