WTO Compensation in the case U.S. versus Antigua and Barbuda Extended

26 November 2007


WTO Compensation in the case U.S. versus Antigua and Barbuda Extended 

Recently it became known that the World Trade Organization (WTO) granted an extension deadline until December 14th 2007 for a negotiated settlement between the U.S. and the Caribbean Island of Antigua & Barbuda. This dispute long pending since 2003 is not the only challenge the United States is facing, as further compensation decisions has to be secured to fellow World Trade Organization members. These include the European Union, Australia, Canada, Costa Rica, Macau, India and of course Antigua & Barbuda. This long pending dispute initially sprouted by the U.S. withdrawal of WTO treaty obligations concerning gambling.

History of WTO
The World Trade Organization (WTO) is an international organization designed to supervise and liberalize international trade. The WTO came into being on January 1st 1995 and is the successor to the General Agreement on Tariffs & Trade (GATT), which was created in 1947, and continued to operate for almost five decades as a recognized international organization. Among the various functions of the WTO, two of the most important are:-

-It oversees the implementation, administration and operation of the covered agreements.

-It provides a forum for negotiations and for settling disputes.

In December 1945, the United States invited its war-time allies to enter into negotiations to conclude a multilateral agreement for the reciprocal reduction of tariffs on trade in goods. By October 1947 an agreement on the GATT was reached in Geneva, and on the 30th October 1947 twenty three countries signed the “Protocol of Provisional Application of the General Agreement on Tariffs and Trade”.
In 1995 a treaty was created to extend the multilateral trading system to services, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. The General Agreement on Trade in Services (GATS) is a treaty of the Word Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. All members of the WTO are signatories to the GATS. The basic WTO principle of most favored nation (MFN) applies to GATS as well.

How it all started with U.S.versus Antigua & Barbuda
2003 -Antigua and Barbuda filed claim with WTO against the United States alleging that the U.S. discriminates against online gambling (including online poker) companies that are not located within the United States.
2004 -Antigua and Barbuda strengthened its claim by arguing that U.S. trade officials had signed the 1995 GATS treaty, committing it to allow foreign entrants to its lucrative online gaming market.
2005 – WTO ruled in favor of Antiguan online gambling companies offering services to consumers in
America, and against U.S. protectionism. It ordered the United States to comply either by lifting its ban on foreign operators or by withdrawing a “discriminatory” exemption for U.S. online horse-racing betting sites, within 18 months.
2006 -Antigua and Barbuda complained when the U.S. failed to meet the 18-month WTO deadline to comply with international trade laws. The WTO agreed in July 2006 to investigate their complaint, which resulted in a ruling late January 2007 against the United States.
Feb 2007 – The United States appealed the ruling, asking that the judgment made by the highest trade body in the world to be disregarded.
March 2007 – The WTO announced that it rejected the U.S. appeal, and again upheld Antigua’s original claims over the U.S. violations.
October 2007 – The United States is given an extension until December 14th 2007 for making decisions regarding compensation to fellow World Trade Organization members impacted by its unilateral withdrawal of treaty obligations concerning gambling.

Reaction by the U.S. Trade Department
Reuter’s news agency quoted a U.S. Trade Representative spokeswoman Gretchen Hamel explained that each negotiation is proceeding at its own pace, and some are quite advanced. Antigua publicized its demand for the U.S. to pay up $3.4 billion in the form of suspended copyright laws. In reply the U.S. has suggested that around $500 000 would be more appropriate. Antigua & Barbuda seems to be the only country that is vigorously pursuing its claim and rejected the U.S. proposal. In the eventuality that an agreement on compensation is not achieved, the issue will fall before the WTO arbitration.
Although Gretchen Hamel recognizes that the WTO ruling had gone against her country, she is adamant that the U.S. would maintain a ban on Internet gambling financial transactions to “protect public order and public morals as long as it doesn’t discriminate against foreign companies.”
When questioned how the Unlawful Internet Gambling Enforcement Act (UIEGA) still came into force in October 2006, Hamel reiterated that its latest (UIGEA) law isn’t covered by the WTO ruling and said that its 1995 commitment to open gambling to foreign companies was “an oversight” by the Clinton administration. One has to question the moral of the story. These treaties are not just signed for the sake of signing. A great deal of research studies are conducted before approving such a detailed treaty. This claimed “oversight” is very much debatable!

What could this possibly mean in real terms?
This WTO ruling can be taken as a precedent against the United States for online gambling discrimination and protectionism. This can be further challenged by any larger country that supports online gambling and wants access to U.S. customers.
When the UIGEA was passed, many large UK-registered gaming companies lost their U.S. customers and consequently took a huge loss in book value. So UK officials may be pressed by the many UK-based gaming companies to work with the WTO to assure ‘free trade’ to win back the business of U.S. customers.

Thinking Ahead:
As the U.S. is granted the extension period until December 14th 2007, this can be considered as ample time for U.S. to get their house in order. The U.S. appeal to WTO’s ruling was seen as a huge paradox especially when it was the U.S. itself that conceived the concept of international trade organization. As the appeal was rejected by the WTO it made the U.S. think twice about this situation.
Furthermore, the WTO report noted that the Unlawful Internet Gambling Enforcement Act (UIGEA), which became law October 2006 after the 2005 WTO ruling, maintained the same loopholes that first caused Antigua to file their case. The U.S. had a profusion of time to amend this prior to enforcing this law.
There are two ways which the U.S. can correct this:

-One negotiates a reasonable settlement with the claimant Antigua & Barbuda, shake hands and honor the GATS treaty.

-Two, disregard the UIGEA completely and replace with the more popular Internet Gambling Regulation and Enforcement Act of 2007 bill (IGREA) put forward earlier this year, by the Democratic Representative from Massachusetts Barney Frank. Resultantly this provides U.S. Congress a further opportunity to avoid paying trade concessions worth an estimated U.S.$100 billion. 

What will the U.S. do?  Watch here for the latest news.

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