Antigua Costa Rica WTO Arbitration Filing Can Reopen EU Online Gambling Claim

The billion dollar international dispute sparked off by Antigua's World Trade Organization (WTO) challenge to the United States protectionist online gambling, online poker policy has taken yet another turn, as Costa Rica and Antigua on January 28 separately filed for WTO arbitration to reach agreement on compensation from the USA, which could also derail settlements that other WTO members such as the EU, Japan, Canada, and Australia reached earlier with the U.S..

These compensation claims originate from the WTO case that Antigua brought against the U.S. in 2003 for preventing foreign gambling operators from taking US customers. The U.S, even in appeals, repeately lost the case, largely because of the multiple forms of online gambling it supports within its borders such as state lotteries and betting on horse racing.

But rather than complying with the WTO ruling to open its borders to foreign online gambling operators, the U.S. took the unprecedented step of withdrawing its Article XXI commitments relating to cross-border gambling services from the 1994 GATS (trade) treaties it had signed.

Under the WTO's GATS rules, when any country withdraws its market access, they must compensate any of the 151 affected WTO member countries in a way that maintains trade commitment levels no less favorable than those that existed prior to the negotiations.

SETTLEMENTS ALREADY REACHED: EU JAPAN CANADA AUSTRALIA

The U.S. has already negotiated settlements with four of the eight nations who filed for compensation: the E.U., Japan, Canada, and Australia. Compensation is in the form of markets access to U.S. domestic postal services, warehousing, R & D, and technical testing sectors.

CONTRIES YET TO SETTLE: COSTA RICA, MACAO, INDIA ANTIGUA

Costa Rica, Macao, India and Antigua did not reach an agreement with the U.S., as those market sectors offered by the U.S. were of no commercial interest to the four countries.

Since after months of negotiations they could not reach agreement about a compensation amount directly with the US, Costa Rica and Antigua filed for WTO arbitration to do so, as provided by WTO rules. These requests are the first ever in response to a withdrawal of commitments.

Under WTO rules, parties seeking arbitration in disputes like this about changing services commitments have 20 days to agree on the arbitrators, usually three people forming a panel.

If they fail to agree on the arbitrators any party can ask the WTO's director-general to appoint them within 10 days.

"What they [USA] are very much hoping to do is withdraw the commitment and get away with it. That would be horrible for the WTO," Mark Mendel, legal representative for Antigua opined.

EU CAN JOIN THE NEW ROUND OF ARBITRATION

The arbitration filing makes it possible for the E.U. to reconsider its settlement with the U.S. and join the arbitration proceeding, opening up a new phase in the Internet gambling trade dispute.

"The decision by Antigua and Costa Rica to take the United States to arbitration will test the limits of the WTO process and squarely challenge the U.S. resolve to withdraw its GATS commitments," said Nao Matsukata, formerly Director of Policy Planning for USTR Robert Zoellick and now a Senior Advisor for Alston and Bird LLP.

US RISKS NEW SANCTIONS

U.S. withdrawal from GATS following this new arbitration carries the risk of expensive new sanctions levied against U.S. exports and intellectual property.

"If the U.S. withdraws following another adverse arbitral decision, the country would face potential retaliation from all WTO Members affected by the arbitration, a pool of countries including the EU, Canada, and Japan," Matsukata noted.

"Inviting sanctions at a time when both the U.S. Administration and Congress are both striving to stimulate an economy on the edge of recession seems foolhardy at best, especially when draft domestic legislation already exists that would create a renewed flow of both business and tax revenues throughout the nation's gaming sectors," he added.

IMPACT ON ANTIGUA'S $21 MILLION/YEAR NON-COMPLIANCE AWARD

It is also possible that these arbitration requests will impact the way in which Antigua decides to implement the separate earlier award of $21 million per year in trade sanction compensation it received for U.S. noncompliance with WTO rulings on the gambling dispute.

The WTO gave Antigua the right to levy the sanctions on U.S. intellectual property by lifting copyright on products such as software, CDs or DVDs. That award has set off a whole other round of debates from IP legal experts as well as from the music, film and computer industries that are likely to be hardest hit.

TIME TO OPEN U.S. BORDERS

"It is time for the U.S. to end its hypocritical practices that discriminate against foreign online gambling operators, while allowing U.S. gambling operators to accept bets for certain forms of gambling," said Jeffrey Sandman, spokesperson for the Safe and Secure Internet Gambling Initiative. "Regulation of Internet gambling should be supported as a means to resolve this trade dispute."

"If the U.S. finds the decision of the WTO arbitrator unacceptable, under procedures outlined in the GATS, it could unilaterally withdraw, creating an unprecedented crisis of confidence in the global trading system," Matsukata added.

"The best solution remains for Congress to pass legislation that would create a legal and regulated framework for online gaming in the United States and for the United States to remain in the GATs schedule to provide all providers legal protection under the WTO," stated Matsukata.

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