ANTIGUA'S IMPUDENCE: IT'S CASE AGAINST THE US AT THE WTO
by
Sir Ronald Michael Sanders
A Speech
to a Luncheon of
The Antigua and Barbuda Chamber of Commerce and Industry
at
The Royal Antigua Hotel
on
Tuesday, 26th August 2003

Mr Chairman, Members of the Executive of the Chamber of Commerce, Distinguished Ladies and Gentlemen

My intention is to explain a complaint that the Government of Antigua and Barbuda has taken to the Dispute Settlement Body of the World Trade Organisation (the WTO) to try to seek redress.

It is a complaint about which the Chamber of Commerce in particular and the nation in general are entitled to as comprehensive an understanding as possible, for it strikes at the heart of trade in services which, increasingly, has become the main contributor to the economy of Antigua and Barbuda through tourism, on shore and offshore banking, internet gaming and other forms of electronic commerce.

This case is significant in many ways:

First, it is the first time that a Caribbean country has taken a dispute to the WTO.

Second, it is the first time that a small country with a population of under 100,000 has taken any dispute to the WTO.

Third, it is the United States - the most powerful country in the world with a population of 300 million - that Antigua and Barbuda has dared to complain about.

Fourth, the case is unique since it is one of the few disputes that test the relatively new General Agreement on Trade in Services (the GATS), one of three multilateral agreements that underpin the WTO. The other two being the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade Related Aspects of Intellectual Property (TRIPS).

The GATS applies to all Members of the WTO. Its purpose is both to create a system of international trade rules for services, and to ensure fair and equitable treatment for all Members.

Under this agreement, Member countries have to make certain commitments to free trade.

Every country has general obligations to treat service suppliers of all other Members equally.

Each Member then has specific commitments to provide market access and national treatment to other members in individual service sectors. These commitments vary from county to country. They were agreed upon during the Uruguay Round of trade negotiations and are written down in the individual service schedules of each country. These schedules bind Members to these commitments.

Upon the advice of some of the most experienced lawyers dealing with WTO matters - lawyers who are part of our team - our contention is that, upon any plain reading of the US specific commitments, the US made a commitment on gambling and betting services and is, therefore, bound to permit them.

Therefore, by prohibiting the delivery of Internet gaming from Antigua and Barbuda to residents of the United States, the US is violating its own binding commitments to the detriment of Antigua and Barbuda.

Now, the World Trade Organisation (WTO) is a rules-based organisation in which all its member-states, large or small, have an equal vote and are entitled to equal treatment, including their right to challenge, through established Dispute Settlement machinery, any other state that violates its obligations under the GATS.

And that is exactly what we have done.

In some quarters, the Antigua and Barbuda action has been described as "impudence", as if, because we are small and weak, we have no right to confront larger and more powerful States whose policies pose a clear and present danger to our economy.

Some countries asserted that our efforts would be thwarted at the outset, and that bigger players would ensure that no attention was paid to us in the WTO.

We have so far proved them wrong.

It is, therefore, a tribute to the courage and fortitude of the Government of Antigua and Barbuda, and Prime Minister Lester Bird, in particular, that this dispute with the United States of America has been successfully advanced in the WTO, underscoring our right as a nation to use international machinery to safeguard our interests in the global community.

I come now to the questions: What is this dispute? And why is it important?

As I just pointed out, in its commitments under the GATS, the US bound itself to provide market access and national treatment to the cross-border supply of foreign services that come within the category of 'other recreational services'. On a proper legal interpretation, this category includes gambling and betting services.

Yet, while many US operators are allowed to offer gambling services in the US, US authorities take the view that all gaming services offered on a cross-border basis from abroad, including Antigua and Barbuda, are unlawful.

The US enforces this claim administratively by blocking credit card transactions and penalising credit card companies and banks that facilitate them, and by punishing US persons and others who own gaming entities that provide services to US residents.

These actions by the US amount to a US violation of its GATS commitment. They effectively prohibit all supply of gambling and betting services from Antigua to the US and have adversely affected this sector of our nascent e-commerce business.

This blanket ban is precisely what we are complaining about.

Now I come to the effect that the US actions have had on our economy.

Up to the year 1999, Antigua and Barbuda was arguably the largest gaming jurisdiction in the world.

The sector employed approximately three thousand people and was responsible for approximately eight to ten percent of our GDP.

