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December-22-2007,
WTO Decision on Compensation for Antigua is a Disgrace...By Hartley Henderson

The WTO ruled yesterday that Antigua could retaliate with $21 million in cross border trade sanctions against the United States, using suspension of copyrights, trademarks and other intellectual property rights. This was far less than the $3.4 billion being asked for by Antigua but more than the $500,000 the United States offered. Mark Mendel, the lawyer for Antigua, stated in a conference call that he was expecting the WTO to rule with a figure in the $1 billion range.

What was most troubling in the decision reached by the WTO panel was the method they used to arrive at the compensation amount. Rather than considering the true value of all cross border gambling services, as was the commitment made by the U.S., the WTO came to an amount it deemed would have been "reasonable" had the U.S. hypothetically allowed Antigua access to remote gambling on horse racing. In so doing it essentially ignored remote gambling on poker, sports aside from horse racing and casino games. Mark stated frustration with the ruling, because most people understand that there is more remote gambling going on within the United States aside from horse racing and certainly more potential remote gambling. In fact there is discussion about offering interstate poker networks in some states in the near future. Plus of course the Powerball lottery exists in many states. Mark stated that he thought the WTO panel understood his arguments in that regard but based on today's decision they clearly didn't. The panel voted 2-1 for the compensation it granted and the panelist who voted against the final amount showed strong dissention. In a released statement Mr. Mendel said the following:

"I find it astonishing that two of the three panelists would in essence grant the United States the benefit of a hypothetical method of compliance most favorable to the American side in assessing Antigua's level of trade impairment. What appears to have been done here is assuming a form of compliance that has not happened and will not happen without giving Antigua the ability to contest the method under the WTO's normal procedures."

Mr. Mendel did acknowledge that Antigua could go back to the WTO if and when the U.S. started offering remote gambling on games or sports other than horse racing to show that the ruling was unreasonable and that other forms of remote gambling are occurring in the U.S., but he also stated that Antigua's resources are limited. Aside from the revenues from gambling, Antigua's GDP is only about $1 billion. There is no formal timeline for Antigua to retaliate and until such a time that the U.S. either allows remote gambling from Antigua on horse racing (although it still is questionable whether this would bring the U.S. into compliance with its commitments), or until a time when the U.S. and Antigua officially agree on settlement terms it will be business as usual for Antiguan gambling companies. There is also no method in place to appeal a compensatory ruling of the WTO.

While the amount of compensation is relatively small, Mr. Mendel suggested that $21 million in intellectual property rights is substantial and is "a very potent weapon." Russ Hawkins, the CEO of MajorWager.com concurred and added:

"This decision is paramount in the future success of online gaming. If Antigua was smart, they would sell copyright items for a penny apiece and make sure it really makes the U.S. reconsider."

Surely when perfectly legal versions of MS office are being sold for a nickel or when penny DVDs or CDs hit the markets many U.S. corporations such as Microsoft, Warner Brothers and the Recording industry will be banging on the doors of the USTR to do something about it. Having said that Mark Mendel stated that while this is an option it is still not Antigua's preferred route. "Antigua has operated with due diligence and care in the whole process," Mark stated adding that at no time would the U.S. seriously talk with him or the Antiguan government. The United States still has to come to terms with India, Costa Rica and Macau but this decision along with the relatively weak agreement by the EU likely makes those talks much easier for the U.S. government.

In the process, the U.S. may feel it has won this battle but in the long term it could seriously damage not only U.S. interests but the interests of all WTO members. The WTO once again has proven that the organization is a one-way street that favors the larger economies and will cause many smaller countries that were thinking of joining the WTO to reconsider. More importantly the decision could have China, Russia and other potentially rogue WTO members licking their chops. The decision by the WTO is now a precedent. A deal is not a deal and a commitment is not a commitment. If a larger country makes a commitment that doesn't work for them then they can simply opt out under Aticle XXI and the WTO panel will try and minimize damages for them. It thereby makes the WTO process of providing commitments totally meaningless.

One can only surmise why the WTO came to the decision they did, but it is clearly one they will live to regret. In the meantime, people may want to hold off paying $300 to purchase the latest version of Microsoft Office or Vista. By next Christmas, legal versions of the software with full licenses and access codes could be available from Antigua for less than the cost of a postage stamp.

12-22-2007
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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