DSB authorizes Antigua sanctions in US gambling dispute

The WTO has given Antigua and Barbuda the greenlight to suspend measures protecting US intellectual property in retaliation for the US’ non-compliance with a WTO ruling on Internet gaming services.

by Kanaga Raja

GENEVA: The Dispute Settlement Body (DSB) of the World Trade Organization (WTO) on 28 January agreed to the request by Antigua and Barbuda for authorization to suspend concessions or other obligations under the WTO’s TRIPS Agreement with respect to the United States in an amount not exceeding $21 million annually.

The dispute concerns US measures affecting the cross-border supply of gambling and betting services, with Antigua seeking recourse to Article 22.7 of the WTO Dispute Settlement Understanding on 13 December 2012.

The authorization request follows the award of the arbitrators and in terms of Article 22.7, the DSB authorization is automatic, unless the DSB by consensus decides otherwise.

The authorization request had highlighted several sections of Part II under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) with respect to the suspension of concessions or other obligations, namely, Section 1 (copyright and related rights), Section 2 (trademarks), Section 4 (industrial designs), Section 5 (patents) and Section 7 (protection of undisclosed information).

“Disingenuous, untrue and

unhelpful”

In its statement at the DSB, Antigua and Barbuda said that it is surprised that the US continues to put forth the argument that it was either unaware that it had made a commitment in respect of gambling in its schedule under the WTO’s General Agreement on Trade in Services (GATS) or that the commitment was made by mistake.

“As my fellow members well know, in our respective preparations of our schedules under the GATS, many of us were able to recognize the gaming commitment and either exclude or modify it explicitly by reference in our schedules, as at least a dozen were so to do, or omit the commitment by exclusion of the entire applicable sector. We were all, as they say, singing from the same hymn sheet, W/120.”

Noting that the US itself excluded “sporting” from the applicable sector, Antigua said that this insistence upon “error”, “mistake” or “unintentional” is “disingenuous, untrue and we would hope the United States would drop this unhelpful red herring.”

Antigua also noted that in its statement at the DSB meeting in December, the US made reference to its need to strictly regulate remote gaming to protect the health and safety of its citizens.

“This is yet another false trail, as during the course of our proceedings, the United States’ primary defence was that remote gaming was so pernicious and problematic that it is not capable of regulation.”

In fact, Antigua added, the US argued that it prohibited all remote gaming because of the moral, health and safety problems associated with the activity.

“But we have never argued that remote gaming should be unregulated. We have been licensing and regulating the industry for almost two decades. We fully understand and respect the need for regulation.”

It said that among its many unanswered proposals for settlement to the US was a joint regulatory system where the US could work closely with Antigua and Barbuda regulators to ensure the efficacy of remote gaming regulation.

Noting that lawful domestic remote gaming has existed in the US for decades and is increasing as each day passes, Antigua said it would hope that the US would no longer continue “to push forth this tired and thoroughly discredited justification for their decade-long non-compliance with the decision in our dispute.”

Antigua further said that it would like to make absolutely clear that its government has been patient, open and creative in its negotiating efforts with the US. “But in all of our years of discussions with the US, they have never once given us a settlement proposal of their own.”

“They have never once taken one of our many proposals and suggested changes, permutations or alternatives in what we understand the spirit of good faith negotiations to be. In fairness, by and large neither have they rejected our proposals. They have simply failed to respond or do anything.”

Antigua called for the US to discontinue its oft-repeated and untrue assertion that Antigua has failed to take up reasonable settlement offers presented to it.

Antigua stressed that in response to its argument that Antigua is unfairly and improperly standing in the way of American efforts to cure its GATS violation by wiping away its gaming commitment under the GATS, “we want our fellow delegates to know that the United States offered us nothing during our brief and languid discussions regarding the proposed removal of the gaming concession.”

“Nothing. And we continue to insist, particularly on behalf of small, narrow economies such as our own, 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 underlying dispute. That would be an absurd result, and as we know, international law doesn’t much fancy absurdity.”

Antigua further said that it is disturbed by statements and suggestions by the US that Antigua’s recourse to the suspension of concessions and other obligations awarded to it by the DSB would render it “pirates” and “thieves” of intellectual property.

“We have followed the rules and procedures of the WTO to the letter. We have litigated each and every issue, and availed ourselves of the remedies and rights provided us as a prevailing party in a WTO dispute under rules [which], as our fellow members will know, were largely driven by the major economies during the process that resulted in the Uruguay Round agreements.”

“To accuse our country of somehow being an international outlier by doing what the rules provide we can do, while at the same time confiscating the money our operators held in global accounts and subjecting our operators to prison terms under laws held inconsistent with the GATS pretty much beggars belief.”

Antigua considered this rhetoric and these particularly inflammatory and clearly false accusations to be inappropriate, unhelpful and wrong, and called on the US to cease these very unfortunate references and acknowledge that “our little country is doing precisely what it has earned the right to do under international agreements.”

Antigua went on to say that it is in the process of assessing its options, analyzing the legal issues and developing a scheme for imposing the suspension of concessions and other obligations approved by the DSB should it, in the event, determine to do so.

“The United States has ruined our domestic remote gaming industry, causing thousands of job losses and nipping in the bud our prescient investment in remote gaming. As we speak, they are prosecuting and pursuing Antiguans for simply engaging in conduct that the United States committed under the GATS to allow.”

It added: “By our estimates, the United States has seized over a billion dollars in customer deposits and other funds of our licensed operators without any kind of due process and in clear and unambiguous violation of international law.”

