It has emerged that Costa Rica and Antigua separately filed for World Trade
Organization (WTO) arbitration on 28th January, seeking compensation from the
United States as a result of the US withdrawal of its commitment on cross-border
gambling services.
The new arbitration requests could potentially derail the settlement for compensation
agreed to late last year by the US and the European Union.
The arbitration filing makes it possible for the EU to reconsider its settlement
with the US and join the arbitration proceeding, potentially 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
US resolve to withdraw its GATS commitments,” observed Nao Matsukata, formerly
Director of Policy Planning for then USTR Robert Zoellick, and now a Senior Advisor
for Alston and Bird LLP. “If the US 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.
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.”
US withdrawal from GATS following this new arbitration carries the risk of
expensive new sanctions levied against US exports and intellectual property.
“If the US 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,”
added Matsukata. “Inviting sanctions at a time when both the US Administration
and Congress are 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.”
Lode Van Den Hende, a WTO expert and trade attorney with Herbert Smith in Brussels
added: “There is a real possibility that the arbitration body will find
that unless the US provides commercially meaningful compensation to Costa Rica
and Antigua, it cannot withdraw its commitment on gambling, without risking
trade sanctions from the affected parties.”
Costa Rica’s action raises questions about what India and Macao might
do as well as the other nations that have yet to come to terms with the US over the
withdrawal of the Article XXI commitment related to cross-border gambling services."
Under the WTO’s GATS Article XXI rules, any country withdrawing its market
access must provide compensation to affected countries that maintains a general
level of mutually advantageous commitments, not less favourable to trade than
that provided for in schedules of specific commitments prior to the negotiations.
The US negotiated settlements with four of the eight nations seeking compensation
- the EU, Japan, Canada, and Australia, providing compensation, in the form
of market access to US domestic postal services, warehousing, R & D, and
technical testing sectors.
Costa Rica, Macao, India and Antigua did not reach an agreement with the US
over the withdrawal of its gambling commitment, as the above market sectors
offered by the US were of no commercial interest to those countries.
After the WTO ruled that the US had violated trade rules in barring Antiguan
online gaming operators from the US market, the US withdrew its WTO obligations
with regard to free trade in the gambling area. The US decision to withdraw
its market commitments, in order to comply with the WTO, is the first instance
of such an action by a WTO member. The action by the US sets a precedent that
other WTO members could copy in order to back out of their own commitments once
they consider them inconvenient. In turn, the Costa Rican and Antiguan arbitration
requests are the first ever in response to a withdrawal of commitments.
It is possible that these arbitration requests will impact the way in which
Antigua decides to implement the $21 million per year in trade sanctions it
received as compensation for US noncompliance with WTO rulings in the gambling
dispute. One available option is for the country to take the compensation in
the form of intellectual property waivers.
“It is time for the US to end its hypocritical practices that discriminate
against foreign online gambling operators, while allowing US gambling operators
to accept bets for certain forms of gambling,” announced 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.”
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