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WTO Could be Destroyed by US Over Online Gambling Issue

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Important questions will be raised in Geneva on July 24, about whether rules based on international systems can be used by the relatively powerless (Antigua), if the most powerful (United States), chooses to ignore or circumvent the World Trade Organization’s legally binding decisions.

The issue is whether the United States will comply with a WTO ruling in favor of Antigua, along with other countries, and compensate its government for loss of earnings because of Washington’s decision that effectively led to the end of online gambling in the U.S.

"There is something clearly wrong with the concept that after a long, difficult struggle covering years of dispute resolution at the WTO, an offending member could ultimately avoid the consequences of its loss by withdrawing the commitment that gave rise to the claim in the first place," said Dr. John Ashe, Antigua's Ambassador at the WTO.

Brazil has joined Antigua & Barbuda, along with the European Union (27 member states, including the United Kingdom), China, India, Japan, Costa Rica, Mexico, and China Taipei, to claim compensation on legal matters of principle involved.

In 2004, the WTO ruled that the U.S. had violated global trade rules with the ban on internet gambling, and that this was an unfair trade barrier that hurt Antigua’s gaming industry. Citing that the U.S. prohibition on internet gambling was inconsistent with its obligations under the 1995 General Agreements on Tariffs and Services (GATS).

The WTO also noted that the U.S. ban on online gambling represented an "arbitrary and unjustifiable discrimination between countries," and was a "disguised restriction on trade." The United States has lost its appeal and has decided to withdraw its commitment on this service from the GATS.

As part of its defense, The U.S. argued that it never intended to include cross-border gambling in its original GATS offer and thus should not be penalized. The WTO responded, "A specific commitment cannot depend upon what a member intended or did not intend to do at the time of the negotiations."

This argument also does not hold water as there was ample time for negotiations, and several member countries did in fact, explicitly exclude cross-border gambling from their services commitments made during the Uruguay Round.

It also became clear that until the U.S. started to change its policies, U.S. officials had met with their Antiguan counterparts to discuss how the sector could be better regulated.

Washington has since, in an attempt to make its position WTO compatible announced, it will modify its GATS multilateral commitments to explicitly exclude internet gambling. Further arguing that it need not compensate countries that might negatively be affected by the change, even though WTO rules require that this be done under such circumstances.

As we are all aware, the U.S. has said this is necessary to protect public morals and that such changes are permissible under WTO rules. Antigua & Barbuda won the case based on the facts proving that the U.S. does in fact allow such domestic gambling across the country, and this action is pure protectionism.

This is a major issue that will determine the future of the WTO and globalization. If the U.S. is allowed to modify its commitments without paying claims to other countries, the WTO agreements will effectively become moot and there will be no benefit for it to exist.

The U.S. appears to have become more conciliatory toward Antigua, after Antigua filed for $3.44 billion in annual compensation for lost revenues until the market is opened, or it will withdraw its commitments and will ignore U.S. copyrights and patents. This action could prove very costly to business and industry that is not related to gambling and could cause major complications to the U.S. economy.

The U.S. has said it will fight other trading partners on their claims for compensation.

The U.S. was a major force in establishing the rules for the WTO and should not be allowed to change them when it suits their purpose, or to avoid penalties they originally helped to establish.

It is difficult to comprehend, given the intelligent, thoughtful, diligent effort that went into the establishment of the GATS, that Americans simply overlooked this issue. It must be believed, since it was not excluded in the GATS, America did not want to exclude this service trade.

There are over 40 claims the U.S. has submitted to the WTO against other countries, and has successfully argued that the GATS should not be modified to avoid penalties. There is no reason to believe that the WTO will give in to pressure from the U.S. and allow it to become the first to do so. After all, the WTO was designed to level the playing field for all countries. Big and Small.

It would be much more prudent if the U.S. accepted defeat on this issue and established ground rules to allow, license, regulate and tax this industry for the benefit of all.

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