[JC]

This article is from Inside Trade, a highly regarded periodical in trade circles.



Gambling Panel Hints At Broader U.S. Compliance Problem


________________________________________ _______


Date: April 6, 2007


The latest World Trade Organization dispute settlement panel in the U.S.-Antigua
gambling dispute rejected U.S. efforts to reargue the case that it had lost
before the Appellate Body, saying that allowing the U.S. to do so would run
afoul of dispute settlement rules.


The U.S. had tried to make the case that it was eligible for an exemption from
its services trade obligations under Article 14 of the General Agreement on
Trade in Services even though the Appellate Body had rejected that argument.
With the exemption, the U.S. could justify its Internet gambling ban as a
measure to protect public morals.


In rejecting the U.S. arguments, the panel ruled that the U.S. has not complied
with the Appellate Body ruling because it has taken no action to prove that it
does not apply its Internet gambling restrictions in a discriminatory manner.
The Appellate Body had ruled the U.S. was discriminatory in its application of
the Wire Act, U.S. Illegal Gambling Business Act, and the Travel Act, citing in
particular the Interstate Horseracing Act, which the Appellate Body said
appeared to allow some forms of Internet gambling in the U.S.


But the compliance panel did raise the possibility that if it had been able to
reopen the case, it could have found that more than a clarification of the
relationship between the IHA and the three federal laws was required from the
United States in order to comply with its WTO obligations. Specifically, the
panel implied that the Wire Act itself might have to be changed in order for the
U.S. to be able to invoke the GATS exemption and therefore comply with those
obligations.


According to Mark Mendel, Antigua’s lead lawyer in the case, the Wire Act itself
is discriminatory because it allows Internet gambling within a state, but not
across state or international borders. The compliance panel said that any
finding that the Wire Act does not on its face discriminate between countries
would overlook the fact that its prohibition does not apply to remote wagering
in the United States to the same extent as interstate or foreign commerce.


Similarly, the panel noted that the Unlawful Internet Gambling Enforcement Act,
enacted in October 2006, does not include intrastate transactions in its
definition of “unlawful Internet gambling.”


According to Mendel, the panel statement makes clear that the Wire Act itself is
discriminatory and, along with the UIGEA, would have to be changed for the U.S.
to qualify for the Article 14 exemption. The U.S. argument under Article 14 was
predicated on the idea that the U.S. does not permit Internet gambling, which
the compliance panel shot down more conclusively, Mendel said.


The idea that the U.S. would have to change federal law in order to comply with
its WTO obligations seems at odds with the apparent U.S. government view that
the U.S. only needs to clarify the relationship between the IHA and U.S. federal
laws in order to come into compliance with its WTO obligations.


Opponents of the WTO have long argued that the Appellate Body ruling opens the
door to new challenges by other trading partners. A senior European Union
official has stated in public that the European Commission may consider bringing
a WTO case against U.S. gambling restrictions. But Mendel expressed doubts that
the EU would ever choose to bring its own case against gambling restrictions in
the U.S., as member states do not have a unified policy on this issue.


The compliance panel based its argument that it could not reargue the underlying
case on its reading of the Dispute Settlement Understanding Article 17.14, which
states that an Appellate Body report shall be “unconditionally accepted by the
parties to the dispute.”


The WTO will adopt the compliance panel report by no later than May 30 unless
the U.S. decides to appeal the decision. A USTR spokeswoman said that the U.S.
is currently reviewing its options. If the U.S. decides to appeal, a decision
could be reached by the end of the summer, according to Mendel.


Antigua has made several offers to the U.S. for an acceptable negotiated
solution, but so far the U.S. has been unresponsive, according to Mendel. One
idea would be to allow remote gambling services from Antigua for a three-year
period and at the same time conduct an overall assessment of the gambling
industry, including services provided by Antigua, to see whether and how the
industry can be regulated, he said.


If the U.S. continues to ignore its WTO obligations, Antigua would most likely
not choose to apply retaliatory tariffs, but would rather look to suspend the
application of trademarks and copyrights in Antigua provided for by the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS),
Mendel said.


