Category: Dispute settlement

Javier Spencer, Guest Contributor 

–Did you know that in 2000, the Antigua and Barbuda’s Online Gaming Industry accounted for 61% of the Global Online Industry?(Global Betting and Gambling Consultants, 2007) This figure declined in 2001 onwards as the United States introduced statutes that limited Antigua’s supply of online gambling services in the US.

The clock has been ticking and the Government of Antigua and Barbuda (Antigua) has now decided to take the necessary actions to retaliate against the United States (US) in its long-simmering case at the World Trade Organization (WTO) (See US Gambling DS285). The US Gambling case is the first case of its kind brought to the WTO in respect of interpreting and applying member states’ commitments under the General Agreement on Trade in Services (GATS). The GATS is a WTO Agreement that emanated from the Uruguay Round of negotiations in January 1995 and much like the General Agreement on Tariffs and Trade (GATT), the GATS’ remit is to substantially reduce barriers to trade within the services sector based on principles of Most Favoured Nation (MFN) and National Treatment (NT).

Background & WTO Findings

Antigua in 2003 filed a complaint to the WTO to challenge domestic legislation in the US that have significantly restricted the ability for service providers of Gambling and betting services in Antigua, to offer their services to customers in the US. The statutes brought into question were: ‘The Wire Act’, ‘The Travel Act’, and the ‘Illegal Gambling Business Act’; all of which Antigua claimed were de facto discriminatory and therefore in breach of the US’ market access commitments (Article XVI (I) GATS). In response, however, the US claimed that it had never made specific GATS commitments on the cross border supply of gambling services and further iterated that the statutes were passed with the main objective of protecting public morals and maintaining public order (Article XIV (a)).

 Much to the surprise of the US, a WTO panel ruled in favour of Antigua in 2004. This ruling was upheld by the Appellate Body in 2005 on the US’ appeal. The ruling found that regardless of the US’ intent to “protect public morals or to maintain public order” the US indeed made specific GATS commitment in respect of the supply of gambling services. Against the backdrop of the chapeau of Article XIV, the US failed to demonstrate that the pieces of legislation did not constitute “arbitrary and unjustifiable discrimination” in respect of the supply of online gaming.

 The US was given the deadline of until April 2006 to amend its legislation to be consistent with WTO law (DSU Article 21.5). Years later, the US has failed to comply with the ruling which prompted Antigua to file an enforcement case at the WTO. Fast forward to 2016 and the U.S. has still failed to comply with the WTO ruling. Therefore the Government of Antigua has recently announced its intention to implement remedies authorised by the WTO.

  The Remedy – Cross Retaliation

In light of the US’ failure to bring its laws in compliance with WTO law, Antigua requested permission to retaliate against the US by suspending obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS Agreement is another result of the Uruguay Round of negotiations which seeks to “promote effective and adequate protection of intellectual property rights”. Ultimately, of course, the agreement regulates intellectual property rights (IPRs) in a manner that eliminates or reduces any barriers to trade.

Further to Antigua’s request, the WTO granted Antigua (as a compensatory measure) the authorization to retaliate in January 2013. This means that Antigua could withdraw US $21 million worth of concessions in IPRs held by US firms, per annum. This cross retaliation strategy has proven to be the best strategy in getting a developed country to comply with WTO rulings. As a precedent, the WTO granted Ecuador the rights to suspend IPR concession against the European Communities (EC) in EC- Bananas III (See DS27). In the final analysis, Ecuador never suspended its TRIPS obligations, but used it as leverage to quickly negotiate with the EC on a mutually agreed solution. This case signals that suspending IPRs as a retaliatory measure gives developing countries a strengthened negotiating position that will serve as an impetus for the developed country to comply or to quickly negotiate a mutually agreeable settlement.

For Antigua, the cross-retaliation remedy could redound to the greater good of its citizens. For example, pharmaceuticals could be legally produced and distributed in Antigua to fight diseases without paying the remunerations otherwise required under TRIPS.

However, a closer look at the suspension of TRIPS obligations yearns a pertinent question. Does Antigua possess the clout and capacity to retaliate using this method? In order for this remedy to secure a great impact on the U.S., firms in Antigua ought to demonstrate that they have technological capacity for (large scale) domestic production of copies of IPR goods from the U.S. This example is further exacerbated if Antigua’s import of IP goods and services from the U.S. is insignificant.

The suspension of IPRs held by US firms is confined to the borders of Antigua and Barbuda which means that goods that would have been created under the TRIPS suspension regime cannot be exported out of Antigua to any other WTO country. At this juncture, a careful examination of the ‘first sale doctrine’ or ‘international exhaustion’ should be applied.

Additionally, Antigua ought to guard against the risk associated with the authorization to retaliate. For instance, suspending TRIPS obligations may cause Antigua to violate its obligations under the Berne Convention and the Paris Convention. Secondly, the authorisation to suspend TRIPS obligations is only temporary in nature (Article 22.8 DSU), although the authorization set out by the DSB has no time limit to implement. However the broader picture portends that Antigua could only suspend TRIPS obligations until the US has removed or amend laws to become WTO consistent. In this regard, Antigua ought to be mindful of new industries that could emanate from this suspension as it would be highly susceptible to a quick change in US laws. Furthermore, Antigua’s preferences under the Caribbean Basin Economic Recovery Act (CBERA) could be negatively affected as one of the criteria is respect for IPRs.

Conclusion

The US Gambling case is a peculiar case where a WTO ruling has been in favour of the developing country’s complaint against the developed country. In such cases, the authorization of TRIPS obligations as a strategy for a developed country to comply could be highly flawed and wreaks greater havoc for the developing country.  Antigua’s retaliation, as case in point, could be ineffective whereas in comparison to the effect that the US statutes had on the Antiguan economy. There are many risks involved in respect of being in breach of other international treaties. Ultimately, however, the measure is meaningless if developing countries do not have the capacity to implement such an authorization.

After a keen assessment of the economic and political risks associated, what other cards are left for Antigua to play? Perhaps Antigua could consider transferring its rights to suspend its TRIPS obligations to another WTO Member State who has the capacity and the clout to successfully implement such a regime. The uncertainty of the outcome is high as there is no precedent of a developing country who has successfully cross-retaliated through a suspension of their TRIPS obligations. This is truly a gamble and Antigua, are you ready?

Javier Spencer, B.Sc., M.Sc., is an International Business & Trade Professional with a B.Sc. in International Business and a M.Sc. in International Trade Policy. His professional interests include Regional Integration, International Business, Global Diplomacy and International Trade & Development. He may be contacted at javier.spencer at gmail.com.