Deck 11: Globalization, Trade, and Corruption

Question 1

Do you concur with the decisions of the World Trade Organization in this case? The panel report? The appellate decision? The arbitration ruling?

Answer 1

JC's request to ANTG to challenge the US was based on the consideration that the US violated International trade protocols. ANTG accordingly approached the WTO which adjudicates trade disputes between member nations. As a first step, a trade dispute panel was convened to settle the dispute between WSE (represented by the ANTG Government) and the Government of the US.
Important considerations to the WTO ruling:
• The member nations to the trade agreement GATS are obligated to honor the commitments. The US as a member state should open its borders to trade in various services including online gambling.
• GATS are a result of trade negotiations conducted under GATT, a global framework for trade. Remember that GATT predates the WTO, so its provisions apply to the WTO decisions.
• Under GATS negotiations, member nations create a schedule of commitments to open different trade sectors, including exchanging services pertaining to these sectors. Imported services are to be 'no less favorably' treated than domestic services.
• All the member nations to the GATS work on a common document classifying services. One such category is 'sporting and other recreational services'. 'Other recreational services' includes 'gambling and betting services'.
• GATS finalization excluded 'sporting services' as part of US schedule of commitments (not 'Other recreational services' and by extension 'gambling and betting services').
• All member nations to the WTO have signed on the GATS.
Pursuant to the above considerations, the following interpretations apply:
• The US gambling laws related to off-shore (including those in ANTG) internet gambling businesses contravene its GATS obligations.
• During negotiations to its schedule of commitments, the US failed to exclude 'gambling services'. The US laws can therefore not criminalize gambling services offered by companies like WES which is based overseas.
• The US stand denied overseas gambling operators like WES the freedom which is granted to domestic operators. Hence clearly imported services have been less favorably treated than domestic services.
The above interpretations mean that WSE's business was legal and it was fully entitled to operate in the US gambling market. Hence dispute settlement decision made by the trade dispute panel in WTO favoring ANTG is justified.
Similarly the appellate decision vindicating most of the decisions of the panel is right. It is so because the US's actions are not in agreement with the GATS stipulations. This is evident in the US decision to bar overseas online gambling operators but allow domestic gambling operators to take customer bets on the internet.
The WTO arbitration proceeding in this case was initiated by the US. In response to US's withdrawal of commitment to gambling services as per its GATS schedule, ANTG demanded compensation of USD 3.4 billion per annum terming it as lost revenue. The US did not agree with this amount. The arbitrator pegged ANTG's losses at USD 21 million per year and authorized ANTG to retaliate by suspending its trade commitments with the US in order to recover the losses. Prescribed means were trade preferences: tariffs/other barriers. Since that was found to be not feasible to ANTG, the arbitrator suggested a variant of retaliation: cross-retaliation by which ANTG could suspend its trade obligations in a different category (protection of US intellectual property rights on copyrighted materials up to USD 21 million). However, all WTO members (including ANTG and US) are signatories to TRIPS - an agreement to protect intellectual property rights in trade. TRIPS is also aligned and in agreement to the GATS. As such its violation seen in the form of cross-retaliation is a violation of international trade practice. Hence the arbitration ruling to ANTG to exercise cross-retaliation cannot be concurred with.

Question 2

Should Antigua and Barbuda have the right to retaliate against the United States by exporting copyrighted entertainment material? Is that a bad precedent?

Answer 2

The WTO arbitration proceeding in this case was initiated by the US. In response to US's withdrawal of commitment to gambling services as per its GATS schedule, ANTG demanded compensation of USD 3.4 billion per annum terming it as lost revenue. The US did not agree with this amount. The arbitrator pegged ANTG's losses at USD 21 million per year and authorized ANTG to retaliate by suspending its trade commitments with the US in order to recover the losses. Prescribed means were trade preferences: tariffs/other barriers. Since that was found to be not feasible to ANTG, the arbitrator suggested a variant of retaliation: cross-retaliation by which ANTG could suspend its trade obligations in a different category (protection of US intellectual property rights on copyrighted materials up to USD 21 million). However, all WTO members (including ANTG and US) are signatories to TRIPS - an agreement to protect intellectual property rights in trade. TRIPS is also aligned and in agreement to the GATS. As such its violation seen in the form of cross-retaliation is a violation of international trade practice.
The key is that by using the provisions of cross-retaliation, member states to the TRIPS and by extension to the GATS/WTO are violating the protocol of international trade practice. ANTG by virtue of cross-retaliation could allow its companies (here WSE) to seek a license to copy and sell (by exporting) USD 21 million (which are its pegged losses) worth of US copyrighted entertainment material without paying any royalties or complying with copyright protections. However this act is gross infringement of commitments to the provisions of TRIPS/GATS/WTO and will definitely set a very bad precedent.

Question 3

Should the United States have abrogated its commitment to gambling services under the General Agreement on Trade in Services (GATS)? Did it have a better alternative?

Answer 3

The US decision to withdraw its commitment to gambling services as per its GATS schedule will be interpreted in the following ways:
o Contravention of its GATS obligations and by extension to GATT/WTO.
o It will be perceived as criminalizing gambling services offered by companies like WES which is based overseas.
o The US stand will deny overseas gambling operators like WES the freedom which is granted to domestic operators. Hence clearly imported services will be seen as less favorably treated than domestic services.
Retrospectively, the other member nations to the GATS may resort to the following steps to protect their interests:
o Demand compensation terming it as losses arising out of violation of GATS protocol by a member nation (the US).
o Retaliate through arbitration by suspending trade commitments with the US in order to recover the losses. Prescribed means are trade preferences: tariffs/other barriers.
o If retaliation as a protection measure is non-feasible, a member state may exercise cross-retaliation by which it could suspend its trade obligations in a different category (protection of US intellectual property rights on copyrighted materials up to the pegged losses as calculated by an arbitrator). This will of course set a very bad precedent for other member nations to misuse.
To avoid the above scenarios, it is in the interest of US to comply with its schedule of commitments to the GATS. It should have not abrogated its commitment to the gambling services under GATS.
Legalization of internet gambling would be a great alternative. Under it, online gambling operator from any country would need to get a federal license before accepting betting payments from AM customers. This would append the federal and state tax revenues. Further licensed operators should be asked to deploy safeguards on their websites to restrict underage (minors) participation in online gambling. All these measures should help US to take care of its interests and also comply with the commitments to GATS.

Question 4

How can the dispute between the United States and Antigua and Barbuda be resolved now?

Question 5

Do you support the proposed Internet Gambling Regulation, Consumer Protection, and Enforcement Act? Why or why not?

Question 6

Are current state and federal laws on gambling optimal? Should the nation move in the direction of stricter prohibition? Or should it move to more permissive laws, including those to legalize online gambling?

Question 7

Was Jay Cohen's conviction justified?