Records show that in the year 2000, EC$35 million was paid in wages and salaries alone.

However, since the US imposed laws and other measures designed to block the delivery of Internet gaming services into the US from abroad, the industry here has been hit hard.

Today, employment within the gaming sector has fallen to below five hundred persons. This equates to a reduction of approximately eighty-four percent.

From a high of one hundred and twelve licensed companies, only thirty-one licensed companies now operate here, a reduction of seventy-two per cent.

In relation to license fees, these have fallen to EC$5 million from a high of EC$20 million in 1999.

From these figures, you will recognise that had the industry continued, year-on-year, to deliver the same level of licence fees as the year 1999, the government would have earned EC$90 million for the four and half years ending June 30th 2003.

I make no mention of the loss to businesses and private persons from whom the Internet Gaming companies purchased goods and services and rented homes and office space. Some of you here would be keenly aware of the loss of revenue from the contraction of Internet gaming operations from Antigua.

In the context of the size of Antigua and Barbuda's economy and population, the loss of jobs, the reduction in government revenue, and the money lost to the rest of the economy are very significant.

The Internet Gaming industry provides the Sate with revenues that are critical for the continued provision of the basic goods and services that inhabitants of any country have a right to expect. Importantly, these revenues are not affected by the ravages of the tempestuous hurricanes that make unwelcome visits to our shores from time to time. They are, therefore, important to our economic and social survival.

Of further importance is the fact that the industry employs bright, computer-literate, young people who might otherwise be jobless.

No government could simply let this matter pass, not even if it meant exposing itself to the displeasure of the most powerful country in the world.

The Antigua and Barbuda government has a duty of care to its population to defend their rights and the rights of the State under international law. And, this is why we have challenged the US in the WTO.

We have done so fearlessly, and in the full knowledge that the US is itself the most active user of the dispute settlement machinery of the WTO. What is sauce for the goose is also sauce for the gander.

We, therefore, advised the Dispute Settlement Body (the DSB) of the WTO of our dispute with the US, and, in conformity with the rules of the organisation, we engaged the US in consultations designed to find an agreed settlement.

Those consultations proved futile. We were forced to terminate them, and to seek a hearing of the DSB to request the appointment of a Panel to adjudicate the dispute.

At the first hearing on June 21st, the US opposed the establishment of a Panel and we were asked to continue consultations with them. This, we did in good faith. But, it quickly became apparent that the US was simply prolonging the procedures while our economy continued to haemorrhage.

Consequently, we went back to the DSB on July 12th, and succeeded by consensus to get that Body to agree to the establishment of a Panel.

We then faced yet another procedural hurdle.

Under the rules of the Dispute Settlement machinery, the parties to the dispute are required to try to agree the composition of the Panel.

With the assistance of the WTO Secretariat, we had two attempts at trying to agree such a Panel with the US.

The attempts failed, mainly because of obstruction by the United States, and despite the excellent work done by the WTO Secretariat.

In the circumstances, we aborted the consultations and exercised our right to request the Director-General of the WTO to appoint a Panel which, in his judgement, met criteria submitted by both parties to the dispute.

I am pleased to announce here that I was informed by the Director-General yesterday that the Panel has now been appointed after appropriate consultations, and it should be constituted in a matter of days.

You would be right in asking about the response of the United States to the injuries to Antigua and Barbuda and its people, and what its representatives said in these various meetings.

Two of the responses are in the domain of "red herrings", and two others border on being contemptuous:

At the first hearing of our complaint at the DSB, they claimed that they had "grave concerns over the financial and social risks posed by Internet gaming activities to its citizens, particularly but not exclusively children".

However, in the consultations between Antigua and the US that preceded the DSB hearing, we had made it clear that the Internet gaming industry in Antigua is highly regulated, and children have no access to it. We emphasised that Gamblers are required to deposit funds before they can bet. To do so, they have to send a wire transfer from their bank accounts and provide their social security number, address and other means of identification. These strictly enforced rules make it impossible for children to gain access to the Internet gaming operations.

The US also suggested that organised criminals could abuse Internet gaming for money laundering and other criminal purposes.

We painstakingly pointed out that the way in which the industry operates, and is regulated, make it impossible for such activities since the operators could only accept funds by transfers which are traceable, and that winnings could only be paid to the accounts and addresses from which punters send money in the first place.

