The Meaningless Sanction: The World Trade Organization s Inability to Control its Larger Members and Failure to Help its Smaller Members

Transcription

1 From the SelectedWorks of Andrew Capone May 29, 2009 The Meaningless Sanction: The World Trade Organization s Inability to Control its Larger Members and Failure to Help its Smaller Members Andrew Capone, Suffolk University Law School Available at:

2 The Meaningless Sanction: The World Trade Organization s Inability to Control its Larger Members and Failure to Help its Smaller Members Andrew Capone I) INTRODUCTION The World Trade Organization ( WTO ) was founded for many reasons: 1) it s an organization for liberalizing trade, 2) it s a forum for governments to negotiate trade agreements, 3) it s a place for them to settle trade disputes, and 4) it operates a system of trade rules. Most importantly, the WTO it serves as a forum where member governments go to try to sort out the trade problems they face with each other. This mission is only possible if the member countries respect the authority of the WTO. The WTO s ability to effectively enforce member agreements and administer a dispute settlement regime has been questioned on many levels. The administration of the General Agreement On Trade in Services ( GATS ) is no exception. The issues with the enforcement of GATS are exemplified by the ongoing dispute between the United States and Antigua and Barbuda. The United States has continually refused to comply with the mandates of its own schedule of specific commitments to GATS and the ability of affected member countries to try to enforce the provisions appears severely limited in turn, the credibility of the WTO as an international legal system is compromised. Decades of meaningless arbitration and negotiation between the United States and Antigua and Barbuda have resulted nothing. At the conclusion of Antigua and Barbuda s first suit against the United States for its non-compliance with the WTO with respect to free trade in betting and gambling services, the WTO awarded Antigua and Barbuda what amounts to nothing, and have instigated another suit based on the same non-compliance by the United States. This note asserts that the WTO has no effective means of sanctioning member countries that refuse to comply with the obligations which they committed to follow through GATS. Furthermore, I argue that the United

3 States has little incentive to comply with the mandates of its own schedule of specific commitments to GATS. GATS, to which the U.S. is a signator, requires free trade amongst member nations. GATS is a treaty of the WTO that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. The commitments made through GATS include allowing free trade through online gambling services. The United States refuses to acknowledge application of this requirement, even though they expressly agreed to do so in their Specific Schedule of Commitments to GATS. How will the United States justify denying their commitment to the GATS agreement, so as to restrict free trade in betting services? This note discusses the legal impediments which GATS imposes with regard to restricting international free trade in betting and gambling service, the process which the United States must undergo to alter their commitments, the possible sanctions that may be placed by the WTO, and how the WTO s past and future attempts at such sanctions have proved meaningless. Most importantly, this note argues that the WTO has no real power over the United States, and despite its obligation, the United States has no motivation to follow their instruction. In 1994, the United States created Schedules of Specific Commitments to GATS. 1 These commitments expressly state that the United States will allow internet gambling, with the exclusion of sports betting, to member countries of the WTO. 2 This commitment required the 1 General Agreement On Trade In Services Archived at: United States Schedule of Specific Commitments, Sub sector 10-d, Other Recreational Service (Except Sporting) GATS, Archived at: 2 Id. 2

4 United State to allow member countries gambling corporations access to the American public. Since 1994, the United States has consistently refused to allow any internet gambling services at all. 3 The requirement to allow internet gambling contained in the United States Schedule of Specific Commitments was confirmed in the decision of the WTO through its dispute settlement committee, obligating the United States to pay compensation to Antigua for the refusal to allow gambling services in the United States. 4 The United States admitted its obligation under GATS to provide international gambling services, but is attempting to alter its specific commitments to the GATS requirements. 5 The United States is currently working to negotiate fair compensation for the alteration of its commitments with member countries of the WTO. II. HISTORY As a signatory member of GATS, the United States is required to allow free trade in betting and gambling services. 6 conflict with this requirement. 7 However, United States Federal and State law is in direct This is not a novel situation; the conflict between United States 3 Request for Consultations by Antigua and Barbuda, United States measures affecting the cross-border supply of gambling and betting services: WT/DS285/1 S/L/ (March 2003). Archived at: 4 GATS Supra n. 1 See Also, 37 Panel Report, United States- Measures Affecting the Cross-Border Supply of Gambling and Betting Services, November 10, (a) and (b) (Concluding sub-sector 10 d of the United States Schedule of Specific commitments requires the United States to allow international gambling. Archived at: Trade OrganizationPanelReportNovember aAndbconcludingSubsector10 5 Statement of Deputy United States Trade Representative John K. Veroneau Regarding U.S. Actions under general Agreement On Trade In Services Article XXI (05/04/2007) The United States has decided to make use of the established World Trade Organization procedures to correct its schedule in order to reflect the original U.S. intent that is, to exclude gambling from the scope of the U.S. commitments under the general Agreement On Trade In Services. Archived at: 6 GATS Supra n. 1 7 Panel Report, United States- Measures Affecting the Cross-Border Supply of Gambling and Betting Services, November 10, sections 7.1(b)(i) the Panel noted the following conflicts in United States Federal Law: The Wire Act, 18 USC 1084; The Travel Act, 18 USC 1952; and, The Illegal Gambling Business Act, 18 USC

