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E-Commerce and E-Gaming: Antigua and Barbuda Vs The United States - An Update

By Offshore-E-Com Editorial
10 October, 2013

A year has passed since we last wrote on the e-gaming dispute between Antigua and Barbuda and the United States, and for the tiny Caribbean jurisdiction it has been another year of frustration. Yet Antigua is not giving up the fight, and this special report provides an update on the current status of this 'David versus Goliath' struggle.

Background: Antigua and Barbuda Gets Ahead of the Pack

The far-sighted Government of Antigua and Barbuda was well ahead of the competition when it put in place the first set of laws to licence and regulate interactive gaming and wagering companies in 1994. Operators are also of course attracted to Antigua and Barbuda because of its low taxes; IBCs are fully exempt from all direct taxes in respect of trading, investment or commercial activity as well as from withholding taxes and stamp duty. And with access to two separate undersea fibre networks – the Eastern Caribbean Fibre System and the South Caribbean Fibre – Antigua and Barbuda's e-gaming sector was well positioned when the Internet exploded into life in the late 1990s and early 2000s, allowing providers to reach a vast global customer base.  

By the year 2000, the number of internet gambling licensees in Antigua and Barbuda had grown to 93, and the jurisdiction's industry was turning over USD1.7bn – well over three times the gambling revenues recorded in 1999. At this point, internet gambling employed 1,600 people in Antigua, and the jurisdiction had a 60% share of the global market. According to the Antigua and Barbuda Investment Authority, over 3,500 individuals (out of a population of 100,000) have experience or have had specific training in the industry. Antigua's dominance of the offshore e-gaming market was to be short-lived however, as we shall see in the following sections.

The US Dispute: A Recap

Indeed, the year 2000 was perhaps the high water mark for the industry in Antigua, and after the US began to take a number of law enforcement actions from 2001, the number of licensees began to plummet.

While the Wire Act of 1961 makes the taking of wagers across state lines illegal, there was no obvious legal impediment to stop a person in the US from accessing and using an internet gambling website based offshore. A major turning point came, however, when the US government successfully managed to convict Jay Cohen, the founder and CEO of Worlds Sports Exchange, which was licensed in Antigua, under the Wire Act.

More bad news for Antigua followed swiftly. In June 2002, under pressure from Congress and the law enforcement authorities, Citibank, the US's largest credit card issuer, agreed to block online gambling transactions from using its credit cards. Then in August, former New York Attorney General Eliot Spitzer reached a settlement with PayPal Inc. that barred state residents from using the service to gamble online. Shortly afterwards, Paypal refused to accept all betting transactions by its members, as did Visa and Mastercard, causing major problems for the 1,500 or so internet betting and gaming sites providing services to the US, most of which were based in offshore jurisdictions.

America's hardening stance against internet gambling was overtly driven by the fear that such websites were at risk of being used by criminals to launder funds and evade taxes, and provide a direct pipeline of dollars into terrorist hands. This, of course, took on extra significance following 9/11. As Congressman Jim Leach, who sponsored legislation that would make it illegal for all financial institutions to accept payments related to online gambling operations, put it: "The very characteristics that make the Internet such a valuable resource are also the reasons why it has such a huge potential to impinge on the stability of the American family, American financial institutions and our national security".

All this had the effect of decimating the industry in Antigua and Barbuda. By 2002, the number of active internet gambling licensees in Antigua had dropped to 38, and according to former Antiguan Prime Minister Lester Bird, over 80% of the jurisdiction's e-gaming and sportsbook firms had left by 2003 as a result of the anti-offshore sentiment in Washington.  The jurisdiction's government decided not to take things lying down however, and it announced in March 2003 that it was taking the US government before the Grievance Committee of the WTO for restraining and interfering with the jurisdiction's online gaming and sports book industry.

