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An Interview with Antigua Lawyer Mark Mendel...By Hartley Henderson

Last December the WTO issued its ruling which allowed Antigua to suspend U.S. intellectual property rights to a value of $21 million. Since then Antigua and the United States have been in on again/off again talks, but to date there has been no action by either side. Antigua still hasn't acted on the suspension of property rights, the United States still hasn't made any efforts to change its commitments, and the whole issue appears to be at a standstill. Many, including myself, believed that Antigua was waiting to see if the new government would take a different approach to the trade issue. And the United States clearly didn't feel it was a pressing issue to settle before George W. Bush left office. Furthermore, there have been numerous calls by those in Congress who are requesting the USTR to explain exactly what is being conceded by the country to those who received compensation in exchange for allowing the U.S. to rewrite its commitments. With Obama now in power, I thought it would be a good idea to find out from Antigua's lawyer what the current siuation is regarding the U.S. agreements and what the future likely holds.

For those who are not familiar with the issue, here is the Cliff's Notes version. When it became evident in the early 2000s that the United States was not going to open its market to online gambling companies offshore, Antigua decided to explore its options. After all, gambling was the mainstay of the Antiguan economy and the U.S. market was of paramount importance to its success. Antigua went to the WTO and argued that the United States was in violation of a commitment it made under GATS, and in 2004 the WTO agreed and found the U.S. in violation of Section 10d of GATS which required the U.S. to open its markets to other recreational products, which included gambling. The U.S. refused to accept the decision and simply made the comment that the WTO was wrong and they had the right not to allow gambling on moral grounds. The country appealed to the WTO Appellate Court, who in 2005 upheld the dispute panel's decision and found that the United States' refusal to allow gambling services was protectionist, especially given the fact that the United States offered remote gambling in the country for horse racing. The WTO told the United States it could invoke the "morals" clause if it revoked the Interstate Horse Racing Act. Needless to say, the horsemen were livid and told them they would give up the act "over our dead bodies."

The U.S. did nothing for almost a year, and then in 2006 announced it was in compliance with the ruling despite doing nothing over that period. They didn't revoke the Interstate Horse Racing Act and they certainly didn't open the market to Antigua which the WTO said was the only way the U.S. could be compliant. In March 2007 the WTO found the U.S. to have ignored its ruling and announced that Antigua had the right to impose trade sanctions against the U.S. until it did become compliant with its ruling. The U.S. conceded defeat, but then announced that rather than trying to live up to its agreement it was taking the unprecedented step of withdrawing its commitments. By doing so it had to not only compensate Antigua, but all other nations that could become affected by the decision. The EU, Canada, India, Macao, Japan, Costa Rica and Australia asked for compensation. To date the country has reached agreements with all but India, Costa Rica and Antigua. Furthermore, Antigua was entitled to compensation because it was damaged by the U.S. cutting out its market, and the country asked for $3.4 billion in annual compensation. In December of 2008 the WTO made its decision and awarded Antigua $21 million per year. Mark Mendel and Antigua were upset at the low figure, although the WTO did allow them to apply this decision by ignoring U.S. copyrights and intellectual property rights as Antigua requested. Hence Antigua has the ability to apply its decision by selling fully legal DVDs, CDs, and software for pennies per copy.

That WTO compensation decision is now more than a year old, so I decided to discuss the issue with Mark Mendel. My questions are listed in bold, followed by Mr. Mendel's response in italics.

What is the current status of the WTO case? We keep hearing Antigua is close to an agreement with the U.S. But short of backing off and opening its markets, what would satisfy Antigua ?

The case remains suspended while Antigua and the United States pursue settlement talks. Antigua still retains its ability to contest the withdrawal of the American commitment to the provisions of cross-border gambling and betting services, and it still has the right to suspend United States intellectual property rights. However, the Antiguan government has decided to exhaust its settlement options prior to taking any further WTO action. What would satisfy Antigua is a veritable moveable feast . . . or perhaps an algebraic equation . . . it all depends on what is on offer, but at the end of the day it has to be reasonable under all of the circumstances. Contrary to public rumour, Antigua has never insisted on full market access. A compromise usually involves compromise by everyone, and I think Antigua understands that.

What do you make of the USTR refusing to provide any information on agreements signed, citing national security? Can you fathom any reason there can be a security concern if they reveal what exact concessions were given to the EU, Japan and Canada ?

I am told that the Bush Administration, pretty routinely refused to disclose all kinds of information on that basis, and perhaps there is nothing here more than the common, arrogant practices of that regime. However, I personally believe that the United States made various concessions to those trading partners that have little or nothing to do with the WTO or trade law that went far from the scope of the proposed United States "concessions" in order to be able to get a smooth withdrawal of the gambling concession. Quite likely, the government doesn't want those ostensibly unrelated concessions to become public knowledge.

What do you make of Peter Mandelson and the RGA constantly complaining to the WTO that the United States is discriminating against the EU? It seems they are changing their minds about allowing the U.S. to withdraw its commitments. What is your feeling?