Antigua underscored that “the fact that we are at this point at all is very unfortunate and does not bode well for the global trading system in general and the WTO in particular. Our experience in this endeavour to protect and enforce our rights against a bigger economy with infinitely greater resources has not been satisfactory.”

“Our inability to achieve a fair and proper resolution over a long period of time, together with 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, and if the WTO dispute resolution system may not be in serious need of overhaul,” said Antigua.

“Misplaced” decision

In its statement at the DSB, the US said it is disappointed with Antigua and Barbuda’s “misplaced” decision to abandon constructive settlement discussions and to pursue authorization to suspend concessions or other obligations under Article 22.7 of the DSU.

“This course will not achieve a positive outcome for the Antiguan economy or people and will make resolution of this longstanding matter more difficult.”

The US fundamentally disagreed with Antigua’s characterization of the status of this dispute and of US efforts to reach a solution.

Throughout this process, the US said, it has urged Antigua to seek solutions that would benefit its broader economy. However, Antigua has stymied any progress toward finding common ground by insisting that the US must not modify its schedule under the GATS.

The US reiterated that it never intended gambling and betting services to be included in its schedule under the GATS. This was the US understanding of its own schedule. However, as a result of ambiguities in drafting, and despite the intent of the US negotiators, the WTO Appellate Body ultimately found that the US schedule must be construed as including a market access commitment for cross-border gambling.

Although the US finds this outcome difficult to understand and highly unfortunate, it said that it has accepted the results of the dispute settlement system.

The US further said that it has responded to this finding responsibly, and in a manner that involves substantial costs for the US. As the US previously notified the DSB and the Council for Trade in Services, the US has invoked the established multilateral procedures for modification of its GATS schedule of concessions.

In May 2007, the US initiated the modification procedure under Article XXI of the GATS so as to reflect the original US intention to exclude gambling from the scope of US commitments. Pursuant to the GATS procedures, the US reached agreement with all interested WTO member states, except one, on a package of substantial compensatory adjustments to the US GATS schedule.

“Only one single Member, out of the entire WTO membership, will not accept compensatory service concessions. That Member is Antigua.”

“Instead of respecting the WTO process under Article XXI, 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.”

Despite this unreasonable and unrealistic demand, the US said it has gone to great efforts to meet Antigua’s concerns. Over a course of years, the US has devoted substantial resources to settlement discussions. The US has met repeatedly with Antigua at all levels of government, from the ministerial to the technical level.

Based on specific requests made by Antigua, the US said, it has offered real and substantial benefits that would make important contributions to the further development of the Antiguan economy.

“At times, it has appeared that Antigua has been on the verge of accepting these benefits and putting this dispute behind us. At other times, however, as appears to be the case today, Antigua reverts to its unrealistic demands that the United States forego the modification of its schedule under the GATS.”

Moreover, Antigua today is taking the additional step of seeking authorization to suspend concessions with respect to intellectual property rights, said the US, adding that it views this step as fundamentally at odds with the current status of this matter.

“It is Antigua’s actions in refusing to engage in the Article XXI process, and not the actions of the United States, that are preventing the final resolution of this matter. Moreover, if Antigua does proceed with a plan for its government to authorize the theft of intellectual property, it would only serve to hurt Antigua’s own interests.”

The US added: “Government-authorized piracy would undermine chances for a settlement that would provide real benefits to Antigua. It also would serve as a major impediment to foreign investment in the Antiguan economy, particularly in high-tech industries.”

Noting that Antigua has stated that it will not seek to implement a suspension at this time and that it will provide details on its plans to the DSB at a later time, the US said that implementing suspension of intellectual property rights is counter to Antigua’s own interests, and Antigua should reconsider before taking this extraordinary and unprecedented step.

Rules-based system

In an intervention, Dominica, on behalf of the OECS (Organization of Eastern Caribbean States) member states, said a well-functioning rules-based multilateral trading system (MTS) that is fair, balanced and equitable and addresses the needs, concerns and interests of all its members, particularly the smallest, weakest and most vulnerable, is critical for the long-term credibility and relevance of the WTO.

Such a system is in fact most needed by the smallest and weakest members who lack the economic and political weight to advance and defend their interests in what would otherwise be the law of the jungle, it said, adding that for the member states of the OECS, the existence and maintenance of such a system is one of the key benefits or raison d’etre for membership in the WTO.

A key element of a rules-based MTS is a fair and equitable and functioning dispute settlement system. The WTO Dispute Settlement Understanding and the Dispute Settlement Body negotiated during the Uruguay Round and established in 1995 represented a major innovation in the global economic governance architecture meant to provide a more binding and judicious process for the settling of disputes among members of the MTS, it said.

According to Dominica, the rulings of the panel and Appellate Body in favour of Antigua and Barbuda in the case on measures affecting the cross-border supply of gambling and betting services was a clear demonstration that the WTO and the MTS was closer to being a fair and equitable rules-based system.

“It demonstrated that the smallest and the weakest can come away with a positive ruling to be followed by prompt and effective implementation of the rulings or mutually acceptable settlements of the disputes. The inability so far for those rulings to be translated to implementation and/or for Antigua and Barbuda to obtain what for them would be an acceptable settlement of the case is however a mark against that notable achievement of the system, one which needs to be addressed with earnest.”

Dominica said that the member states of the OECS therefore call for a speedy resolution to this longstanding dispute in line with the rulings and recommendations of the DSB, in line with the fundamental principles, objectives and goals of the WTO and its Agreements, and finally in line with the needs of a tiny and vulnerable developing country. (SUNS7514)                          

Third World Economics, Issue No. 538, 1-15 Feb 2013, pp 7-9