In 2004, the WTO concurred with Antigua and Barbuda's argument that United States' legislation prohibiting the provision of overseas online gambling services contravened the nation's commitments under the General Agreement on Tariffs and Trade (GATT). However, despite the WTO's repeated endorsement of Antigua and Barbuda's position, the US market remains firmly closed to its e-gaming industry.

By 2012, Antigua felt it had little choice but to try and enlist the help of the WTO's Director General, Pascal Lamy, in its attempt to persuade America to change its mind. According to Ambassador Colin Murdoch, the permanent secretary in Antigua and Barbuda's Department of Trade, Industry and Commerce, Lamy "appeared keen" to preserve the legitimacy of the WTO dispute settlement system and to have the WTO play a positive role in the outcome. But Lamy is now gone, his second four-year term as head of the WTO having expired in August 2013, and Antigua has felt compelled to escalate the dispute further.

Antigua's Renewed Push

In October 2012, the Government and industry – what's left of it at any rate – agreed to pool resources and face US negotiators with new vigour under the leadership of the islands' state-run Investment Authority.

Harold Lovell, Minister of Finance and the Economy stressed the importance of the negotiations, stating: "Full compliance by the United States will mean jobs and opportunities for our people. Increased jobs, investment and domestic spending will also generate revenues we will use to invest in education, further job creation and job training that will benefit every Antiguan and Barbudan. Our goal is to negotiate the best possible deal for the people of Antigua and Barbuda. When we are successful, it will result in a rejuvenated industry."

Due to the diminutive size of the Antiguan economy, its ability to impose sanctions upon the United States has been limited, as enforcement actions historically permitted in such cases are limited to trade sanctions. Due to the inferior size of bilateral trade between Antigua and the US in comparison to lost gambling sector revenues, estimated to have amounted at the peak to a 25% market share in the American gambling market, it is said that any such action would fail to compensate the nation in a meaningful way.

Hence, Antigua has relied on bilateral talks with the US to conclude the dispute. However, as 2012 drew to a close, it became apparent that the latest consultations, like the countless others before them, would yield no breakthrough. So Antigua and Barbuda confirmed that it was giving serious consideration to enforcing the compensation provided for in the 2004 WTO ruling, worth USD21m annually, allowing the territory to sell US-copyrighted merchandise without having to pay for rights usage.

Predictably, it was a course of action that, in January 2013, the United States advised Antigua and Barbuda not to pursue.

In a statement delivered to the WTO's dispute settlement body (DSB), the United States said: "Antigua's sentiments only serve to postpone the final resolution of this matter, to the detriment of its own interests."

"This dispute involves an area of services regulation – gambling and betting services – that the United States never intended to be included in its schedule under the General Agreement on Trade in Services."

It argued: "Indeed most Members, like the United States, view gambling as a significant issue of public morals and public order, involving the protection of children and other vulnerable individuals. Accordingly, most Members tightly regulate any gambling allowed within their borders. And most Members did not include any market access commitment for gambling in their GATS schedules. This was the US understanding of its own GATS schedule. However, as a result of ambiguities in drafting, and despite the intent of US negotiators, the Appellate Body ultimately found that the US schedule must be construed as including a market access commitment for cross-border gambling."

"Although the United States finds this outcome difficult to understand and highly unfortunate, the United States has accepted the results of the dispute settlement process. The United States has responded to this finding responsibly, and in a manner that involves substantial costs for the United States. As the United States previously notified the DSB and the Council on Trade in Services, the United States has invoked the established, multilateral procedures for modification of its GATS schedule of concessions."

"In May 2007, the United States initiated the modification procedure under Article XXI of the GATS so as to reflect the original US intention to exclude gambling from the scope of US commitments. Pursuant to the GATS procedures, the United States reached agreement with all interested Members, except one, on a package of substantial compensatory adjustments to the US GATS schedule. Only one single Member, out of the entire WTO membership, will not accept compensatory service concessions. That Member is Antigua."

