ANTIGUA GAMBLING DISPUTE: MAJOR ECONOMIES DEMAND COMPENSATION FROM US

The Caribbean island nation of Antigua and Barbuda is no longer alone in its efforts to make it harder for the US to avoid complying with multiple WTO dispute rulings against Washington's restrictions on overseas internet gambling.

Eight Members, including the EU, Costa Rica, and Japan served notice before a 22 June deadline that they will seek compensation for lost revenues potentially worth billions of dollars if the US uses rarely-invoked General Agreement on Trade in Services (GATS) procedures to explicitly exclude internet gambling from its multilateral liberalisation commitments (see BRIDGES Weekly, 30 May 2007).

Meanwhile, Antigua announced that it would seek to impose USD 3.443 billion in annual retaliatory sanctions against a range of US patents, copyrights, trademarks, and other intellectual property, as well as services companies.

WTO dispute panels and the Appellate Body have, in a series of decisions, agreed with Antigua's complaint that the US' multilateral commitments to liberalise its "recreational services" sector prevent it from legally shutting the world's biggest internet gambling market to operators based overseas.

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 forced to open up the sector. For the same reason, it argues that altering its services commitments to clearly block access to the sector would amount to a clarification rather than a change, which does not merit compensating affected countries as required by GATS Article XXI. To the US' assertion that a gambling ban could be justified under WTO rules protecting measures taken to safeguard 'public morals', Antigua has countered that US domestic providers of internet gambling face no comparable restrictions.

The US' attempts to curtail internet gambling, culminating in last October's new law prohibiting credit card companies and financial institutions from processing transactions with overseas gambling companies, have devastated Antigua's once-booming industry. They have also caused enormous losses to internet betting companies elsewhere in the world.

The case, which has pitted one of the WTO's tiniest economies against its biggest, is seen as a test of whether the global trade body's dispute settlement system is effective for countries too small to enforce punitive retaliatory tariffs.

Antigua seeks cross-retaliation

In the document detailing the sanctions it intends to impose (WT/DS285/22), Antigua observed that retaliating against US goods or services would have a "disproportionate adverse impact" on its own population: 48.9 percent of the country's goods and services imports come from the US, but total bilateral trade accounts for less than 0.02 percent of the US' total exports. It thus argued that retaliating in services alone - for instance, by barring some US services companies from operating in the country - would be vastly inadequate to recoup the over USD 3.4 billion in losses it claims to have suffered.

Antigua claims that prior to the US's move to block overseas gambling, the sector accounted for over 10 percent of GDP, and was the fastest growing segment of the island nation's roughly USD 900 million economy.

WTO 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 intellectual property. This has been extremely rare in practice: in 2000, Ecuador received the right to impose USD 200 million in sanctions against EU intellectual property in a dispute over trade in bananas, but chose not to do so.

Antigua argued that cross-retaliation was necessary, since its gaming industry and overall economy would continue to suffer serious losses unless the US withdrew its gambling restrictions. It thus asked for authorisation to suspend its WTO obligations to protect US copyrights, trademarks, industrial designs, patents, and data protection, as well as to suspend liberalisation commitments in the communication services sector.

Some legal scholars suggest that cross-retaliation against intellectual property might give small countries more leverage at large economies to comply with WTO rulings. However, even if Antigua were to be allowed to legally break US patents, trademarks, and copyrights, the legitimate copies thus produced would only be eligible for sale in the country's tiny internal market. It is not clear whether Antigua could, for instance, export copied drugs to say, the EU, without breaching international or domestic rules.

Eight Members ask for compensation

The potential cost to the US of maintaining its current course jumped dramatically last month when seven other Members notified the WTO that they would seek compensation if Washington moved to alter its services commitments. The identity of the countries is confidential, as is the compensation they might seek. However, gambling industry news sources suggest that apart from Antigua, they are the EU, Costa Rica, India, Canada, Macau, Australia, and Japan.

Gambling companies based in Costa Rica and the UK have been hit hard by the US ban, losing business as well as share value.

Mark Mendel, lead counsel to the Antiguan government on the case, welcomed the requests for compensation. "I think the US is going to have to reassess what they're doing," he said.

Antigua's estimate of USD 3.443 billion in potential losses was conservative, Mendel said, suggesting that the EU and other countries could claim substantially higher sums. This, he suggested, could ultimately push the cost of compensation so high that the US would have to face changes to unrelated services sectors - affecting access to crucial markets - merely to protect its domestic gambling sector.

US officials have expressed scepticism about the merits of the compensation claims.

There is little precedent to indicate how the compensation claims might unfold. GATS Article XXI has been used only once in the WTO's history, when the EU made new market-opening commitments as compensation for withdrawing certain concessions that had been offered by some of the ten countries that acceded to the bloc in 2004. In theory, compensation should be offered under the GATS; the rules do not mention whether this could be done under other WTO agreements.

Procedurally, if governments cannot agree on compensation, they can seek arbitration.

Mendel insisted that Antigua still wanted to negotiate a solution with Washington, but had "hit a stone wall" with the US trade representative's office.

ICTSD reporting; "Costa Rica Joins Growing list of WTO members for USA Online Poker Online Gambling Ban Compensation," POKERPAGES.com, 24 June 2007; "US faces seven compensation claims in WTO online gambling case," CASINO CITY TIMES, 25 June 2007.