5 law and international regulatory bodies has a long history. 8 It has been argued that when the situation is favorable the United States seeks the benefits of the WTO, but when the situation will be to the detriment of the United States then they simply ignore the organization entirely. 9 While discussing a conflict between the United States and the WTO with regards to environmental law, Senator Robert Dole stated: Our sovereignty is not threatened by this agreement or by the WTO. The WTO has no power to force the United States to do anything. They cannot make us do anything. It is not a world power. If the WTO finds that a U.S. law does not square with the obligations we have assumed under the agreement, we remain totally free to disregard that finding. It does not change U.S. law world Trade Organization Panel Report, United States- Measures Affecting the Cross-Border Supply of Gambling and Betting Services, November 10, sections 7.1(b)(ii) the Panel noted the following conflicts in United States State Laws: Louisiana, 14:90.4 of the La. Rev. Stat. Ann; Massachusetts, 17A of Chapter 271 Mass. Ann. Laws; South Dakota, 22-25A-8 of the S.D. Codified Laws; and Utah (b) of the Utah Code 8 See Jackson F. Morrill, A Need for Compliance: The Shrimp Turtle Case and the Conflict Between the WTO and the United States Court of International Trade, 8 Tulane Journal of International and Comparative Law (2000) at 413. The shrimp/turtle conflict waged in the World Trade Organization and the Court of International Trade represents a recent example of the failure of the United States to comply with a respected, multilateral body opinion. See Also, Kevin P. Cummins, Trade Secrets: How the Charming Betsy canon may do more to weaken US Environmental Laws Than the WTO's Trade Rules', 12 Fordham Environmental Law Journal 141 (2000) at 159. With regards to Environmental Protection Agencies law about reformulated gasoline imported from member countries The [World Trade Organization Arbitration] panel agreed with Venezuela and Brazil that the EPA regulations violated the GATT's provisions that prohibit a country from treating imported products less favorably than domestic products. 9 See Pauwelyn, Enforcement And Countermeasures In The Wto: Rules Are Rules - Toward A More Collective Approach, 94 AMJIL 335 at 338. In the contrasting case where a weaker member is faced with noncompliance by a disproportionately stronger member, the reactivation of power politics--which are at play in negotiations on compensation and the possible imposition of countermeasures--may make compliance very hard to achieve. See Also Busch, Marc., Raciborski, Rafal. and Reinhardt, Eric. "Does the WTO Matter?: US Antidumping Investigations and the Rule of Law" Paper presented at the annual meeting of the American Political Science Association, Marriott Wardman Park, Omni Shoreham, Washington Hilton, Washington, DC, Sep 01, 2005 Absent a central authority to enforce it, the conventional wisdom is that international law is either spurious or just a guise for the strong to have their way. In the context of the global trade regime, in particular, recent studies lend weight to this view, suggesting that the World Trade Organization (WTO) is of little consequence (Rose 2003, 2004), or that its effectiveness depends on member countries having sufficient market power to retaliate for transgressions. This power-oriented perspective implies that the WTO matters only where it is backed by the interests of powerful states. 10 Senator Robert Dole, excerpts from Senate floor debate on S. 2467,140 Cong. Rec. 30,199 (1994). 4