"Instead of respecting the WTO process under Article XXI, Antigua insists that the United States must maintain its unintentional concession on gambling, and that the United States must change its domestic policies concerning public morals and public order so as to allow Internet gambling."

On consultations with Antigua and Barbuda, the US stated: "Based on specific requests made by Antigua, The United States has offered real and substantial benefits that would make important contributions to the future development of the Antiguan economy. At times, Antigua has been on the verge of accepting these benefits and putting this dispute behind us. At other times, however, as appears to be the case today, Antigua reverts to its unrealistic demands that the United States forego the modification of the US GATS schedule. Moreover, Antigua today is stating that it intends to take the additional step of seeking authorization to suspend concessions with respect to intellectual property rights."

"The United States would view such a step as fundamentally at odds with the current status of this matter. It is Antigua's actions in refusing to engage in the Article XXI process, and not the actions of the United States, that are preventing the final resolution of this matter."

"In these circumstances, Antigua has no justification for taking any retaliatory actions against the United States. Moreover, if Antigua actually proceeds with a plan for its government to authorize the theft of intellectual property, it would only serve to hurt Antigua's own interests. Government-authorized piracy would undermine chances for a settlement that would provide real benefits to Antigua. It also would serve as a major impediment to foreign investment in the Antiguan economy, particularly in high-tech industries," it warned.

Antigua Authorized to Retaliate, Gains New Allies

Despite the US Government's indignant response to Antigua and Barbuda's determination to pursue compensation, on January 28, 2013 the WTO gave the Caribbean nation authorization to retaliate against its larger foe by suspending its obligations to the US in respect of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement.

Antigua has also gained a significant ally in its case against the US in the form of the Caribbean Community (Caricom). At the end of its 24th inter-sessional meeting, which concluded on February 19, 2013, CARICOM announced its full backing for Antigua and Barbuda and called for the US to cooperate with the territory in its efforts to secure compensation, stating:

"The Caribbean Community affirms its full support for Antigua and Barbuda in its fight to obtain United States of America compliance with the ruling of the World Trade Organization Dispute Settlement Body on the subject of cross-border provision of gambling and betting services."

"The Conference of Heads of Government calls on the US to settle the dispute with Antigua and Barbuda by honouring its obligations to respect international rules and by complying with the decision of the WTO in this matter. Those rules apply to all countries whether small, large, rich or poor. All countries must abide by their obligations within the Community of Nations in the WTO. The Community has stood with the US and the Community of Nations to defend the imperative of full compliance with internationally accepted norms and rules. However, in this case, the US must review its actions in the context of the principles referred to above."

"Moreover, as small developing Nation States, we have consistently worked for international cooperation and reaffirmed that all sovereign member states should be regarded as equals, and respected accordingly. In the current WTO dispute between Antigua and Barbuda and the US, we expect the US will fulfil its international obligations and engage Antigua and Barbuda in urgent, meaningful and constructive negotiations to arrive at a mutually acceptable settlement."

True to their word, nations of the Caribbean Community rallied behind Antigua and Barbuda at their meeting with the WTO Dispute Settlement Body in support of the territory's calls for compensation from the United States, which took place on February 27, 2013.

On behalf of Antigua and Barbuda, Dominica echoed Antigua and Barbuda's "disappointment" at the lack of compliance by the United States and its failure to identify a single measure designed to implement the DSB's recommendations and rulings. Antigua and Barbuda voiced concern that, at the January 2013 DSB meeting, the US had used terms such as "theft of intellectual property" and "government-authorized piracy" in relation to the lawful and expressly-authorized use of trade remedies provided for in WTO agreements.

Antigua and Barbuda argued at the DSB meeting that the use of such "intemperate and dismissive language" by the US was a "fundamental challenge to the WTO and a reputational assault both on the DSB" and its decision to grant the remedial measures to Antigua and Barbuda. The Caribbean nation called on WTO members to defend the fundamental principles "to ensure that WTO rulings are applied equally by all countries despite their size."

