WTO Authorises Antigua to Move Forward on Retaliation in US Gambling Dispute

30 January 2013

On Monday, the WTO Dispute Settlement Body (DSB) authorised Antigua and Barbuda to retaliate against US intellectual property (IP), as part of their longstanding dispute regarding internet gambling services (DS285). However, it remains unclear what kind of measures will be put in place by the Caribbean nation, with experts suggesting US music and film industries as possible targets of the future retaliatory sanctions.

The case, which dates back to 2003, pitted one of the world's smallest economies against the largest, and was seen by some as a test of the WTO dispute system's ability to empower small countries to take effective trade sanctions against their more powerful trading partners.

WTO dispute panels and the Appellate Body have, in a series of decisions, agreed with Antigua's complaint that the US' internet blocking of overseas operators is in violation of Washington's commitments to liberalise its "recreational services" sector under the WTO General Agreement on Trade in Services (GATS).Since the US failed to comply, Antigua was authorised to retaliate by US$21 million, which was deemed to be the amount that the Caribbean country lost through the US' trade barrier. (See Bridges Weekly, 16 January 2008)

Multilateral trading rules provide for countries to ordinarily retaliate under the specific WTO agreement that has been violated - that is, sanctions against goods when merchandise trade is at issue, services for services, and so forth. However, if this is unlikely to be effective, they allow governments to "cross-retaliate" against other sectors, such as IP. This option has never been tested by any WTO member, raising questions regarding how to put it into practice, especially when a country targets intangible products with its retaliation.

A 2009 ICTSD study by Professor Frederick Abbot had found that, in general, valuing the suspension of concessions in IP was "not an obstacle to building a successful cross-retaliation programme," noting also that businesses and investment analysts "value IP assets routinely and in fairly precise ways." [Editor's note: ICTSD is the publisher of Bridges.]

Antigua and Barbuda did not clarify at Monday's DSB meeting which specific retaliatory measures it intends to adopt. For one, Mark Mendel - one of Antigua's representatives in the dispute - stated that a website allowing downloads at a minor price is an "intellectual possibility." In that case, no royalties would be paid to the US industry, and downloads could be stopped when the threshold of US$21 million in income for Antigua is reached.

"We are in the process of assessing our options, analysing the legal issues and developing a scheme for imposing the suspension of concessions and other obligations approved by the DSB," Antigua and Barbuda said at Monday's meeting.

However, the island state left a door open to a possible settlement, specifying that they "stand ready and eager to find a fair solution to the dispute" and encouraged the US to act promptly to avoid the consequences of retaliation.

The US, in return, warned that if Antigua proceeds "with a plan for its government to authorise the theft of intellectual property, it would only serve to hurt Antigua's own interests."

"Government-authorised piracy would undermine chances for a settlement that would provide real benefits to Antigua," the US concluded.

For its part, Antigua and Barbuda rebutted any accusation of "piracy," explaining that it is "doing precisely what it has earned the right to do under international agreements."

Should the Caribbean state decide to retaliate, Antigua and Barbuda will only have to notify the WTO secretariat of the details of the future sanctions before putting them into practise, without any further authorisation by the DSB.

Retaliation preferred over compensation?

From the outset of the dispute, Washington has maintained that it never meant to open its market to cross-border gambling when scheduling its commitments during the Uruguay Round, and thus should not be penalised. Hence, in 2007 the US controversially decided to invoke rarely-used procedures under the GATS to modify its multilateral liberalisation commitments and explicitly exclude internet gambling.

Following GATS rules, the US entered into bilateral negotiations to compensate trading partners negatively affected by the change of commitments - including large economies such as the EU, Japan, and Canada.

The US reached agreement with all interested members except Antigua and Barbuda, which requested arbitration in 2008 to determine the amount of compensation but refrained from moving ahead with the dispute by actually appointing the panellists.

Negotiations, however, continued. The small island state consistently argued that additional market access in other areas was unlikely to bring relief to its economy, given that the gambling industry was once responsible for five percent of the country's employment. Instead it suggested a joint regulatory oversight structure for off-shore gambling as one option to address the US' alleged moral difficulties as well as its own economic interests.

"Antigua insists that the United States must maintain its unintentional concession on gambling, and that the United States must change its domestic policies concerning public morals and public order so as to allow internet gambling," the US said on Monday.

The US added on Monday that it has offered "real and substantial benefits that would make important contributions to the further development of the Antigua economy" in order to settle the dispute.

Antigua and Barbuda, in turn, argued that "a major economy cannot avoid the consequences of an adverse DSB ruling by withdrawing a commitment in a manner that ostensibly ‘balances' global trade by accommodating other affected members but provides no benefit or compensation to the prevailing party in the dispute."

"The possibility that at the end of the day the United States may avoid any liability to Antigua and Barbuda by simply re-writing its trade obligations after the fact, leaves us wondering if there is anything for small economies at the WTO," Antigua and Barbuda concluded.

ICTSD reporting.

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