6 Regardless of its perceived lack of power, the WTO committed itself to several very serious years of litigation in settling a conflict between the United States and Antigua and Barbuda regarding internet gambling. The United States commitment to allow internet gambling services is found in GATS, 1994 United States Schedule of Specific Commitments, Sub-sector 10-d, purporting to allow Other Recreational services (except sporting). 11 Antigua s first submission of its complaint to the WTO explicitly lays out, and the appellate review board later agrees, that other recreational services clearly and unambiguously includes gambling. 12 Antigua argued that the guidelines that the United States used to draft its schedule of commitments included gambling and other betting services under the category of Other Recreational Services. 13 On March 13 th 2003, the High Commission for Antigua and Barbuda presented to the Permanent Mission of the United States and to the Chairman of the Dispute Settlement Body a request for consultations regarding measures applied by central, regional and local authorities in the United States of America that affect the cross-border supply of gambling and betting services. 14 The process continued through arbitration, judgments, and appeals until March of 2007, when the WTO ordered the United States to comply with GATS, and the United States refused to comply. 15 In its December 21, 2007 report, through an arbitration committee, the WTO decided the United States owed compensation to Antigua in the amount of 21 million 11 GATS Supra n United States measures affecting the cross-border supply of gambling and betting services WT/DS285/AB/R, First Submission of Antgua and Barbuda. Archived at: Trade OrganizationOnUsGambling 13 GATT Secretariat 1993 Scheduling Guidelines paragraph 16 See also 10 D of W/ (9649) 14 DS285 Supra n Id. (Concluding the United States has failed to comply with the recommendations and rulings of the Dispute Settlement Body ( DSB ) in this dispute.) Archived at: 5

7 dollars annually. 16 These 21 million dollars in compensation were to be obtained by Antigua and Barbuda through the suspension of its intellectual property obligations to the United States. 17 This is not a new type of remedy, as the WTO has been using trade retaliation for many years. 18 As a result of the WTO decision, Antigua could reproduce patented products, copyrighted works, and trademarked symbols without any obligation to the lawful owners. In Rothstien s Article Moving All-In with the World Trade Organization: Ignoring adverse rulings and Gambling with the Future of the WTO he argues that this suspension of property rights is the best way for Antigua to achieve compensation for its losses. 19 III. FACTS / PREMISE To prevent additional conflicts with other countries and to legitimize its position on May 4 th, 2008, the United States sought to amend its commitment so as to prohibit gambling services. 20 No member of the WTO had ever attempted to take this step before. 21 GATS Article 16 Id. 17 United States measures affecting the cross-border supply of gambling and betting services: Request for Consultations by Antigua and Barbuda WT/DS285/1 S/L/ March Archived at: In its request for authorization to suspend concessions or other obligations, Antigua identified certain obligations under the TRIPS Agreement, that it proposed to suspend. Specifically, Antigua indicated that it intends to take countermeasures in the form of suspension of concessions and obligations under the following sections of Part II of the TRIPS: Section 1: Copyright and related rights Section 2: Trademarks Section 4: Industrial designs Section 5: Patents Section 7: Protection of undisclosed information 18 See Meier-Kaienburg, The WTO's Toughest Case: An Examination Of The Effectiveness Of The WTO Dispute Resolution, 71 JALC 191 at 232 Discussing the purpose and implementation of sanctions by the WTO. Trade retaliation and compensation are the classic remedies of the WTO. Retaliation and compensation aim to exercise pressure on the non-complying country to bring its measures into conformity with WTO law. These measures are only possible when the non-complying country offers it and the parties to the dispute agree on its scope and implementation. 19 See Rothstein Moving All-In With The World Trade Organization: Ignoring Adverse Rulings And Gambling With The Future Of The WTO, 37 Ga. J. Int'l & Comp. L. 151 Fall, Arguing that the suspension of TRIPS obligations may be the best option available to Antigua because other more traditional countermeasures will have no effect on the United States 20 Veroneau Supra n Chakravarthi Raghavan, The US move for general Agreement On Trade In Services schedule modification is an 'uncharted area' Published in South-North Development Monitor on 9 May 2007, Geneva, 7 May