Trinidad and Tobago (speaking on behalf of CARICOM), Haiti, Jamaica and Barbados, supported the statement made by Dominica on behalf of Antigua and Barbuda. Brazil, Cuba and China also supported Antigua and Barbuda and urged the US to engage with Antigua and Barbuda to reach an amicable resolution to the dispute.

In its response, the United States noted that Antigua and Barbuda had assured the DSB that it would notify and provide specific details about how it would implement the suspension of concessions and that Antigua and Barbuda would not encourage or allow itself to become a haven for Intellectual Property piracy.

However, unsurprisingly, with regard to the status of the dispute, the US did not agree with Antigua and Barbuda's view that the US had been unwilling to negotiate in good faith. The US argued that it had followed the established, multilateral WTO process for responding to the DSB's findings, and had tackled the offending legislation since 2007.

The US reiterated that it had offered substantial compensatory adjustments in other service areas and every member had agreed to the compensation package except Antigua and Barbuda. It added that it had also sought to offer Antigua and Barbuda elements other than new services concessions, and said it "remained open and ready to engage with Antigua and Barbuda to find a solution."

Nevertheless, at the next DSB meeting on March 26, 2013, Dominica, on behalf of Antigua and Barbuda, warned that the territory would carry out its threat to impose the compensatory measures granted by the WTO on January 28, 2013, involving the sale of US-copyrighted items without the payment of rights usage, if an alternative resolution with the United States fails to be agreed.

Dominica told the Dispute Settlement Body that: "Antigua and Barbuda had not seen any substantial progress on the part of the US to comply with the DSB's recommendations and rulings nor to reach a settlement with Antigua and Barbuda." Dominica relayed that Antigua and Barbuda wished to appeal to the United States to "make one last effort at resolving the matter and avoiding unpredictable consequences," given that the measures would be unprecedented.

These pleas seemingly continued to fall on deaf ears however, as evidenced by Antigua's approach to Vice-President Joe Biden to intervene in the dispute.

Prime Minister of Antigua and Barbuda, Baldwin Spencer, said he came away from a recent meeting between leaders of the Caribbean Community and the Dominican Republic and US Vice President Joe Biden encouraged about the prospects in the cross-border gaming dispute between Antigua and Barbuda and the US.

Urging Vice-President Biden to use his influence in the Administration of President Obama to expedite a resolution to the long-running dispute, Spencer said that: "I came away from the meeting feeling more encouraged than I have before. I think we were able to use the opportunity of this meeting with US Vice President Joe Biden to bring our case more sharply into focus with the US administration and to gain momentum for a final settlement."

The prime minister said he expected that the negotiations under way with the US Trade Representative would accelerate and that new and innovative proposals would be tabled in the search for a solution. This appears not to have been the case, however.

US To Legalize Online Gambling?

In the end, it might be a more liberal stance by Congress on internet gambling that is the key to bringing this dispute to a close, rather than Antigua's fruitless recourse to legal mechanisms.

Speaking to local and regional media in July 2013, Mark Mendel, lead counsel for Antigua and Barbuda in the matter, said that the increased push by American legislators to legalize online gambling within the United States borders bodes well for Antigua and Barbuda.

"This is of considerable benefit to us...It vindicates what we have said all along," he remarked.

Mendel was referencing a new Bill introduced by US Congressman Peter King in June 2013. If passed, the Internet Gambling Regulation, Consumer Protection and Enforcement Act of 2013 would legalise online gambling in the US at the federal level.

The legislation would also allow US states, including New Jersey, Delaware and Nevada — all of which have legalized internet gambling, in some form — to continue to offer these services.

Mendel, who has led the dispute for ten years, said these recent efforts by US legislators weaken the nation's previous stance that they were "adverse to gambling."

"Now that they are moving in that direction themselves, forcefully...that pretty much completely takes away their formal defence at the WTO," the attorney declared.