Peter Mandelson is no longer at the EC, and I am not sure whether his successor has picked up the ball on this, but I have not heard anything, anyway. I have never understood the EC claim that was being pushed by the RGA. If the EC had a complaint, then it should not have agreed to allow withdrawal of the commitment. Once the commitment goes, all WTO claims with respect to the withdrawn commitment go (other than ours, of course, as it was filed and finally adjudicated prior to any withdrawal) and the WTO has no remedy for past acts. I have asked EC people on a number of occasions to explain to me what the point of this "investigation" is, given that they have no remedy and have yet to get an answer that makes any sense.

A new government means a new USTR. Do you, Errol Cort or anyone else have meetings scheduled regarding the issue with the new government and trade representatives?

We don't have meetings scheduled yet, but hope to in the near future. We have high hopes that the new moral tone of this administration might make it more inclined to honour its trade obligations, particularly with small, developing countries. Or, if honouring the obligation as written is not possible, one would think that the new administration at least would believe in some modicum of fairness in addressing Antigua 's claim for compensation or realizable compensatory adjustments.

It is common knowledge that intrastate poker will begin in California any time now, and likely interstate poker, lotteries and possibly casinos. The ruling of the WTO was based solely on what Antigua hypothetically could have made from remote horse racing. If the network starts up can Antigua go back to the WTO and say something like "see, it is strictly protectionism and horse racing is a very small part of the equation?" If so, what can the WTO do about it?

The fundamental WTO ruling was NOT dependent upon horse racing-a very common misconception. The universally (almost) reviled arbitration decision with regard to Antigua's temporary sanctions hypothesised that the United States might come into compliance by allowing Antigua access to horse race gaming, but that was clearly erroneous and will most likely never be followed. What we could do, however, as more and more remote gambling comes down the pipe, would be to file another case against the United States, something that would be very (relatively speaking, that is!) easy given all of the trailblazing we have done on this case. As long as we prevent the withdrawal of the commitment, a new or renewed case against the United States would be a slam-dunk, given all that has happened since our original case. It has only gotten clearer that the United States does not prohibit remote gambling, per se, and that it has erected trade barriers against other countries to protect its domestic markets. The UIGEA would never pass a review at the WTO.

Despite all that happened, few companies have pulled out of Antigua (other than the ones who left when the UIGEA passed) and now Antigua has received a white listing. What can Antigua do to try and convince new companies to set up shop? What marketing plans, if any, are in store?

I think the Antiguan Directorate of Gaming has been working hard to market the jurisdiction as a world-class, tax free jurisdiction for operators who may want to face Europe and Asia. It makes complete sense for a remote gaming operator serving the European market to get the tax advantage by locating in Antigua. Also, Antigua already has a highly qualified work force able to staff up new entrants with minimal recruiting and training efforts required.

Any idea what the current situation is with Kentucky trying to steal the domain names of many Antiguan gambling companies?

I am sure you have heard of the recent decision. Although a successful result, the decision itself was very narrow and could result in a replay of the entire thing if the Kentucky legislature takes the hint and changes the applicable statute. The problem is, that may NOT in fact change the outcome, or it may, as the court failed to rule on the most difficult legal issues given that it could dismiss on the easiest.

Payment systems are still the big hindrance for the industry and Antiguan banks seem to have been black listed. Is there anything Antigua can do to try and get recognized again by US banks?

The heavy hand of the United States government is basically being applied to United States banks to get them to violate International law with respect to Antiguan banks. I think Antigua has an excellent WTO case against the United States for how it has coerced its domestic banks to avoid doing business with Antigua-particularly as it all relates to remote gaming. I think that maybe diplomatic initiatives will have to be undertaken by the Antiguan government to the new administration to see if some of this terrible economic warfare can be ended.

This has been going on for almost 7 years. What errors either in action or judgement do you think you and/or Antigua made and what would you have done differently in hindsight?

While we have made plenty of errors along the way and spun a lot of worthless wheels, I think our fundamental approaches to the legal issues and tactical decisions on the case were sound. Although we thought it was possible, I think we underestimated the political nature of the WTO, and I think the decisions in our case were more opaque than they needed to be in an effort to assuage the United States under circumstances where the law and the facts were clearly on our side. We lost on some points in the case that had there truly been a level playing field we would have never lost on. The faulty arbitration decision on the retaliation was, I firmly believe, imposed by the political machinery at the highest level. That being said, I don't know where else in the world we would have prevailed as we did, so while politics are important at the WTO, they are not the deciding factor.

When do you believe this will finally be wrapped up, and do you believe it will be because the US changes its commitments or because they open the markets to remote gambling, which is just too lucrative to deny forever?

Well, no doubt they will soon be opening the domestic markets to pretty much full remote gambling, whether done on a (stupidly) state-by-state basis or a national one. It is absurd that the federal government continues to view gambling as a non-commercial activity that the states themselves can regulate. It is interstate and international commerce, and the states have no business regulating it under the terms of the United States Constitution. With respect to foreign access, my guess is that even an enlightened Obama administration will be hard-pressed to abandon the withdrawal of the commitment, and access by other countries is going to continue to be prohibited, or at least much restricted. Hopefully, we can influence that, or at least get some decent access for Antiguan operators.

Thank you for your time and comments.

Hartley Henderson

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