US rejection of WTO order may threaten global trading norms
The US refusal to comply with a World Trade Organization decision on online gambling is threatening to undermine the entire set of rules binding the international trade system.
By Bloomberg |
WASHINGTON: The US refusal to comply with a World Trade Organization decision on online gambling is threatening to undermine the entire set of rules binding the international trade system. The WTO is to decide soon on a demand from the tropical nation of Antigua and Barbuda for $3.4 billion in annual compensation from the US, whose law banning Americans from wagering on internet gaming sites was first ruled illegal by the WTO in 2004.
The implications of the case go far beyond Antigua, a nation of 69,000. That’s because, instead of rewriting its gambling laws, the US rewrote its trade rules to remove the issue from the WTO’s jurisdiction. The prospect that other nations, including China, may take a similar tack if cases don’t go their way has spooked the international trade community.
“This is by far the most significant WTO case ever,” says Naotaka Matsukata, a policy adviser in Washington with Alston+Bird and a former US trade official.
Meanwhile, Antigua, which has rebuffed US overtures to settle, wants WTO permission to waive intellectual-property protection on digital software and entertainment so it can collect its compensation. That is raising alarm among trade associations that represent such companies as Microsoft, General Electric’s Universal Pictures and Time Warner’s Warner Bros., as well as among groups such as the Recording Industry Association of America.
“Antigua literally is the mouse that roared,” says Robert Lighthizer, head of the international trade practice at Skadden, Arps, Slate, Meagher & Flom. The fight began a decade ago, after Jay Cohen, a former options trader from California, moved to Antigua. There, he set up a sports book that accepted online bets from around the globe. US prosecutors said the enterprise was illegal, and Cohen returned to fight the charges. In 2000, a federal jury found him guilty, and he spent 17 months in a Las Vegas prison.
Returning to the Caribbean nation, Cohen persuaded the government to bring a WTO complaint against the US. The island’s booming gambling industry, which at its height in 2001 accounted for more than 10% of employment, helped finance the case, which Antigua filed in 2003. The dispute dragged on, with Antigua’s gambling industry, led by Cohen, banking on a clean win that would open the US market.
Instead, the conflict has multiplied, with other US trading partners with online-gambling interests — including Japan, the European Union and Canada — following Antigua’s lead in demanding compensation from the US. If the US can’t negotiate a package of concessions, it may face new litigation at the WTO from those nations.
The US and EU agreed on terms for compensation that include giving the 27-nation bloc’s service suppliers new trade opportunities in the US postal and courier, research and development, storage and warehouse industries. The US also made concessions in the testing and analysis services industries, said the European Commission, the EU’s executive.
“We would’ve written a check to Antigua, paid them to go away,” says John Magnus, a trade lawyer at Miller & Chevalier in Washington. “Instead, they pressed the point.”
After the US lost the case in 2005, the Bush administration invoked a WTO rule that allowed it to revise its trade obligations. “This is the trade equivalent of taking our ball and going home,” Representative Shelley Berkley, a Nevada Democrat, told the House Judiciary Committee in November. “You can be sure that if China one day decides that it shouldn't have to comply with its WTO obligations, we will be the first to object.”
“It is clear to us that the United States never intended to make a commitment with respect to gambling services,” the group wrote in an August letter to US Trade Representative Susan Schwab.
Last month, EU Trade Commissioner Peter Mandelson visited Washington to encourage Congress to pass legislation liberalising US gambling laws.
The other twist in the case is that Antigua trades so few goods that it would be unable to collect enough compensation by raising tariffs, the way aggrieved trading partners typically resolve disputes.
Tourism is the main contributor to Antigua's $875 million economy. The country exports about $40 million a year in goods and services to the US and imports about $350 million, so taxing products from the US would mainly hurt Antiguan consumers and businesses.
The island nation's proposed remedy — WTO permission to waive intellectual-property protection on some software — raises concerns in Hollywood as well as among technology companies such as Microsoft. The Motion Picture Association of America says the US should retaliate by stripping Antigua of any trade or foreign-aid preferences.
“Does it make sense for a country to expressly allow criminal conduct? We believe it most certainly does not,” says Jonathan Lamy, a spokesman for the Recording Industry Association of America.
While software and technology lobbyists say it's unlikely Antigua will get what it’s asking for, they say they are concerned nonetheless.