8 XXI requires that an agreed upon compensation be paid to affected parties before a country can amend its schedule. 22 If no compensation can be agreed upon within the time period, arbitration ensues. 23 Antigua and Barbuda, Australia, Canada, Costa Rica, the European Union, India, Japan and Macau proceeded to enter into compensation negotiations with the United States. 24 The United States reached bilateral compensation agreements with Australia, Canada and Japan on or before December 14, 2007, the deadline established for the agreements by the WTO. 25 Additionally, the United States reached an agreement with the European Union on December 17, Antigua, Costa Rica, and Macau reached no such agreement and would waive their right to compensation if they did not file for arbitration with the WTO by January 28, On January 28, 2008 Antigua and Costa Rica each filed separately for arbitration on the issue of compensation for the United States plan to amend its schedule. 28 Macau did not file for In the processes and procedures for the modification of the US schedule, there are no precedents to follow, and hence it is an uncharted territory - and the outcome could have consequences that are likely to affect existing GATS rights and obligations, as also the course of the current negotiations in GATS under the Doha Round, some trade experts suggest. Archived At: Agreement On Trade In ServicesScheduleModificationIsAnunchartedArea 22 GATS, Art XXI 2(a). The modifying member shall enter into negotiations with a view to reaching an agreement on any necessary compensation adjustment. In such negotiations and agreement, the Members concerned shall endeavor to maintain a general level of mutually advantageous commitments not less favorable to trade than that provided for in schedules of specific commitments prior to such negotiations. Archived at: 23 GATS Art XXI 3(a). If agreement is not reached between the modifying member and affected member before the end of the period provided for negotiations, such affected Member may refer the matter to arbitration. 24 Bridges Year 11 No. 7, December At page 12. Archived at: See also general Agreement On Trade In Services Art XXI 3(a). (Requiring any affected member that wishes to enforce a right that it may have to compensation must participate in the negotiations) 25 Bridges Year 11 No. 7, December At page Press Release: EU/NR 128/07: Eu And Us Agree On Compensation In World Trade Organization For Loss Of Trade Opportunities In Us Gambling Sector. Archived at: Trade OrganizationForLossOfTrade 27 Procedures For The Implementation Of Article XXI of GATS (Modification Of Schedules) Adopted by the Council for Trade in Services on 19 July 1999 Archived at: See Also Costa Rica, Antigua file for world Trade Organization arbitration Feb 1, 2008 Archived At: Trade OrganizationArbitration 28 Costa Rica Files for Arbitration in world Trade Organization Gambling Dispute Washington, Jan. 31, 2008 PNRNewswire- USnewswire via COMTEX. Macau did not file for arbitration by the January 28 deadline, an 7

9 arbitration, thus waiving its right to compensation. 29 On March 15, 2008, the United States and Costa Rica reached a settlement agreement. 30 On March 31, 2008, the deadline set by the WTO for a settlement agreement between for the Untied States and Antigua, the United States made no offer for compensation to Antigua. 31 Currently no agreement has been made between Antigua and the United States. 32 The United State s bilateral compensation agreements with Australia, Canada, Japan and the European Union are not available to the public, and no one is able to see the details which might expedite any such agreement with Antigua and Barbuda. 33 On March , House Financial Services Committee Chairman Barney Frank and Rep. Ron Paul requested that U.S. Trade Representative Susan Schwab provide the details of a trade agreement between the United States and the European Union, Japan and Canada to compensate nations for withdrawing from the GATS gambling commitment. 34 It is no surprise that parties cannot reach official at the Chinese territory s world Trade Organization mission said. A spokeswoman for U.S. Trade representative Susan Schwab declined to comment. Archived at: 29 Reuters, Reporting by Jonathan Lynn, Editing by Stephen Weeks, Antigua seeks world Trade Organization arbitration in U.S. gambling dispute. Archived at: Trade OrganizationArbitration 30 Sarah Polson, U.S. Costa Rica reach net gambling settlement, March 16, 2008 As compensation for not allowing online gambling companies based in Costa Rica access to U.S. customers, the United States has offered Costa Rica greater access to other service markets, including research and development, storage, technical testing and analysis. Archived at: 31 Antigua Sun, Patricia Cambell, Deadline Passes for US to Settle on Gambling Dispute March 31, The deadline for the us to put forward a proposal to settle its long running internet gambling dispute passed yesterday with Antigua and Barbuda reportedly receiving no word from the U.S. Archived at: 32 Hintze Supra n. 20. The impasse in the latest round of talks suggests that no movement on the matter will be made by the current Bush administration. After repeatedly pushing out the world Trade Organization-authorized mediation deadlines in hopes of a settlement, Antigua's Minister of Finance, Errol Cort, optimistically projected that this round of talks would or could lead to a resolution. Instead, with the talks concluded but with no progress made, another deadline of August 1st was set. However, Cort himself admitted that it would be longer, if it all, for any settlement was reached, at least two to three months according to one prominent report. Archived at: 33 House Financial Services Committee Chairman Barney Frank and Rep. Ron Paul Letter to Schawab, 3/14/08. We are writing to request details of the trade agreement between the United States and the European Union, Japan and Canada that was negotiated in December to compensate these nations for withdrawing our General Agreement On Trade In Services gambling commitments under Article 21. Archived at: 34 Id. 8