Noted financial service firm Morgan Stanley has also predicted a change in fortunes for the US's online gambling sector, forecasting the industry would be worth USD9.3bn by 2020 in a recent report. This would top the combined earnings of both Las Vegas and Atlantic City in 2012.

The Ireland-based attorney said these new revelations have also compelled the international community to rally behind Antigua and Barbuda's call for an equitable resolution in the matter.

He said this was evident at the previous month's meeting of the WTO Dispute Settlement Body where the nation garnered significant support.

"Different countries (are) standing up and telling the Americans that they have to comply with the rulings and negotiate with us fairly. I think it has made a very big difference in that regard," Mendel said.

Mendel named Venezuela, Brazil and China, along with other Caricom and European countries, as supporters of Antigua and Barbuda's attempts to seek a resolution to the decade old trade dispute.

However, Mendel assured the panel the twin-island nation is now more determined than ever to resolve the trade dispute promptly.

Although he stressed negotiation is the preferred route, a six-month plan has already been developed, outlining steps towards suspending and monetizing the nations' right to disregard certain US intellectual property rights.

"We have been as kind and gentle and patient as you could expect a government to be over ten years and it hasn't gotten them (the US) in the mode of actually negotiating fairly. This is the way to make that happen," Mendel said.

Antigua's Patience Wears Thin

In July 2013, Antigua and Barbuda signalled that its substantial reserves of patience were finally running out, and the Government announced on July 17 the formation of a select committee charged with overseeing the suspension of certain concessions and other obligations relating to United States intellectual property rights as sanctioned by the WTO in January 2013.

The seven-member WTO Remedies Implementation Committee (RIC), chaired by Antiguan Attorney General Mr Justin Simon QC, is responsible for directing the Government's plan to build the framework necessary to suspend selected US intellectual property rights to the tune of USD21m per year, effective from April, 2006.

"I am very pleased with the composition of our implementation committee," said Attorney General Simon, "as it clearly has the expertise that we will need to cover all the bases in the development and implementation of our WTO-approved remedies. I am asking the committee to work with me expeditiously to ensure prompt and proper use of this valuable right."

Mr Simon further observed that in addition to devising the implementation scheme, the RIC would also ensure that Antigua and Barbuda would do so in full compliance with all applicable international and domestic laws that might relate to the suspension of the intellectual property rights.

"We have been seeking a fair and reasonable compromise of this matter since the day we brought the case," added Attorney General Simon, "but unfortunately the United States has not yet put a fair settlement offer on the table. Whether or not recourse to these remedies will convince it otherwise, in any event, at least there will be some substantial compensation to Antigua and Barbuda as the IP suspensions are implemented."

The RIC held its inaugural meeting on Friday August 9, 2013, after which Mr Simon stated the Committee had agreed upon a work plan and had apportioned different areas of responsibility to members according to the members' expertise and interests.

He indicated that, because this would be the first time that this type of trade sanction is implemented, there is very little legal precedent to which the Committee may refer. Simon explained that the Committee would be examining issues of both domestic and international law in relation to intellectual property, and that certain members of staff at the Ministry of Legal Affairs would be closely involved with the exercise.

"The implementation of trade remedies awarded by the WTO is an important international responsibility," stated Attorney-General Simon, "and we believe that it is important for us to get it right."

What Next?

Speaking before the United Nations General Assembly in September 2013, Prime Minister Spencer warned that the US's refusal to adhere to the WTO ruling has "the potential to damage the credibility" of the WTO itself.

"We call on the United States to correct past wrongs and to come to the table with meaningful proposals that can bring this matter to a just conclusion," said Spencer, noting that his nation has lost thousands of jobs as a result of the dispute and had until now employed "strategic patience" with the US.

However, all the evidence so far suggests that, barring a dramatic change of heart, the US is unlikely to change its stance. Antigua and Barbuda has had legal backing in this dispute from the WTO for 10 years now.


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