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Antigua & EU Ask for Compensation as Deadline Approaches...By Hartley Henderson

The Antiguan government today announced its intention to seek compensation as a result of the United States' decision to withdraw its GATS commitment regarding foreign gambling services. The amount specified by the lawyers for Antigua was $3.4 billion per year based on the number of gambling companies who likely would have set up on the island had the United States lived up to its agreement. While the number of gambling sites set up in Antigua has declined in the last few years, the potential number of Antiguan licensees could have been in the thousands if the U.S. market were opened to remote foreign gambling. Based on the cost of a license to operate a casino or sportsbook in Antigua along with the additional revenues brought in from these licensees, the amount being sought is not unreasonable. After all, the WTO is concerned with "potential" revenues lost.

Yesterday the European Union also stated it would be seeking compensation for the U.S.'s decision to withdraw its commitments. While many believe the decision was a form of payback to the United States for its foreign policies, the truth is that their decision was purely economics. Various EU companies had to withdraw services to the United States after the United States rammed through the UIGEA and many more companies never actually catered to the U.S. market although they had planned to if and when the climate changed towards online gambling. The most notable publicly traded European companies that were forced to withdraw services were Party Poker, BetOnSports and NETeller. William Hill and Victor Chandler also catered to the U.S. market for a short period of time, but left when the United States made threats. Just as important as those who withdrew, however, are the companies that could have made a major impact if they were allowed to cater to the United States market, such as Betfair (UK) and Bwin (Austria) which are two of the fastest growing gambling operators in the world. The amount of compensation the EU is seeking hasn't been specified, although unofficial banter has that amount at around $15 billion.

As well, to date India and Costa Rica have made filings and it is suspected that Brazil and several other countries will follow suit. The deadline to file a claim for compensation is this Friday (June 22nd), but any country that files a claim doesn't have to immediately specify an amount. A simple two-paragraph letter to the WTO stating that the country will be seeking compensation is sufficient. If a country does not submit a claim by June 22nd, then they cannot later seek compensation should they change its mind. No doubt many WTO members are currently discussing the situation and determining whether it is in their financial interests to submit a claim. As with any trade deadline, it shouldn't be surprising to see a flurry of last minute submissions. One country that is unlikely to seek compensation is Canada. In spite of the fact that Canada has a foreign gambling entity catering to the United States on the native reserve of Kahnawake, and in spite of the fact that Canada was railroaded into signing a lesser deal with the United States on softwood lumber than the WTO demanded, the current Canadian Conservative government is trying to cozy up to the United States to offset some bad vibes that were left by the previous Liberal government. Consequently, Canada likely will not want to ruffle more feathers by submitting a claim, although in the end they may regret not doing so.

Two countries which many involved in the dispute will be looking closely at are China and Japan. Neither country has a thriving foreign gambling market, and in fact gambling is illegal in China. However, as stated earlier, the WTO is only concerned with potential revenue and China is always opening new venues, which were illegal at one time there. Furthermore, most people in China gamble and the government is well aware of it; they simply turn a blind eye to the activity. The island of Macau has become one of the richest in the world almost exclusively as a result of betting from China and Hong Kong. So it is not inconceivable that the Chinese government at some point may have intended to offer gambling services to the United States to raise money for its economy. Don't forget, even if the activity is illegal in one's own country, it doesn't preclude that country from offering the service to another country, if that country allows it. Given the number of Asian citizens in the United States and their penchant for gambling, the potential revenue is almost incalculable for Asian based online games like MahJongg, Chinese Poker or Pai Gow, not to mention the games U.S. citizens are more accustomed to like blackjack, poker and sports betting. But more importantly to the USTR, if China does submit a claim, the U.S. has to take it seriously since the USTR has been demanding that China open up more of its markets to the world. If the United States is so hypocritical to demand markets be opened with one side of its mouth while suggesting other U.S. markets need to be closed with the other, it doesn't instill confidence with the Chinese government regarding USTR sincerity. If China does indeed submit a claim, the amount they ask for could make the amounts demanded by the EU and Antigua look like chump change. As for Japan, they still remember well when the USTR forced their country to purchase American vehicles the country didn't need or want, which eventually Japan just dumped.

This is a fairly new development as only one other time has a country reneged on a WTO commitment and that case was much smaller. So the exact way compensation will be delivered is unsure. One thing that is certain is that the compensation will not be monetary, nor will it involve other gambling services. As such, the WTO will likely require the U.S. to open other markets that it currently has protected. Antigua has asked for the suspension of intellectual property rights, copyrights and patents, meaning that products could legally be purchased from that country without Antigua having to give back anything to the developers. So Americans and others around the world could effectively purchase Microsoft Office from Antigua for say $5 and have a perfectly valid license free from concerns of being arrested for having pirated copies. These would be, after all, legitimate copies of software. As well, the country could set up a perfectly legal version of iTunes that offers songs at say 2 cents each, full CDs for a buck or even peanuts for the hardware it goes on. As a spokesman for Antigua said to me: "$3.5 billion is a lot of cheap iPods." The EU may also try and open up similar avenues although they are more likely to go after U.S. agricultural products which are heavily subsidized and which the U.S. and E.U. have been battling about for years. China will probably go after everything. The bottom line, as Mark Mendel stated to me, is: "innocent sectors of the U.S. economy are going to suffer as a result of their precipitous action."

At the GIGSE conference in June, Mark Mendel told the audience that he suspected that the USTR was simply floating the idea of withdrawing its commitments as a trial balloon to see how other countries would react and see if it would really cost them anything in the end. If that was indeed the case, the balloon just popped. Before numerous U.S. companies, farmers and ordinary citizens get hurt as a result of some sort of moral decision that makes absolutely no sense given the prevalence of gambling in the United States, it's time for the USTR to sit down with the WTO and Antigua and work out a more reasonable solution than the cynical one they have chosen. It can start by looking more seriously at Shelley Berkley's proposal.

Hartley Henderson

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