10 an agreement, as to what is fair compensation for Antigua and Barbuda because of the United States refusal to allow internet gambling services. Years of litigation and political posturing has proved inconclusive. 35 On October 13, 2006, the Unlawful Internet Gambling Enforcement Act of 2006 ( UIGEA ) became law. 36 This act prohibits acceptance of any financial instrument for unlawful internet gambling. 37 However, this prohibition on financial instruments was not well accepted internationally, and on March 10, 2008 the European Commission investigated UIEGA s potential discrimination against EU companies. 38 This investigation remains ongoing. In an effort to alter this bill, so that it might be less damaging to the United States membership in the WTO, Representative Barney Frank (D-MA) introduced H.R. 2046, The Internet Gambling Regulation and Enforcement Act of 2007, on April 26, The proposed legislation, as explained in a press release by the House Committee on Financial Service, establishes a federal regulatory and enforcement framework to license companies to accept bets and wagers online from individuals in the U.S., to the extent permitted by individual states. 40 This bill has been referred to the Subcommittee on Commerce, Trade and Consumer Protection, and a report by that committee is still pending. 41 The European Commission, which is investigating the effect 35 Hintze Supra n U.S.C (2006) U.S.C (2006) 38 Michael Waxman, Reuters, European Union Investigates U.S. Trade Violation on Internet Gambling, March 11, The European Union announced yesterday that it will open an investigation into a possible international trade violation by the United States for discriminatory trade practices against European online gambling companies. Archived At: 39 H.R. 2046, The Internet Gambling Regulation and Enforcement Act of 2007 Archived at: 40 Press release by the House Committee on Financial Service Frank Introduces Internet Gambling Regulation and Enforcement Act of 2007, April 26, 2007 Archived at: This bill is in the first step in the legislative process. Introduced bills go first to committees that deliberate, investigate, and revise them before they go to general debate. The majority of bills never make it out of committee. Keep in mind that sometimes the text of one bill is incorporated into another bill, and in those cases the original bill, as it would appear here, would seem to be abandoned. [Last Updated: Sep 26, 2008] 9

11 of UIGEA on EU companies, believes that this proposed legislation would solve the alleged discrimination. 42 The United States is forced to accept that it is currently in violation of its agreement in the United States schedule of specific commitments to GATS. 43 Therefore, the United States has three options: 1) change the laws that are in violation of the agreement, 2) change the agreement, or 3) ignore the problem. 44 Because Antigua and Barbuda s original compensation awarded by the WTO, the 21 million in suspended IP rights, has amounted to nothing of consequence, the United States has no real motivation to move forward in these proceedings. Representative Frank s proposed Internet Gambling Regulation and Enforcement Act of 2007 was a step towards changing the laws in violation, however this Bill seem[s] to be abandoned. 45 This development leaves the United States options two and three, e.g. altering its schedule of specific commitments to GATS, or ignoring the problem. Article XXI of GATS contains the procedure for a member country to amend a commitment contained in its schedule. 46 The U.S. s action will be the first time any country has attempted to amend 42 Waxman Supra n. 39. A solution to this international trade dispute is contained in the Internet Gambling Regulation and Enforcement Act (H.R. 2046), introduced by Congressman Barney Frank (D-MA). This legislation would bring the United States into compliance with World Trade Organization (world Trade Organization) requirements by regulating Internet gambling and creating a level playing field among domestic and foreign Internet gambling operators. Note DS285 Supra. n. 3 at section 374, page 126 The Appellate Body recommends that the Dispute Settlement Body request the United States to bring its measures, found in this Report and in the Panel Report as modified by this Report to be inconsistent with the General Agreement On Trade In Services, into conformity with its obligations under that Agreement. Archived at: 44 Supra n. 5. Laws in conflict. See also GATS Supra n. 1 at 2(a). 45 GovTrack.us. H.R th Congress (2007): Internet Gambling Regulation and Enforcement Act of 2007, GovTrack.us (database of federal legislation) Available at: (accessed Oct 31, 2008) 46 GATS Supra. n

