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WTO delivers a bizarre decision, allows Antigua to legally violate US IP rights for backtracking gambling commitments- Guest post by Vijayaraghavan

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The following is a guest post by Vijayaraghavan, student of NUJS who has done extensive research on WTO commitments. In this post, he analyses the recent decision by the WTO  which granted final authorisation to Anitgua to violate US IP rights worth US $21 million per year. Vijay presents a comprehensive anlaysis on the entire dispute and also discusses its implications on the online gaming industry.

This is in continuation of a previous post on the Antigua-USA Online Gambling Dispute before the WTO.  The dispute relates to the flouting of the United States of  America of their specific commitments under the General Agreement on Trade  and Services (hereinafter “GATS”), with respect to gambling, by banning online gambling websites. This post comes in light of the grant of finality to the initial preliminary authorization granted to Antigua, in 2007, to retaliate to the banning of online gambling websites by America, by suspending American Copyrights to the tune of $21 Million per year.

While, strictly a dispute with relevance to online gambling, the final authorization of the WTO has implications in the world of copyright. This post limits itself to the implications on online gambling. An article on the implications on Intellectual property by renowned expert Professor Shamnad Basheer can be found here. The implications on Intellectual property can be found here.

Background

For a more exhaustive background to the dispute, one may refer to the earlier post.  The dispute pertains to the American blocking of Online Gambling Sites, based in Antigua, which Antigua claimed America was obligated to permit. There have been cases of prosecution of  persons under the Wire Act, for instance the famous United States v. Cohen {260 F.3d 68, 73-74 (2d Cir. 2001)} wherein the accused was prosecuted for running a remote  online gambling site from Antigua. The Second Circuit court held the running of online gambling even from destinations like Antigua, where it was legal, to be prohibited under the Wire Act. It is rumored that the accused (Mr. Cohen) had urged Antigua to file a plaint before WTO citing the lacunae in Trade Law.

 After the failure of a negotiation process, the case was brought before a three judge Dispute panel of the WTO.The Report of the Dispute Panel can be found here. The panel found the blockade to be inconsistent with Article XVI of the GATS, pertaining to market commitments made  by countries in their respective schedule of commitments. Countries make commitments to not restrict certain services from other countries under their schedule of commitments. The claim of Antigua was with regard to American Commitment under Sub-Sector 10D of their schedule of Commitments.

The Model Sub-Sector 10D includes “Sporting and Other Recreational Services”. America have limited its commitment to “other recreational services”.  The Panel utilized the Services Sectoral Classification List:  Note by the Secretariat,  MTN.GNS/W/120, 10 July 1991 (Hereinafter “W/120”),  the 1993 Scheduling Guidelines, along with the Central Product Classification Version 1.1 (Hereinafter “CPC”) to interpret the American Schedule of Commitments under GATS,. The Panel utilized the CPC to interpret American commitment with regard to “other recreational services” to include Gambling and betting services. The CPC lists gambling and betting services under the category “other recreational services”. Thus, America had made a commitment with regard to Gambling and Betting services.

 It highlighted that  America has committed under that sub-sector to no limits on cross border supply of such  services.  The Panel accordingly held, three federal statutes namely, The Wire Act (18 USC § 1084), the Travel Act (18 USC § 1952) and the Illegal Gambling Business Act (18 USC § 1955), along with legislations of Eight states ( Colorado, Louisiana, Massachusetts, Minnesota, New Jersey, New York, South Dakota and Utah) to be prohibiting the cross border supply of gambling services, and hence inconsistent with Article XVI of the GATS read with 10D of the American Commitments.

 The  Panel also rejected the “moral defense” of America under Article XIV of the GATS as, the actions failed the legal standard of “necessity” under the Article, pointing to the restriction being an” arbitrary discriminatory practice” and a “disguised restriction on trade”, while allowing horse-race betting and Internal  Services of betting. Thus, the Panel held, American actions to be inconsistent with its commitments and urged them to mend their actions to be in conformity.

The United States appealed against the decision of the panel.It rejected  American claims and upheld the decision of the WTO panel. After arbitrations to decide the time period, the United States was granted a time period slightly less than a year to ensure compliance. However, there was again no attempt at ensuring compliance on part of the United States. A WTO Compliance panel was set up which submitted its report, finding the Americans to have made no attempt at ensuring compliance.

Uncle Sam in trouble

 

Further Developments

In 2007, after consistent failure on part of the United States to amend its policies, Antigua approached the Dispute Settlement Body of the WTO again, which referred the parties to arbitration. In November 2007, the arbitrators upheld the claim of Antigua that they could legally retaliate to American policies by suspending concessions and obligations under the WTO’s  Agreement on Trade-Related Aspects of Intellectual Property Rights (the “TRIPS”) to the level of $21 Million annually.

Antigua however sought to avoid using this until December 12,2012. Frustrated by their attempts at peaceful settlement bearing no fruit, they made an application to the Dispute Settlement Board of the WTO to enforce their “right” to suspend obligations to US under TRIPS to an amount of $21 Million. The application of Antigua for permission to suspend obligations to US under TRIPS, can be found here. On January 28, 2013 a compliance panel found American policies to have failed to implement the recommendations of the dispute settlement body and hence granted authorization to Antigua suspend concessions to the United States under TRIPS. News Articles on the authorization can be found here and here.

