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David and Goliath

Remember that great story you learnt at Sunday School, about the little guy with the slingshot who took down the big bully with a single stone to a part of his anatomy where it really hurts? Well, its happening right here in the Caribbean.

In the 21st century Caribbean version of the timeless Biblical story, the little guy is Antigua and Barbuda; the big bully is the United States; the slingshot is the World Trade Organisation and the stone is international trade law.

And the place that really hurts could be the multi-billion dollar US music and film industry.

On January 28 the WTO Disputes Settlement Body agreed to a petition from Antigua and Barbuda to suspend application of US Intellectual Property laws in retaliation for the failure of the United States to comply with WTO rulings on the illegality of US prohibitions of Internet gambling (see following story).

The US actions have devastated what used to be a thriving offshore gaming industry that earned Antigua and Barbuda thousands of jobs and millions of dollars in government revenues.

“The irony is rich, rich, rich”, Ms. Lori Wallach, a leading consumer rights advocate in the United States, is quoted as saying by the New York Times.

How so? Well back in 1994, when the WTO was being set up, it was the United States who insisted on the inclusion of the cross-retaliation provision that Antigua and Barbuda is now using against it.

The effect of this provision is that countries that are found to be in violation of WTO rules, and which refuse to comply with the rulings of the WTO DSB, can be punished by the aggrieved country with trade sanctions in another area of their commercial relations.

Its like telling a student that is found to be cheating in his Chemistry exam that he can’t play on the school football team, even if he is the star player-and the only thing that football and Chemistry examinations have in common is that they are both governed by school rules.

As the world’s largest economy, the United States was uniquely positioned to impose punitive trade sanctions on other WTO members, secure in the knowledge that the ability of other nations to hurt it in return was moderated by the realities of asymmetrical trade power.

The US successfully used cross-retaliation against the EU, for instance, to force the latter to comply with WTO rulings on bananas; rulings that pretty much destroyed the banana industries in the Eastern Caribbean-so that US multinationals could get access to the EU market.

Who would have thought that the tiny nation of Antigua and Barbuda, with one of the world’s smallest economies, could hurt the economy of the United States?

After all, its economy is 1/13409th the size of the US’s. (Its easier to say that the US economy is 13,409 times that of Antigua and Barbuda’s).

But Antigua and Barbuda have found a way of hitting back. Copyright industries is one of the biggest earners for the US economy. The Internet is ubiquitous, and its power grows, exponentially, every single day. Enforcement of US copyright law by foreign countries is a major issue for the US-remember that “Warning Notice” at the beginning of the last DVD movie that you watched, threatening you with fines and imprisonment?

US officials are warning of all kinds of dire consequences. But Antigua and Barbuda officials believe that they have right-and international trade law-on their side. They are planning to use the latest DSB ruling to pressure the US into serious negotiations.

David has found the right slingshot and a stone that, if not lethal, has the potential to cause serious haemorrhage. And he is winding it up; looking Goliath square in the face; and saying he is prepared to use it, if Goliath doesn’t play by the rules.

And Goliath is fuming. But the fact is, the slingshot and the stone have been approved by the referees-and the rules were Goliath’s own idea.

WTO: Antigua To Retaliate Against US By Suspending IP Rights Protection

By William New, Intellectual Property Watch

After years of unsuccessful negotiations between nations, the World Trade Organization Dispute Settlement Body today gave Antigua and Barbuda the right to impose sanctions against the United States for blocking online gambling. The US was found in violation of WTO rules in 2007 and has failed to resolve the issue, so the Caribbean nation was given the right to retaliate in an area that is likely to force a US response: lifting US intellectual property rights. [Update: US DSB statement added]

At the DSB meeting today, it was announced that the DSB agreed to the request by Antigua and Barbuda for authorization to apply sanctions against the US consistent with the arbitrator decision on the dispute concerning the cross-border supply of gambling and betting services, according to sources.

Antigua and Barbuda said in its statement to the DSB that it has lost billions of dollars and thousands of jobs, that it has been “patient, open and creative,” and has never received a settlement proposal from the US. “They have simply failed to respond or do anything,” it said. The country said that the retaliation against US IP rights is sanctioned and not piracy, as the US is trying to make it out to be.

The amount of sanctions requested by Antigua and Barbuda cannot exceed US$21 million annually. The violation was of the General Agreement on Trade in Services (GATS), but as the small country has little to sanction in that area without doing harm to itself, it was permitted to cross-retaliate under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The related WTO documents are WT/DS285/25 and WT/DS285/ARB.

Antigua and Barbuda in its statement rejected as “disingenuous” and an “unhelpful red herring” the US argument that the commitment in relation to gambling in the US GATS (services) schedule was an error or was unintentional. And it said it will apply the suspension of concessions and other obligations “in a reasonable and responsible manner”.

And it rejected US arguments that it has banned all online gambling for health and safety reasons because of its pernicious nature, as it said the industry could be regulated. But it especially took issue with assertions that it will be engaging in piracy.

“To accuse our country of somehow being an International outlier by doing what the rules provide we can do, while at the same time confiscating the money of our operators held in global accounts and subjecting our operators to prison terms under laws held inconsistent with GATS pretty much beggars belief,” it said.

Dominica, on behalf of the Organization of Eastern Caribbean States (OECS) members, made a statement in support of Antigua and Barbuda.

Antigua and Barbuda issued a press release, available here.

[Update:] The United States, in its statement to the DSB, available here [pdf, see item 6], called withdrawal of Antigua and Barbuda’s obligations under the intellectual property agreement “theft” and “government-authorised piracy.” It said it has offered “real and substantial benefits” to Antigua and Barbuda.

The US expressed disappointment with Antigua and Barbuda’s “misplaced decision to abandon constructive settlement discussions.” It said it understood the two sides to be “making progress on a settlement that would bring real benefits to Antigua.” But a crux of the US position in the case is that it “never intended gambling and betting services to be included in its schedule under the GATS.” With GATS, countries volunteered commitments in different areas at the time of negotiation.

“As a result of ambiguities in drafting, and despite the intent of the U.S. negotiators, the Appellate Body ultimately found that the U.S. schedule must be construed as including a market access commitment for cross-border gambling.” It said it has accepted the results of the DSB and has responded responsibly. It has reached agreement will interested WTO members, except Antigua and Barbuda, on a compensation package of adjustments to the US GATS schedule. It warned Antigua and Barbuda that proceeding with sanctions will undermine chances for a settlement and impede foreign investment in the country. [end update]

Steve Metalitz, counsel to International Intellectual Property Alliance, a major US content industry group, said in a statement: “We are of the firm view that suspending intellectual property rights is not the right solution, and that state sanctioned theft is an affront to any society. Should Antigua determine to move forward in this manner, it would certainly interfere with the ability to reach a negotiated resolution, and would harm the interests of Antiguans.” But he did not give any indication why Antigua and Barbuda should believe more progress will be made now than in the past five years.

The country had a response to this in its statement. “[N]o longer can we, or of most importance, our citizens, be placated with empty promises and dissembling,” it said. “If the United States wants to avoid the consequences of our resort to our rights under the DSU [WTO Dispute Settlement Understanding], we would encourage them to act, and act quickly.” has prepared an analysis of the decision, here. It says Antigua will set up a website offering infringing American content.