12 its schedule of commitments to GATS. 47 Because amending its commitment to GATS is an unprecedented step, each portion of the upcoming process for the United States is set forth below. The process of amending specific schedules of specific commitments to GATS is novel and slow. 48 The reason this is such a slow process is because the WTO has no real power to sanction the United States for noncompliance. 49 However the process for altering the specific schedule of specific commitments is provided in the agreement, and if the United States whishes to honor its commitments to the member countries of the WTO, it must follow this process. Article XXI of GATS sets out the requirements for a member of the WTO, to modify its commitments. There are five sections, and each section can be synthesized. Section 1. (a) A member, (referred to in this article as the Modifying Member ) may modify or withdraw any commitment in its Schedule, at any time after three years have elapsed from the date on which that commitment entered into force in accordance with the provisions of this article. 50 Because the United States entered its schedule into force in 1994, this section does not impose any encumbrance on the United States in its endeavor to eliminate Subsector 10 of its Specific Commitments to GATS. Section 1. (b) A modifying member shall notify its intent to modify or withdraw a commitment pursuant to this Article to the Council for Trade in 47 Raghavan Supra. n.22. In the processes and procedures for the modification of the US schedule, there are no precedents to follow, and hence it is an uncharted territory - and the outcome could have consequences that are likely to affect existing GATS rights and obligations, as also the course of the current negotiations in GATS under the Doha Round, some trade experts suggest. 48 Raghavan Supra. n Busch, Marc., Raciborski, Rafal. and Reinhardt, Eric. Does the WTO Matter?: US Antidumping Investigations and the Rule of Law Paper presented at the annual meeting of the American Political Science Association, Marriott Wardman Park, Omni Shoreham, Washington Hilton, Washington, DC, Sep 01, 2005 Absent a central authority to enforce it, the conventional wisdom is that international law is either spurious or just a guise for the strong to have their way. In the context of the global trade regime, in particular, recent studies lend weight to this view, suggesting that the World Trade Organization (WTO) is of little consequence (Rose 2003, 2004), or that its effectiveness depends on member countries having sufficient market power to retaliate for transgressions. This power-oriented perspective implies that the WTO matters only where it is backed by the interests of powerful states. 50 GATS Supra n. 1 11

13 Services no latter than three months before the intended date of implementation of the modification or withdraw. 51 On May 4, 2007, the United States informed the WTO that it intends to clarify its WTO commitments with respect to Internet gambling services. 52 Specifically, the notification must have been sent to the Secretariat, who then distributes that notification to all member countries. 53 Because more than three months have passed, and no outer limit as to the amount of time the United States has to make this modification is specified, it is likely that the United States is in compliance with this section. Section 2. (a) At the request of any Member the benefit of which under this Agreement may be affected (referred to in this Article as an affected member ) by a proposed modification or withdrawal notified under subparagraph 1(b), the modifying member shall enter into negotiations with a view to reaching an agreement on any necessary compensatory adjustment. In such negotiations and agreement, the Members concerned shall Endeavour to maintain a general level of mutually advantageous commitments not less favorable to trade than that provided for in Schedules of specific commitments prior to such negotiations. 54 Antigua and Barbuda, Australia, Canada, Costa Rica, The European Union, India, Japan and Macau all requested such negotiations in order to receive compensation for their losses due to the United States attempted alteration of its schedule of specific commitments with respect to Internet gambling. 55 Of these affected members, The United States reached agreements with all except Antigua and Barbuda, Costa Rica, and Macau. 56 Section 3 of Article XXI of GATS lays out the course of action if an agreement cannot be reached. Section 3 (a) If agreement is not reached between the modifying Member and any affected Member before the end of the period provided for negotiations, such affected Member may refer the matter to arbitration. Any affected 51 GATS Supra. n Veroneau Supra n GATS Procedure Supra n GATS XXI Supra n Bridges Supra N. 25 Year 11 No. 7, December At page Costa Rica Supra n