Attempt at US Withdrawal Of Commitment

Around 2007, after the Compliance proceedings, the United States sought to withdraw its “commitments” permitting cross border supply of gambling services. Such attempted withdrawal is truly unprecedented in WTO history. Under Article XXI of the GATS, members may amend their schedules, but they need to inform the Countries of their intention to do so, and also provide for “Compensatory Adjustments” for countries which may be affected by such withdrawal or alteration in obligations.

As a result of the US announcement, in addition to Antigua, the EU, Costa Rica, India Canada, Macau, Canada and Australia filed claims for compensation with the US. All developed country parties – Australia, Canada, the EU and Japan – concluded bilateral agreements with the US . The remaining countries- Costa Rica, Macau, India and Antigua- are yet reach a settlement on the terms.

Antigua and  Costa Rica (http://www.prnewswire.com/news-releases/costa-rica-files-for-arbitration-in-wto-gambling-dispute-57434842.html ) filed independent petitions for arbitration to decide the amount of compensation. While India, has not agreed to a compensation amount, they did not file a claim in arbitration.  The Government of Macau has remained unclear on its position.

Implications

Antigua: Antigua has been granted the right to legally flout copyright concessions to America to the amount of $21 Million per year. This has been seen as a tit-for-tat approach by some while a weapon of last resort by others. While, Antigua did not pursue the right preliminarily granted in 2007, recent developments in 2013 indicate that Antigua frustrated with mere dialogue intends to set up a website to enable “legal piracy”. The United States have responded by warning Antigua against the use of such drastic measures, and urging them to participate in dialogue. News articles on the same can be found here  and here . It is pertinent to note that the amount granted pales in comparison to the amount the gambling industry in Antigua lost/stands to lose which ranges to over $3 billion according to their estimates. Antigua may seek to settle for monetary compensation.

United States: The United States Schedule of Commitments is clear and rather unequivocal on its commitment to permit unlimited cross border supply of recreational services which include gambling services. Realizing the folly of their claim, the Americans sought to withdraw their commitments, and have settled the claims of most states. Only 4 remaining states- Costa Rica, Macau, India and Antigua- are yet to reach a settlement. Since claims weren’t made by any other state, if America settles with these 4 states, the withdrawal of this commitment would be final under Article XXI of the GATS, and there would be no future claim.

Other Countries: The Commitment of the United States seems unique. They are one of the few states which have committed to “other Recreational services” under 10D, without any limitation on the scope of the same.  None of the prominent countries  including the European Union, Australia, India, Russia and China have made any such commitments. It is ironical to note that none of the Countries which sought compensation against United States for their withdrawal had made a commitment themselves to permit such services within their territory..

Yes! Antigua  which has been at loggerheads with America all this while, themselves have not made a similar commitment under their schedule. The same is the case for all the Caribbean Islands and Costa Rica .

Countries have specifically made commitments to Sporting Services under 10D, excluding recreational services for instance Saint Lucia , while there are countries like JapanSaudi Arabia and Thailand  which have excepted a similar obligation as America under 10D, but specified that their commitment to be limited to parks and public garden services. India has avoided any commitment in the sector of recreational, cultural and sporting services under which “other recreational services” and consequently gambling forms a sub-sector, thus avoiding any commitment. Vietnam  limits its commitments to Electronic Games business under 10D. It is imperative to note that the European Union, in their schedule permit Sporting and Other Recreational Services under 10D, but with a rider specifically excluding gambling and betting services. The American Schedule contains no such limitation on the scope of 10D. The WTO could not have interpreted their schedule in any other manner.

This puts in perspective the American Schedule. The United States might have misinterpreted the sub-sector “other recreational services”. They might have sought to be benevolent. Whatever, the answer, United States musicians, filmmakers and software developers stand to lose from this breach of obligation. The Dispute raises important questions on American commitment to the cause of the WTO. Unlike Nicaragua in the ICJ, Antigua has been granted enforcement options. The Power to Cross-Retaliate while deemed bizarre by many, can be viewed as a source of power to Small nations, to ensure compliance of America to its obligations. There have been suggestions that America amend its policy on Online Gambling from absolute prohibition to regulatory. Whether, America does change its stance remains to be seen.  It is hoped that given the acceptance of the gaming industry has not reached its desirable level on a global level, countries would think carefully before making similar commitments in the future.

It is ironic that India had sought compensation for the withdrawal of American Commitments, despite the prohibition of online gambling in India and possibility of even criminal liability for offshore online gaming companies.

The author has referred to http://www.antiguawto.com/WTODispPg.html and the Summary on the Dispute prepared by Mendel Blumenfield LLP, who were legal counsels for Antigua. For those  interested in this the subject  they may  refer to the website, which serves as a commendable compendium of material on the Antigua dispute.

Jay has researched extensively on gaming laws and has been cited by various media houses and journals as an expert. He has helped leading newspapers in their stories on gaming laws. Jay completed his B.A. LL.B. (Hons.) degree from NUJS, Kolkata in 2015 and is currently based out of Mumbai.