Jan 282013
 

wto-logoToday the government of Antigua is seeking final WTO authorization to launch a website that will sell copyright-infringing content without paying American rightholders in retaliation for the U.S.’s violation of the WTO General Agreement on Trade in Services.   The U.S. decision to discriminate against offshore operators of online gambling websites “devastated” the Antiguan online gaming industry – formerly valued at $3.4 billion and employing 4,000 people. The WTO has already ruled that the U.S. has violated the agreement by prohibiting online gambling on websites hosted offshore.   WTO documents summarizing the dispute are available here.

According to a press release from the government of Antigua:

Antigua is seeking final WTO approval of its sanctions in order to compel the United States to either comply with the rulings in Antigua’s favor in the gambling dispute or to negotiate a fair and reasonable solution with the Antiguan Government. The remedy is expressly provided for under WTO law and, contrary to what the United States has publicly stated, will not constitute “piracy” or theft of intellectual property rights. Rather, it will be a lawful suspension of intellectual property rights, conforming to the judgment of the relevant WTO tribunal.

Under Article 22.3 of the WTO Dispute Settlement Understanding, a country such as Antigua that has been harmed by a violation of a WTO agreement may – in certain circumstances – retaliate against the other country by withholding benefits under a different WTO Agreement (such as TRIPS).  As described in a WTO briefing note from the 2003 Cancun Ministerial:

The phrase “cross-retaliation” does not appear in the Dispute Settlement Understanding, but is shorthand to describe a situation where the complaining country retaliates (i.e. suspends concessions or other obligations) under a sector or an agreement which has not been violated by the defending country. The circumstances under which cross-retaliation can be authorized are explained in the agreement’s Article 22.3. In preparing its request for authorization by the Dispute Settlement Body to suspend concessions or other obligations (i.e. to retaliate), the complaining country should first seek to retaliate in the same sector where the violation has occurred. If that is not practicable or effective it can seek to retaliate in another sector but under the same agreement where the violation has occurred. And if that is also impracticable or ineffective it can seek to retaliate under another agreement.

Antigua applied for permission to cross retaliate under Article 22, and in 2007, a WTO arbitrator found that Antigua could “seek to suspend obligations under the TRIPS Agreement”:

4.117 In light of our determinations above, we conclude that Antigua has applied the principles and procedures of Article 22.3 of the DSU consistently with the terms of that provision.

4.118 Specifically, we find that Antigua’s determination that it is not practicable or effective to suspend concessions or other obligations with respect to the same sector as that in which a violation was found is consistent with the requirements of Article 22.3.(b), and that its determination that it is also not practicable or effective to suspend concessions or other obligations with respect to other sectors under the same agreement and that the circumstances are serious enough is consistent with the requirements of Article 22.3(c) of the DSU.

4.119 Accordingly, we find that Antigua may seek to suspend obligations under the TRIPS Agreement.

According to attorney Mark Mendel, representing Antigua in the case, the nation would prefer to negotiate a situation in which the U.S. complied with the findings of the WTO dispute panel, but negotiations have been unsuccessful for a long time.  Now that Antigua is moving forward with plans to cross-retaliate, “we’ve heard a lot more from them (the US negotiators) over the past two weeks than over the past 10 years.”  He also acknowledged that the precedent set by Antigua if it moves forward would be more important than the damage that Antigua could do for two reasons – countries with larger economies could do the same, and it illustrates that the WTO trading system is supposed to be fair to both small and large countries.

“If [the U.S.] aren’t worried enough about Antigua they should be worried about someone else coming along. If we do something inventive that could pose a lot of problems for intellectual property holders, if we create that precedent, the consequences could be enormous. With Antigua, it’s US$21 million. Maybe with China it’s going to be US$21 billion.  One of the messages we want to get across is that the WTO was sold to smaller countries as a level playing field and a way for them to expand the reach of commerce, subject to a set of rules that apply to everybody. I think more than anything else this case is about fairness. The WTO is supposed to be fair.”

The prospect of cross retaliation has surfaced in a couple of previous disputes.  When the U.S. failed to comply with a WTO ruling on cotton subsidies, Brazil sought authorization to cross retaliated by suspending TRIPS.  Ecuador was authorized to cross retaliate against the EU in a dispute over banana tariffs.  (For more on these, see a 2009 story in the Bridges Trade News Digest).  In neither of these trade disputes did the complainant countries act on their authorization to suspend TRIPS obligations to the respondent countries.

Observers have argued that cross retaliation is a way that developing countries can use their rights within the WTO system to encourage more economically dominant countries to abide by the agreements that make up the WTO system.  However, it may be politically dangerous for developing countries to do so.  A good description of the law and politics surrounding cross retaliation is found in Fred Abbott’ white paper Cross Retaliation in TRIPS: Options for Developing Countries.  See this excerpt from the abstract:

Cross Retaliation in TRIPS: Options for Developing Countriesexamines many legal questions raised by cross-retaliation in TRIPS and seeks to provide some answers to them. It analyses the cross-cutting issues raised by external commitments and national IPRs-related rules, and looks at each major categories of IPR to suggest practical approaches to suspending (or not suspending) them.

Beyond these legal and practical problems, the paper underlines that the main obstacle facing the less powerful WTO Members in seeking to implement cross-retaliation in TRIPS is likely to be political in nature, in the form of pressures from industry groups and governments of more powerful Members. WTO Members contemplating cross-retaliation in TRIPS should be aware that this will be no easy task.

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