14 Member that wishes to enforce a right that it may have to compensation must participate in the arbitration. 57 The period for negotiations is set at three months, however this period of time may be extended by mutual agreement of the two parties. 58 Having reached no agreement and still seeking compensation, Antigua and Costa Rica each referred the matter for arbitration on January Macau did not refer the matter for arbitration within the 45 day period, thus waiving its right to compensation for the alteration. 60 On March 15, 2008, settlement talks with Costa Rica culminated with an agreement. 61 With the finalization of Costa Rica s agreement, the only obstacle to the United States right to alter their schedule of specific commitments to GATS is Antigua and Barbuda. The arbitration process can be long and arduous, and because the two countries cannot seem to reach any agreement, this step in the process could take several years. 62 As of July , Antigua and Barbuda reported that it would be unlikely that any agreement would be reached during the Bush administration. 63 Section 4 (a) The modifying Member may not modify or withdraw its commitment until it has made compensatory adjustments in conformity with the findings of the arbitration. 64 This stipulation sets out a specific requirement that the United States may not proceed to 57 GATS XXI Supra n GATS Procedure Supra n id. 60 PNRNews wire Supra n. 29 Macau did not file for arbitration by the January 28 deadline, an official at the Chinese territory s world Trade Organization mission said. A spokeswoman for U.S. Trade representative Susan Schwab declined to comment. 61 Polson Supra n. 31. As compensation for not allowing online gambling companies based in Costa Rica access to U.S. customers, the United States has offered Costa Rica greater access to other service markets, including research and development, storage, technical testing and analysis. 62 The original litigation began in march of 2003 and still has not reached a conclusion. Dispute Settlement: dispute DS285 (30 March 2007) United States Measures Affecting the Cross-Border Supply of Gambling and Betting Services (Concluding the United States has failed to comply with the recommendations and rulings of the Dispute Settlement Body ( DSB ) in this dispute.) Archived at: 63 Hintze Supra n GATS Supra n. 1 13

15 alter its specific schedule until it has reached an agreement with Antigua and Barbuda. The arbitration process works as follows: 1) The parties have 20 days to mutually agree on the appointment of an arbitration body. If no such agreement can be reached, the Director-General of the WTO appoints an arbitration body. 65 2) The Rules of conduct for the understanding on rules and procedures governing the settlement of dispute regulate the arbitration process. 66 3) The use of any relevant source by the arbitration board is permitted so long as both parties are informed if there is any consultation with experts. 67 Finally 4) No ex parte communications are allowed between the arbitration board and either of the parties involved. 68 Section 4 (b) If the modifying Member implements its proposed modification or withdrawal and does not comply with the findings of the arbitration, any affected Member that participated in the arbitration may modify or withdraw substantially equivalent benefits in conformity with those findings. Notwithstanding Article II, such a modification or withdrawal may be implemented solely with respect to the modifying Member. Subparagraph (b) of section 4 lays out what type of damages are available if the United States were to refuse comply with the arbitration decision. An approved remedy is the suspension of intellectual property rights of the country in breach of the terms of the agreement, which the WTO granted Antigua and Barbuda in its decision on December 21, This would also be the remedy sought if the United States were to go back on any of the terms of the agreements made with Australia, Canada, Costa Rica, the European Union, India or Japan. As the terms of these agreements are not public, it is not possible to know whether the United States is in 65 GATS Procedure Supra n id. 67 Id. 68 GATS Procedure Supra n DS285 Supra n. 3. At Section 6.1. (Concluding the annual level of nullification or impairment of benefits accuing to Antigua in this case is US$21 million). 14

16 violation of any of its agreements. 70 However, it is known that on March 10, 2008, the European Union announced that it will open an investigation into a possible international trade violation by the United States for discriminatory trade practices against European online gambling companies, indicating that the United States was in violation of the terms of its agreement. 71 Section 5 The Council for Trade in Services shall establish procedures for rectification or modification of Schedules. Any Member which has modified or withdrawn scheduled commitments under this Article shall modify its Schedule according to such procedures. 72 Section 5 refers to the Procedures for the Implementation of Article XXI of the GATS (general Agreement On Trade In Services)(Modification of Schedules). These procedures were adopted by the Council for Trade in Services on 19 July IV. ANALYSIS The three avenues available to the United States were laid out above. The first option is to change the laws in violation of their agreement to GATS. The second option is to change the terms of the agreement to Gats. The final Option is to completely ignore the WTO with regard to this issue. Option 1 has been abandoned, and option 2 is extremely unlikely. It unlikely that the United States will follow the procedures laid out above to alter their commitments to GATS, because the WTO has no true motivating power. The United States does not fear repercussion from the WTO; all efforts in the past to sanction the United States have failed. This assertion explained best by viewing the 21 million 70 Letter to Schawab Supra n. 35, 3/14/08. We are writing to request details of the trade agreement between the United States and the European Union, Japan and Canada that was negotiated in December to compensate these nations for withdrawing our general Agreement On Trade In Services gambling commitments under Article Waxman Supra n. 39. The European Union announced yesterday that it will open an investigation into a possible international trade violation by the United States for discriminatory trade practices against European online gambling companies. 72 GATS Supra n GATS Procedure Supra n

