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WTO gamble on market rights

WTO gamble on market rights
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First Published: Tue, Feb 12 2008. 12 15 AM IST

Updated: Tue, Feb 12 2008. 12 15 AM IST
One of the more interesting disputes on the WTO skyline in recent years has been the betting-gambling dispute between the US and the tiny Caribbean nation of Antigua and Barbuda. It pitted one of the smallest nations against one of the largest and most powerful ones. But its recent outcome is truly historic: Antigua can now legitimately infringe intellectual property rights (IPRs) belonging to US companies providing goods and services to it.
Antigua initiated the case in 2003 because the US denied market access for its online gambling services. Internet gambling is Antigua’s second biggest employer after tourism. Antigua argued that the US was violating its commitments under WTO’s General Agreement of Trade in Services (GATS), with its laws restricting online gambling. It took a few years, and more than one ruling in Antigua’s favour, before the US admitted it was violating the WTO rules. The US argued that it could legitimately restrict online gambling on grounds of public policy. It had however not made an “exemption” for online gambling in its GATS schedule of commitments under which it had undertaken to liberalize “recreational services”—which is understood to include online gambling. What also compromised the US position was that domestically, it allows for online horse race betting and state lotteries.
After several rounds before the WTO panel and appellate body, which consistently saw rulings in favour of Antigua, WTO has awarded the tiny nation the right to place sanctions on US intellectual property (i.e., patents, copyrights, trademarks, etc.), to the tune of $21 million (around Rs83 crore) annually, as compensation for non-compliance by the US with its ruling. The case is historic because no government has ever actually suspended IPRs as a ­result of a WTO dispute. Ecuador was awarded this right against the EU in what is famously referred to as the banana dispute, but never implemented it. How Antigua will actually implement this right needs to be keenly watched as a test for whether “cross-retaliation” under WTO’s dispute settlement is effective enough.
The right of cross-retaliation is a unique WTO remedy. When a losing member fails to comply with a WTO ruling, the complaining side may ask the dispute settlement body for permission to impose limited trade sanctions against the other side by suspending its obligations under WTO towards the losing party. Suspension of obligations is at the first instance allowed in the same “sector” as the dispute. If this is not practical or if it would not be effective, then sanctions can be imposed in a different sector. This is what happened in Antigua’s case: suspending concessions for US online gambling in Antigua would have been meaningless, and hence it has been given the right to impose sanctions against US IPRs.
The US reaction has been interesting: After exhausting all its options for a favourable ruling , it has finally taken the plea that it made an “error” in scheduling its GATS commitments, and has chosen to exercise a right under GATS to clarify its commitments and exclude online gambling. This is another historic aspect for WTO because it is the first time a member is using the provision to withdraw commitments made. (This has so far only been used for modification of the EU’s schedule to account for its expanded membership). The US’ move also opened the door for trading partners to seek compensation from the US for the withdrawal, and claims were made by the EU, Japan, Costa Rica, Macao, Canada, Australia and India as well.
The result of the two parallel processes was: (i) WTO’s recognition of Antigua’s right to cross-retaliate against American IPRs for non-compliance by the US of its ruling; and (ii) negotiations for compensatory adjustment between the US and other WTO members for modification of the US’ commitments— resulting in an agreement under GATS with Canada, the EU and Japan, where the US sought to further liberalize market access for warehousing services, technical testing services, research and development services and postal services relating to outbound international letters. The latter component on the US’ offer for compensatory adjustment of market access is yet to come into effect. This will depend on whether any other WTO members will question the adequacy of the US offer to offset the withdrawal of market access for online gambling services.
Both results will be critical tests of the efficacy of the WTO rules.
The modification by the US of its GATS schedule poses the challenge: What can be construed as an effective compensation when a member withdraws a market access commitment? The trade valuation of the US’ proposal to expand market access in postal, courier, warehousing and R&D sectors, is far short of the $100 billion that European online gaming sites had claimed the US owed. In fact, European online gaming firms are reported to be filing a formal complaint against the US for discriminating between domestic and foreign service providers of gaming services.
Antigua’s right to suspend IPR rights for the US goods and service providers poses far greater challenges. There are no set rules in the WTO law on how to evaluate the value of each cross-retaliatory measure. In reaching the annual figure of $21 million, Antigua has the right to condone various acts of IPR infringement, whether in the form of counterfeiting or piracy or any other. The US is likely to dispute the value of every act of infringement by Antigua. Who would then determine that the annual figure of $21 million has been reached?
Another problem could be the interplay between different IPR treaties. Antigua and the US are signatories of the Berne Convention for the Protection of Literary and Artistic Works. Can the US challenge any of Antigua’s legitimate IPR violations under the Berne ­Convention?
The United Press International aptly summed up the ruling with the headline: “WTO OKs Antigua as Pirate of the Caribbean.” But it is just the beginning of several hurdles for Antigua in making the cross-retaliatory remedy work in practice.
R.V. Anuradha is partner, Clarus Law Associates, New Delhi. Comment at theirview@livemint.com
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First Published: Tue, Feb 12 2008. 12 15 AM IST