SMALL NATIONS CAN WIELD BIG STICKS

21 September 2007

Silicon Valley and Hollywood lobbying US government over possible WTO consequences


The World Trade Organisation dispute which the tiny island nation of Antigua has won against the unbalanced posture of the United States on Internet gambling has generated mainstream world press coverage for the pastime like never before, and continues to do so.

This week, a Newsweek report on the David vs. Goliath nature of a struggle that has the United States on the back foot was picked up by several leading mainstream publications, again drawing attention to the consequences for the American government of taking the unprecedented step of withdrawing its WTO treaty obligations agreed in the Uruguay Round.

Titled "The Caribbean Hold 'Em," the Newsweek piece recaps the events leading to today's situation (see previous InfoPowa reports) and opines that the issue has proved that small nations can wield large digital sticks.

The final WTO ruling, which the organisation is expected to begin enforcing next month, could oblige America to overhaul its prohibitive stance on online casinos, not just in relation to Antigua but to a host of others—including the EU, Japan and Australia, reports Newsweek.

That would double the size of the $15 billion-a-year online gaming industry almost overnight, it quotes the Safe and Secure Internet Gambling Initiative, a pro-gaming pressure group. And since the WTO might allow nations that have been hurt by U.S. gaming laws to flout American intellectual-property law in response, the dispute is already spreading to Hollywood, Silicon Valley and beyond.

The article quotes now internationally known Antigua legal representative Mark Mendel: "I was laughed at when I first brought the case. They totally underestimated me."

More important, the United States underestimated the remarkable power that even tiny countries wield in today's digitised global economy. Usually, when trade laws are broken, the WTO allows export sanctions to be imposed on the violating nation. But since Antigua hardly has the muscle to bring any meaningful sanctions against the United States, trade experts expect that the WTO will likely take another approach and allow Antigua to flout intellectual-property law.

If America doesn't fold on gaming, opines Newsweek, next year Antiguans could well be selling billions of dollars of legally pirated copies of everything from Microsoft software to Disney movies without paying the copyright owners a penny.

"Intellectual property is the perfect sanction item," says Nao Matsukata, a former senior trade official for the United States. "It gives small countries like Antigua absolute leverage." The WTO has allowed the use of IP as a stick once before, in the famous EU-Ecuador banana squabble (the threat of it was enough to make the EU cut a deal). But experts expect it will become common policy in the future, and see online gaming as a test case for its effectiveness.

It's no surprise that lobbyists from Silicon Valley and Hollywood are now storming Capitol Hill, pushing for a deal. Last month the Motion Picture Association of America urged the U.S. trade representative to negotiate with Antigua in order to prevent bootlegging.
But the Bush administration is staunchly refusing to bend on virtual gaming. The (surprisingly weak) legal line is that America never intended to include gambling under its WTO obligations, which were signed in the mid-1990s.

No dice, says the WTO. "The United States has a legal commitment; they can't just say 'oops' and be done with it. What kind of precedent would that set?" asks one WTO insider, who spoke to Newsweek on condition of anonymity because he did not want to be quoted discussing an ongoing case.

Ultimately, this leaves the United States with a very weak hand to play. It could continue to deny that the WTO has legislation over its internal gambling laws. But that would undermine the overall credibility of the organization by showing it to be unable to enforce its rulings—and America needs a strong WTO to mediate prickly conflicts with, say, China, over things like Internet censorship and the mass manufacturing of fake designer goods.

Eight other WTO members, including the European Union, Australia and Japan, are now lining up to claim compensation from the United States over online gaming.

"The EU is almost licking its chops," Antigua's lawyer Mendel told Newsweek. "In total, this could come to $100 billion in sanctions. "
He added that giant American bricks-and-mortar casinos like Harrah's and MGM are making plans to move into the online sector as soon as the U.S. trade stance becomes clear.

They could get a sign as early as this week. September 22 is the first WTO deadline for America to cut a deal with Antigua and the other nations. But one WTO insider predicts that the only announcement on that day will be that the deadline has been extended.
"This won't happen fast; America is going to dig its heels in," says Sallie James, trade-policy analyst at Washington's Cato Institute. "But if I had to bet, I would say that by this time next year America will have changed its laws." And in this case, that means all bets will be on.

Online Casino News courtesy of InfoPowa