This is both because the applications of punitive tariffs would have little
effect on the U.S. given the small volume of trade involved and because their
application would hurt consumers in Antigua, Mendel said.


However, Mendel said he expected the U.S. to eventually comply with its WTO
obligations, as the U.S. has never before refused to comply with the findings of
the WTO, in part because it would undermine the rule of law in the WTO.

[Bill Dozer]

The way the US keeps walking into walls adds fuel to the theory that the WTO will force the US to allow online gaming after it cleans out the competition.

[SBR_John]

If the U.S. continues to ignore its WTO obligations, Antigua would most likely
not choose to apply retaliatory tariffs, but would rather look to suspend the
application of trademarks and copyrights in Antigua provided for by the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS),
Mendel said.

The US will never comply or even consider complying. They will take their medicine whatever it is.

[JC]

Well, if that's the case, they are going to make some powerful constituents very angry.

It's so silly. They are going through all of this nonsense over gambling, which they offer all over the place.

[Ganchrow]

If the U.S. continues to ignore its WTO obligations, Antigua would most likely
not choose to apply retaliatory tariffs, but would rather look to suspend the
application of trademarks and copyrights in Antigua provided for by the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS),
Mendel said.

This is both because the applications of punitive tariffs would have little
effect on the U.S. given the small volume of trade involved and because their
application would hurt consumers in Antigua, Mendel said.

In this regard, snipped from Rolling the Dice by Hentry Lanman at slate.com:

The obvious question is what Antigua can do with a victory at the WTO. Retaliatory tariffs plainly aren't particularly appealing for small country like Antigua, because they would certainly hurt more than they would help. But the plucky little island paradise does have some creative options at its disposal. If the United States remains recalcitrant, under the WTO rules, Antigua would potentially have the right to suspend its own compliance with the treaty that obligates it to respect the United States' intellectual-property laws. That, one can well imagine, might get Washington's attention.

Want a cheap copy of Microsoft's latest software or a nice medical device that, annoyingly, is protected by a U.S. patent? Come to Antigua. In such a scenario, Antigua couldn't simply be ostracized as a rogue state. It would have every right under WTO rules to pursue such a course. In fact, Antigua could go down this road only in response to the United States' continuing refusal to honor its international obligations. While there undoubtedly would be complicated issues and restrictions on the scope of any suspension the WTO approves, the United States shouldn't assume that the world body is too timid to hand Antigua this sort of stick with which to retaliate, since it has authorized intellectual-property-based reprisal before. Antigua's frank calculation here, of course, is that while the administration might be comfortable stiffing the Antiguan trade representative, it would probably take notice if, say, an irate Microsoft or Disney started insisting that it get this problem solved.

This whole episode may turn out to be a case study of what can go wrong when Congress succumbs to an idea that probably should never have made it out of the 19th century—prohibition—in far more complex contemporary circumstances. To the extent it has been thinking about the dispute with Antigua at all, the United States may have been assuming that it could white-knuckle any public-relations fallout and not actually have to change its behavior. In the past, in an economy based largely on physical goods, this might have been a reasonable strategy, but it doesn't look good when intellectual property is such a crucial asset. As the United States knows better than anyone, useful intellectual-property protection requires a shared set of global enforcement agreements. Precisely because it has the most to gain from this system, the United States is also uniquely vulnerable to gaps in it. And that's why allowing countries like Antigua to suspend intellectual-property treaties in trade disputes gives them such a potent weapon, a fact that the United States, much to its annoyance, may soon learn.

[ugard]

Forgive my ignorance, but are there not already countries that do not respect American patent laws?

If so, why would the addition of Antigua be particulary disconcerting for the US? Is it because, in this case, Antigua would have been given explicit rights to 'infringe' the patent laws? These rights having been given by an organisation that the US is supposed to recognise as having jurisdiction over itself too, would mean the US had no ground to prevent the 'illegal' imports?

[durito]

It's interesting that the Bush administration has announced they will file two more complaints with the WTO against China.

http://online.wsj.com/article/SB1175...N=wsjie/6month


It seems our government doesn't like it when other countries don't
follow the rules, but has no problem breaking them themselves.
This is hardly surprising.