“The demand by Antigua is ridiculous,” said Morgan Reed, executive director of the Association for Competitive Technology, the industry trade group that includes companies such as Microsoft and eBay. “The scary thing is that they're asking for it.”
The implications of the case go far beyond Antigua, a nation of 69,000. That’s because, instead of rewriting its gambling laws, the US rewrote its trade rules to remove the issue from the WTO’s jurisdiction. The prospect that other nations, including China, may take a similar tack if cases don’t go their way has spooked the international trade community.
“This is by far the most significant WTO case ever,” says Naotaka Matsukata, a policy adviser in Washington with Alston+Bird and a former US trade official.
Meanwhile, Antigua, which has rebuffed US overtures to settle, wants WTO permission to waive intellectual-property protection on digital software and entertainment so it can collect its compensation. That is raising alarm among trade associations that represent such companies as Microsoft, General Electric’s Universal Pictures and Time Warner’s Warner Bros., as well as among groups such as the Recording Industry Association of America.
“Antigua literally is the mouse that roared,” says Robert Lighthizer, head of the international trade practice at Skadden, Arps, Slate, Meagher & Flom. The fight began a decade ago, after Jay Cohen, a former options trader from California, moved to Antigua. There, he set up a sports book that accepted online bets from around the globe. US prosecutors said the enterprise was illegal, and Cohen returned to fight the charges. In 2000, a federal jury found him guilty, and he spent 17 months in a Las Vegas prison.
Returning to the Caribbean nation, Cohen persuaded the government to bring a WTO complaint against the US. The island’s booming gambling industry, which at its height in 2001 accounted for more than 10% of employment, helped finance the case, which Antigua filed in 2003. The dispute dragged on, with Antigua’s gambling industry, led by Cohen, banking on a clean win that would open the US market.
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Instead, the conflict has multiplied, with other US trading partners with online-gambling interests — including Japan, the European Union and Canada — following Antigua’s lead in demanding compensation from the US. If the US can’t negotiate a package of concessions, it may face new litigation at the WTO from those nations.
The US and EU agreed on terms for compensation that include giving the 27-nation bloc’s service suppliers new trade opportunities in the US postal and courier, research and development, storage and warehouse industries. The US also made concessions in the testing and analysis services industries, said the European Commission, the EU’s executive.
“We would’ve written a check to Antigua, paid them to go away,” says John Magnus, a trade lawyer at Miller & Chevalier in Washington. “Instead, they pressed the point.”
After the US lost the case in 2005, the Bush administration invoked a WTO rule that allowed it to revise its trade obligations. “This is the trade equivalent of taking our ball and going home,” Representative Shelley Berkley, a Nevada Democrat, told the House Judiciary Committee in November. “You can be sure that if China one day decides that it shouldn't have to comply with its WTO obligations, we will be the first to object.”
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The US decision to strip gambling from its WTO obligations won praise from professional sports, including the National Football League, Major League Baseball and the National Basketball Association. “It is clear to us that the United States never intended to make a commitment with respect to gambling services,” the group wrote in an August letter to US Trade Representative Susan Schwab.
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The US raised the ante in October 2006, passing a law placing further restrictions on online gambling. That hurt European firms such as PartyGaming, Bwin Interactive Entertainment and SportingBet. Last month, EU Trade Commissioner Peter Mandelson visited Washington to encourage Congress to pass legislation liberalising US gambling laws.
The other twist in the case is that Antigua trades so few goods that it would be unable to collect enough compensation by raising tariffs, the way aggrieved trading partners typically resolve disputes.
Tourism is the main contributor to Antigua's $875 million economy. The country exports about $40 million a year in goods and services to the US and imports about $350 million, so taxing products from the US would mainly hurt Antiguan consumers and businesses.
The island nation's proposed remedy — WTO permission to waive intellectual-property protection on some software — raises concerns in Hollywood as well as among technology companies such as Microsoft. The Motion Picture Association of America says the US should retaliate by stripping Antigua of any trade or foreign-aid preferences.
“Does it make sense for a country to expressly allow criminal conduct? We believe it most certainly does not,” says Jonathan Lamy, a spokesman for the Recording Industry Association of America.
While software and technology lobbyists say it's unlikely Antigua will get what it’s asking for, they say they are concerned nonetheless.
“The demand by Antigua is ridiculous,” said Morgan Reed, executive director of the Association for Competitive Technology, the industry trade group that includes companies such as Microsoft and eBay. “The scary thing is that they're asking for it.”
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