This audience would be aware that the Government has enacted a comprehensive regulatory framework that governs the activities of gaming companies. This framework includes:

• The International Business Corporations Act
• The Interactive Gaming & Interactive Wagering Regulations
• The Money Laundering Prevention Act
• The Anti-Money Laundering Guidelines for Financial Institutions; and
• The Proceeds of Crime Act.

Under this legislative framework, checks are placed on the fairness of gaming systems; companies are required to identify and prohibit pathological gambling; and they must enforce stringent 'Know Your Customer' verification procedures. In addition, the companies are required to maintain comprehensive records relating to all gaming and all financial transactions of each customer, for a period of not less than six years.

The US claims in these areas, therefore, are not relevant.

It is important to note that although we offered to adopt any new measures that the US might like to propose to strengthen our regulatory and enforcement machinery to prevent, further, any risks to under age persons and organised crime, the US made no proposals whatsoever.

A third point raised by the US was that cross-border gambling and betting services are prohibited under U.S. law "from domestic and foreign service suppliers alike".

We pointed out that a ban on the cross-border supply of services has a very different effect depending on whether you are inside or outside the borders of the United States.

The GATS seeks to create equal conditions of competition for domestic and foreign service suppliers. In this context, we made the point that it is not a reasonable argument to contend that a measure prohibiting cross-border supply has an equal effect on foreign and domestic service suppliers. After all, the US domestic service suppliers are not crossing any borders when they supply the US market to the exclusion of others who are outside US borders.

In its fourth submission, the US also flatly stated that cross-border gambling and betting services are not within the scope of the specific market access commitments that it made under the GATS. The US made no attempt to substantiate this assertion. It was flatly made on a take-it or leave-it basis.

It is important to note that in simply relying on its flat assertion that, in its view, cross border gambling and betting services are not within the scope of the market access commitments it made under the GATS, the US is trying to apply an amazing double standard.

It is instructive that in a case it has brought to the WTO against Mexico regarding telecommunications, the US has argued as follows:

The ordinary meaning of Mexico's Schedule speaks for itself and should control. The extent of a Member's commitments cannot depend upon what it alleges to have intended at the time of the negotiations.
The ordinary meaning of Mexico's Schedule instead dictates its commitments.

The US then went on to argue:

Mexican law and regulations are not relevant to the interpretation of [a phrase involved in the dispute]... if a Member wanted domestic law or regulations to serve as limitations, it was to have specified as much in its Schedule. Mexico made no such reference in its Schedule.

The identical argument used by the US against the Mexicans is precisely what we say about the unsubstantiated US assertion, and the laws that the US has passed in violation of its commitments under the GATS.

Now, the real question is: What could be behind the US position in prohibiting the delivery of Internet gaming into the US from countries outside?

Let's look at some of the facts.

The United States is the centre of the world's gambling business.

Many of the largest gaming companies in the world are of United States origin, and a great number of them have international operations.

According to a trade association of American gaming companies, total consumer spending in commercial casinos in the United States reached almost US$26 billion in 2001. That is US$3 billion more than total consumer spending on sound recordings and movie box office sales combined. The figure of US$26 billion relates to commercial casinos only, which is just one aspect of legalised gambling in the United States, and is not even the biggest.

Internet Gaming challenges the supremacy of large American owned casinos that are fast becoming multinationals. There is a view that if a gambler has a choice of placing bets or gambling in the ease of his own home, he is more likely to do so than to incur the cost and spend the time involved in going to a casino or a betting shop.

It is understandable, therefore, why some may believe that the blanket ban on Internet Gaming is motivated by lobbies persuading US congressman and senators to protect US casinos from competition.

The reaction of other countries to this case has been interesting.

You will recall some had felt we would be cut off at the knees before we got started. That attitude has changed.

Encouraged by our success in the WTO so far, more and more countries are taking a keen interest in this matter, not least among them those States that are also host to Internet gaming operations.

Among those countries are the United Kingdom and Ireland, both members of the European Union. It is understandable, therefore, why the European Union has declared to the WTO that it has a third-party interest in this case.

Other countries that have officially informed the WTO of their third-party interest are: Canada, Mexico, Taiwan and Japan.

Their interest while not as specific as the UK's and Ireland's, is nonetheless fundamental.

Let me explain it.

