US faces $21 mn penalty on e-gambling ban

A World Trade Organization (WTO) arbitrator on Friday pronounced that Antigua and Barbuda can slap trade retaliatory measures against the world's mightiest power - the United States - to the tune of $21 million because of the loss of benefits the two countries suffered due to the restrictions imposed by Washington on cross-border supply of gambling and betting services on the Internet.

In addition to $21 million, the US also has to offer compensation package to eight countries, including India, the European Union (EU), Canada, Costa Rica, Macao, Japan and Australia among others, due to its decision to modify its Uruguay Round services commitments that allowed cross-border trade in gambling and betting services on the Internet.

In return, the US has offered to lift restrictions on outsourcing of research and development (R&D) activities as well as services relating to storage, warehousing and technical standards.

So far, the EU and Canada have agreed with the American package of concessions while India, Macao and Costa Rica are yet to take a final decision to agree with Washington.

But in the wake of the latest award, India might find it difficult to get more than what the US had offered in outsourcing of R&D activities, analysts said.

In 2005, the WTO's dispute settlement body recommended that the US should not discriminate the foreign suppliers of betting and gambling services on the Internet in relation to its domestic service suppliers.

It had ruled that Washington must treat both domestic and foreign suppliers of betting and gambling services on the same footing.

However, the US chose to change its services commitments instead of complying with the ruling, a move that prompted Antigua and Barbuda to take recourse to trade retaliatory measures.

In a trade dispute that has serious systemic repercussions, Antigua and Barbuda, which depend largely on the incomes generated from gambling and betting services on the Internet, have demanded that they be allowed to impose $3.4 billion in trade sanctions against the US.

The US, however, maintained that the loss suffered by the two countries would not be more than $500,000.

In the face of these demands, a three-member arbitration panel ruled that "the annual level of nullification or impairment of benefits accruing to Antigua and Barbuda in this case is $21 million" and the two countries can "can suspend the obligations under the TRIPS (trade-related intellectual property rights) Agreement".

Effectively, the arbitration panel suggested that the direct loss of activities because of the restrictions imposed Washington on Internet gambling services on Antigua and Barbuda is $21 million that can be denied to Washington through retaliatory measures on American CDs and DVDs, trade diplomats said.