17 dollars in compensation that were to be obtained by Antigua and Barbuda through the suspension of its intellectual property obligations to the United States. 74 Suspension of U.S. property rights to the amount of 21 million dollars is not as practical as it may sound. It would be extremely difficult for Antigua and Barbuda to accurately monitor compensation, and then simply cut it off once the limit has been reached. 75 Additionally, intellectual property laws are already being disobeyed across the globe. 76 Logically, the proposed sanction could not possibly be fairly imposed until intellectual property rights are effectively enforced in the first place. Many have argued that the suspension of U.S. intellectual property rights is appropriate theoretically, claiming that it s the only way Antigua and Barbuda could possibly receive compensation from the United States. 77 Although the suspension may work theoretically, it cannot work practically until intellectual property rights are well regulated. In Rothstien s Article Moving All-In with the World Trade Organization: Ignoring adverse rulings and Gambling with the Future of the WTO he argues that this suspension of property rights is the best way for Antigua to achieve compensation for its losses; however he ignores the fact the fact that these property rights are not being enforced to begin with. 78 To pile permission to disregard property rights on top of a world market that is severely lacking enforcement in that field is not a solution, it is a problem. Because the WTO has no power to 74 Supra. n See Variety Magazine Posted: Tue., Mar. 18, 2008, 9:00pm PT Motion Pictures Association of America wrote a letter warning: "The proposed retaliation would be impossible to manage. The real and resulting economic harm would vastly exceed any amount the (WTO) might approve, even the grossly exaggerated amount ($3.4 billion) for which Antigua seeks approval, plus the economic harm would extend to other WTO members." Archived at: 76 The Cost of Movie Piracy, An analysis prepared by LEK for the Motion Picture Association The major U.S motion picture studios lost $6.1 billion in 2005 to piracy worldwide. 80 percent of those losses resulted from piracy overseas, 20 percent from piracy in the U.S. Archived at: 77 Supra n Id. at 163 See Also MPAA supra n.17 The major U.S motion picture studios lost $6.1 billion in 2005 to piracy worldwide. 80 percent of those losses resulted from piracy overseas, 20 percent from piracy in the U.S. 16

18 enforce intellectual property rights to begin with, merely offering a country permission to suspend those rights has no effect whatsoever. In fact, in July of 2008, more than 18 months after this permission was granted, Antigua and Barbuda were still trying to negotiate a settlement with the United States, suggesting that they too believe the suspension of intellectual property rights is not a realistic means of compensation. 79 Subparagraph (b) of section 4 of Article XXI of GATS offers member countries this very same remedy if the United States refuses to comply with future WTO decisions. After 18 months, this remedy has proven useless for Antigua and Barbuda. The only damages that are approved by this subsection are useless and the WTO is powerless to enforce any terms and conditions of agreements on the United States. The decree to suspend U.S. intellectual property rights is a meaningless sanction. Because the WTO has no motivating power, it is unlikely that the United States will follow the procedures laid out above to alter their commitments to GATS. This leaves the United States with one final option; to ignore their WTO s sanction and to ignore the fact that they are in violation of their commitment laid out in GATS to provide internet gambling services to member countries. V. CONCLUSION The integrity of the WTO is jeopardized by the position of the United States in its conflict with Barbuda and Antigua. Any sanctions imposed by the WTO would have little or no effect on the United States. Resolution of this disagreement is not likely to come any time soon, and Antigua and Barbuda will never be truly compensated for their losses with respect to internet 79 Haley Hintze, Impasse Remains in Antigua/US Gambling Trade Dispute. July 20, The impasse in the latest round of talks suggests that no movement on the matter will be made by the current Bush administration. After repeatedly pushing out the world Trade Organization-authorized mediation deadlines in hopes of a settlement, Antigua's Minister of Finance, Errol Cort, optimistically projected that this round of talks would or could lead to a resolution. Instead, with the talks concluded but with no progress made, another deadline of August 1st was set. However, Cort himself admitted that it would be longer, if it all, for any settlement was reached, at least two to three months according to one prominent report. 17

19 gambling. Before the United States may alter its schedule of specific commitments to the GATS, compensation must be paid to Antigua and Barbuda. It will be interesting to see what resolution, if any, comes out of these negotiations. Decades of meaningless arbitration and negotiation periods between the United States and Antigua and Barbuda have resulted in nothing, and it appears that many more fruitless decades lie ahead. 18