Bruce Golding | Climbing the level playing field
This past week, the government of Antigua and Barbuda issued a deadline of December 31 for the United States to make an acceptable offer of compensation arising from a 13-year dispute over its online gaming services or face sanctions already authorised by the WTO.
The background to this impasse is as follows:
- In 1998, the US government launched a crackdown on offshore Internet gaming operations whose services were marketed to persons residing in the US. Several operators were indicted for breaches of the US Wire Act. A number of these operated out of Antigua. It is estimated that these operations accounted for two per cent of Antigua's GDP and five per cent of its total employment. If it were the US, this would equate to US$360 billion in losses and seven and a half million jobs.
- In 2003, the government of Antigua and Barbuda filed a formal complaint to the WTO charging that the US had acted in violation of its commitments under the General Agreement on Trade in Services (GATS). The US countered that it never intended its GATS commitments to include online gaming and that its inclusion was "an unintended consequence of imprecision in the 1994 draft".
In 2004, the Dispute Panel initiated by the WTO ruled in favour of Antigua and Barbuda and asserted that the laws under which the US acted were inconsistent with the commitments it had made to the GATS. With regard to the US pleas of "unintended consequence", the panel declared that "the scope of a specific commitment cannot depend on what a member intended or did not intend to do at the time of the negotiations. There are no provisions in the WTO agreement that would allow a member's intentions to be probed and determined, except as reflected in the treaty language".
- The US government filed an appeal in 2005 and proffered a moral defence based on the perniciousness of gambling, but the appellate body upheld the decisions of the Dispute Panel with some modifications. The US then signified its intention to conform with the recommendations of the Dispute Panel but stated that it would require a reasonable time in which to do so. Consultations between the two governments failed to reach agreement on an appropriate time frame for the US government to adjust its domestic laws to comply with its GATS commitments, and, in accordance with WTO procedures, an arbitrator was appointed to make that determination. The arbitrator subsequently set a deadline of April 3, 2006.
FAILED TO COMPLY
- The US government failed to comply with the stipulated deadline, and on an application by the Antiguan government, the matter was referred back to the Dispute Panel, which reported in May 2007 that the US had failed to comply with its recommendations and rulings as upheld by the appellate body.
- In May 2007, the US invoked the provisions of Article XXI of the GATS and amended its schedule of commitments to exclude online gaming from "recreational services". It is the first, and as far as I know, only country to alter its WTO commitments. This, however, carried consequences as it was now obliged to compensate all WTO members who might have been affected by the change. Claims were filed by Australia, Canada European Union, Japan, Costa Rica, India, and Macao. The last two did not pursue their claims, but the US negotiated settlements with the others.
- In light of the intransigence of the US government, the Antiguan government requested, in June 2007, authorisation to take punitive action by suspending its obligations under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) to withhold payments due to the US for intellectual property rights in order to recover the losses it suffered. The US objected to the preposterous figure of US$3.4 billion proposed by Antigua and Barbuda and suggested, instead, the also preposterous amount of US$500,000. The matter was referred to an arbitrator, who ruled in December 2007 that the amount to be withheld should be US$21 million annually.
- The Antiguan government was reluctant to enforce the ruling for a variety of reasons. First, it would be difficult to recover US$21 million annually from the domestic sale of copyright goods (software, movies, music, etc), given the small size of its domestic market or from exporting these goods to the handful of countries that don't have intellectual property rights commitments to the US.
Second, it would place Antigua and Barbuda in direct collision with the Caribbean Basin Economic Recovery Act (CBERA), which allows the US to unilaterally suspend duty-free access of Antiguan exports to the US if it fails to observe US intellectual property rights, albeit only 1.6 per cent of Antiguan exports to the US qualify for duty-free treatment. Third, it would most likely have a negative impact on Antigua's economic relations with the US, including investment flows. The Antiguan government, instead, embarked on a series of diplomatic initiatives in the hope that moral suasion would move the US to an acceptable agreement. This has continued for almost 10 years across different political administrations, and despite periodic reports suggesting that an agreement was in sight, it now appears that the matter has reached a stalemate, hence this deadline issued by the Antiguan government.
The issue highlights the difficulties faced by small countries in navigating and securing their rights in the global environment defined by multilateral agreements in which all are supposed to be equal, but small countries find that, as George Orwell pointed out, some are more equal than others. Not to be ignored is the cost of pursuing dispute-resolution procedures within the WTO that are supposed to guarantee equal rights and justice.
Taking a complaint through all of the WTO processes, as Antigua and Barbuda has done, is a very expensive undertaking and very often dissuades small countries from pursuing the matter any at all. It is reported that in this instant case, the legal costs for Antigua and Barbuda were paid for by the gaming operators themselves, which compromises the government's licensing and regulatory relationship with these companies going forward.
Further, it brings into sharp focus the disability of smallness. It is doubtful that the US would have been as stubborn as it has been in this matter if it were a dispute with large markets like the European Union or India. In the 22-year history of the WTO, the US has been the most prolific utiliser of its dispute-settlement mechanism, accounting for 111 of 514 filed complaints.
But of the six retaliatory measures authorised by the WTO, five have been against the US. The US$21 million per annum compensation awarded to Antigua and Barbuda pales in comparison to the US$790 million awarded to Canada and US$227 million to Mexico in annual withholdings that were awarded last year.
It is left to be seen what Antigua's next move will be, come January 1, if the US doesn't put an agreeable offer on the table. Antigua's ambassador to the US, Sir Ronald Sanders, has expressed the hope that even at the eleventh hour, the US will respond in a way that would avert retaliation. Word has it that Antigua and Barbuda has asked for a one-time payment of US$200 million, but is willing to accept even less. That kind of cheque could be cut by a mid-level federal employee.
The US government, however, doesn't take kindly to ultimatums, especially coming from a country with a population of less than 100,000 and with weak economic or strategic clout. Caribbean countries no longer enjoy the geopolitical importance that they did 30 years ago, which caused Grenada's dalliance with communism to trigger a US military intervention.
This issue must also be seen in the context of the pushback against globalisation that is sweeping across the major economies like the European Union and evidenced in Brexit and the Trump campaign posturing. It poses a significant challenge for the WTO framework and a bewildering consternation for countries like Jamaica that are still trying to catch up with this new paradigm.
- Bruce Golding is a former prime minister of Jamaica. Email feedback to firstname.lastname@example.org.