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U.S. Backing Itself Into A Corner?
by Max Drayman

On March 30th 2007, the Geneva-based WTO (World Trade Organization) handed down its latest ruling in the ongoing dispute between Antigua/Barbuda and the USA over legality of U.S. Internet gambling restrictions.

At issue was an April 2005 WTO verdict against U.S. prohibitions on online betting. The WTO then ruled that the United States was violating the General Agreement on Trade and Services (GATS) by allowing Americans to make interstate bets on horse races over the phone or the internet with American racebooks while denying qualified foreign entities (namely enterprises in other WTO member jurisdictions) access to the U.S. market for the same services.

What followed is pretty much what you'd expect: the U.S. basically ignored the WTO ruling; Antigua filed a complaint; the U.S. appealed, claiming that they had already complied with the 2005 ruling; and the WTO handed down it's recent verdict which stated, "The panel concludes that the United States has failed to comply with the recommendations and rulings of the (WTO's) DSB (Dispute Settlement Body)."

In other words, they're standing behind the original ruling and Antigua's assertion that the U.S. is failing to cooperate. The U.S. has until May 30 to comply, meaning the U.S. must either work to ban interactive wagers on interstate horse races or open the American market to qualified foreign racebooks.

"So what?" you might ask yourself. Why won't the U.S. simply ignore this second WTO ruling, like they did the first time around? Well they certainly will appeal this recent ruling, which they have full rights to do under WTO trade dispute guidelines, but it's unlikely that that will change anything. The conditions for the current ruling still exist—U.S. excluding international involvement in online betting, U.S. non-compliance with WTO rulings, etc.—so it's difficult to imagine that the WTO will reverse itself when basically nothing has changed insofar as the dispute is concerned.

So, appeals aside, why should anyone care? I'm not the first to say this but the bottom line is that the U.S. may have backed itself into a corner. Historically, the WTO has been quite pro-American in its judgements on international trade disputes between the U.S. and other WTO members.

Japan lost to the U.S. on carbon steel and apples; Taipei lost a steel dispute; Canada lost on beef but won a judgement on lumber (which the U.S. ignored); Mexico lost over beverage taxes; and the European Union has lost several disputes concerning several European countries.

In each of those rulings the other countries abided by the WTO decision and moved toward compliance. The bottom line is that the U.S. has been the biggest benefactor of WTO rulings. It's no coincidence then that those same countries all opted to sit in on the recent WTO panel as interested third parties, sending a clear signal to the U.S. that if it chooses to ignore the WTO ruling against it, then they may well consider doing the same insofar as past rulings are concerned.

While this may again appear to be a "so what?" issue, it's not at all that simple. Antigua/Barbuda have already indicated that if the U.S. continues to ignore the WTO then they may step away from their agreement to uphold U.S. copyright and intellectual property laws, meaning that U.S. copyrighted software and music could be freely distributed on the internet (for example) so far as they are concerned.

These copyright protections have been vigorously defended by the U.S. at the WTO in the past and it's inconceivable that they've suddenly lost interest in continuing to do so.

So what about those other countries who have abided by WTO law in favour of the U.S.? Might they be thinking along the same lines as Antigua? Is the U.S. prepared to find out? Imagine if countries around the world declared an open market on those U.S. copyrighted goods: the revenue losses to the big U.S. media corporations would be astronomic.

There is also the issue of future WTO rulings to consider. According to Joseph Kelly, a professor of Business Law at SUNY Buffalo, the WTO ruling may have U.S. Congressmen considering the impact of continually ignoring the rulings of an international body.

"Senator Richard Luger of Indiana hates gambling more than (Arizona Senator Jon) Kyl," Kelly said. "But he's very internationally oriented, and I think he might be thinking, 'Gee, if we don't follow the GATS in this area, suppose we beat China on some other issue.' The Chinese might say, 'If the U.S. doesn't follow the WTO, why should we?'"

That would effectively signal the end of GATS, which no one in this administration or any other, is prepared to accept as the future marketplace in which a trade-driven USA would find itself.

At this point it is not at all clear how the U.S. is going to proceed with the Antigua case, but this much is clear: continuing to ignore the WTO and the international trade laws it represents isn't going to serve U.S. trade interests in the long run.

There's a lot more at stake here than a few million dollars in offshore bets. "Antigua led the way, because nobody was sure whether the GATS was applicable to gambling," Prof. Kelly said. "All these jurisdictional issues form the basis of the early decisions. Antigua resolved all these issues, and it's going to be much easier for the next country."

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