The flat unsubstantiated claim by the US that "cross-border gambling and betting services are not within the scope of the US specific market access commitments under the GATS", poses a systemic problem for the operation of the GATS. For, if the US can avoid its obligations simply by saying it has none, every country in the world would be faced with the problem of disputes in the interpretation of what exactly are the US commitments in every sector of the GATS.

In this connection, States are recognising that the Antigua and Barbuda case could be a pioneering and standard-setting one for the WTO.

Now, you are all probably wondering what happens next in this affair.

We expect that the Panel, which has now been appointed, will convene within the next few days in Geneva. There will be hearings in which the Panel will receive submissions from both parties, after which they will reflect on the arguments and deliver a report. This process will probably last until year-end.

Thereafter, unless one of the parties to the dispute appeals the Panel report, the DSB will instruct the parties to implement the recommendations of the Panel.

Appeals are limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. Appellate proceedings are required to be completed within 60 days from the date a party formally notifies its decision to appeal. And, once the Appellate Body issues its report, its recommendations are unconditionally binding on the parties.

The sixty-four million dollar question is will the United States implement the remedies recommended by a Panel or an Appellate Body?

I know many of you are now thinking that the US is the most powerful country in the world and it could simply refuse to comply with a WTO panel ruling.

That is true.

But, US refusal to comply would have some very serious consequences for the US itself and for the WTO as a whole.

It is instructive that, since the WTO's dispute machinery came into force in 1995, the United States has been its most frequent user. It has taken 75 disputes to the DSB in which it was the complainant. Twenty-nine of those disputes were sent to a Panel of which twelve were appealed.

If the US were to refuse to implement the recommendations of the dispute settlement machinery, it would bring into disrepute the very mechanism that it has used for its own benefit, and no country would use it again. What is more the utility and validity of the entire dispute settlement machinery of the WTO would be so fatally undermined that it would collapse.

I very much doubt, therefore, that the US would destabilize the WTO by refusing to implement the recommendations of its dispute settlement body. It simply is not in its interest to do so.

So how will the US have to remedy the situation if we win?

The "remedy" provided for by the WTO law is "compliance", i.e. if Antigua wins the United States will be required to implement the Panel's recommendations which should include that the US must honour its commitments under the GATS, and, especially, desist from measures that block the delivery into the United States of gaming and betting services from Antigua and Barbuda.

The United States may be given a "reasonable period of time" to comply. But, in the meantime, it would have to curtail the measures is now applies to the detriment of Internet gaming from Antigua and Barbuda.

The point is that there would be immediate relief to the Internet Gaming business and to our economy, with a longer term permanent solution which would allow cross-border supply of gaming and betting services from Antigua and Barbuda into the US.

We would also see not only stable conditions for the companies that are here now, but an increase in the number of companies that want to operate in a jurisdiction that has a secure, predictable and legal basis for delivering gaming and betting services into the United States.

Now I come to what happens if we lose.

The situation will be no worse than it now is. Internet gaming companies here would simply continue to serve the markets that they do now.

The Internet gaming companies have had to become creative and innovative in diversifying their markets to sustain their businesses.

They deserve our admiration and our appreciation. I applaud their ingenuity.

In doing what they had to do to maintain their businesses, they have also kept many of our people employed and continued to contribute to our economy. They deserve our thanks for doing so.

As a nation, the income we derive, and the employment that is generated from our trade in services, are critically important to our entire economy and our people as a whole.

It is the money generated in the local economy from these services that underpins the importation of goods of all kinds that are used to satisfy the needs of the country for food, clothing, medicines, and construction material.

In this connection, local businesses and the services industry, including Internet gaming, are interdependent. None of us should feel, therefore, that this WTO case is only in the interest of the Internet gaming companies and their employees. It is in the interest of all of us, and all of us should support it.

The effect of the United States actions is to hurt our small economy, which is struggling to survive in a world of intense competition in the trade of goods and services.

As a small state, we may be guilty of "impudence" in challenging the might of the US in the WTO. But, it is our right to do so, and we have an obligation to fight for our people's interest. Win or lose, this is all that we are doing. No more and no less.

We did the same thing when the Organisation for Economic Cooperation and Development (OECD) tried to make us their tax collectors and informants by imposing upon us a set of requirements that had no basis in international law, and no authorisation from an international body.

As we did not buckle then, we will not buckle now.

Thank you.