Also Featured on NationalJournal.com ADMINISTRATION: Investigating The Investigators

Today's Headlines •  Choosing An Alternative Option •  'Bananas' Case Highlights Possible Flaws •  Losing For Winning? - Advertisement - - Advertisement -		Issue Of The Week: Monday, Feb. 25, 2008 Retaliation In WTO Disputes: Is It Working? by William New      GENEVA, Switzerland--For some, winning a dispute settlement case at the World Trade Organization might seem no better than losing.      For others, it might mean change - not of one's offending practices, but rather of the WTO rules governing those practices.      Either way, it appears that aspects of the vaunted WTO dispute settlement system may not be having their intended effect.      According to diplomatic sources and trade experts in Geneva, it has been recognized for years that the WTO Dispute Settlement Understanding needs improvement. But little has successfully been done to fix it.      The issue has been parked alongside the broader Doha Round of negotiations, although it is not directly linked to the Doha Round. Meanwhile, WTO members have gotten creative with the system - which, some say, is bringing about fair outcomes.      The recent decision against the United States for blocking online gambling from the Caribbean country of Antigua is a case in point. It highlighted a wrinkle in the mechanism for retaliating against governments who fail to comply with adverse WTO rulings -- and it also highlighted a possible way for governments to avoid acceptance of contrary decisions.      It is generally recognized that a winning country pushing for compliance from the other party through use of retaliation also hurts its own consumers by imposing tariffs on imports -- which likely results in higher prices and lower availability, sources note. The intent of the retaliation system is that the additional burden assumed by the consumers and importers in the winning country will ultimately pay off in terms of changes in the other country's behavior.      For instance, in the case of Antigua, the hope is that the right granted by the WTO dispute panel to not protect against piracy or counterfeiting of U.S. intellectual property rights would harm the United States enough that the Bush administration would urge Congress to change the anti-gambling law that caused the problem.      In fact, there have been reports of possible talks to seek a negotiated settlement on the matter. Retaliation "does give leverage, even if it is just the leverage of embarrassment," especially at a key point in the broader WTO round of negotiations, said one trade expert, who added, "Embarrassment counts."      But other analysts say it is unlikely that the value of trade between a small economy such as Antigua and a large one typically would be enough to bring such change, especially involving a politically difficult issue like gambling. The question remains whether the outcome of the dispute panel will achieve the objective of opening up trade in gambling services.      In the first WTO dispute case involving gambling, a panel ruled in January that Antigua can retaliate against the United States in the equivalent of $21 million in trade per year (the U.S. argument was hurt by the fact that it allows remote gambling from the domestic horse-racing industry). But the amount awarded was far less than the $3.4 billion in lost business Antigua was seeking. Choosing An Alternative Option      The small economy chose not to seek the retaliation in trade in services, within which gambling falls, but rather was given a secondary way to recoup its losses - by not protecting US copyrights under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPS.      Retaliation for failure to comply with a ruling usually means higher tariffs on certain imports from the losing country. It is expected the retaliation will target goods or services in the same trade area as was involved in the dispute.      But if trade in the primary area is deemed insufficient -- or is deemed inappropriate by the discretion of the winner as delineated in Article 22 of the WTO Dispute Settlement Understanding -- retaliation can be leveled against other trade areas.      How much discretion a winning country has in choosing the sector to which retaliate against may vary, according to a trade expert.      In the case of Antigua, it appeared to dislike the idea of pursuing retaliation under the WTO Services Agreement even though it has substantial trade with the United States in tourism services, and requested instead the TRIPS-related trade. This request was granted, possibly more readily out of consideration for the size of Antigua's economy. 'Bananas' Case Highlights Possible Flaws      The Antigua gambling case is the second to involve retaliation under the TRIPS agreement. In an earlier case involving bananas imported by the European Union, Ecuador won the right to retaliate about two years ago. But in another possible sign that the dispute system is flawed, it has chosen not to do so, sources said.      As a result of the bananas case, Ecuador could retaliate against the European Union in the value up to $201.6 million per year, according to sources. When requesting permission from the WTO to retaliate against another government, the requesting party has to specify how much it will be for -- and how they will get it. Ecuador chose the TRIPS agreement.      And in a new case involving U.S. measures allegedly impeding imports of Brazilian cotton, Brazil has requested retaliation in TRIPS as well, an informed source said. The United States lost the case, but has appealed. If it loses the appeal, the question of retaliation will arise.      It remains to be seen if judges will be as forthcoming in allowing retaliation under TRIPS with an economy as large as Brazil's, the source said. Also unclear is whether the United States might look for a way to change the WTO rule that could otherwise lead to it losing the case.      There are some indications of an early trend in U.S responses to adverse rulings -- which is to try to change the rules rather than change its own laws to comply with the rules, one observer said. In the Antigua case, the United States tried to undo its commitment to open its market to gambling services after it became apparent the case would go in a negative direction.      Legal experts note that a country has the full right to seek changes to its commitments at any time. But the timing of the U.S. action raised some eyebrows. Still, one expert likened it to Congress acting to change a law that is the subject of a Supreme Court ruling.      In another example, during a case brought by Mexico against the U.S. use of "zeroing" in calculating anti-dumping measures, the United States has sought to renegotiate the WTO Antidumping Agreement to allow such practices rather than change the ruling, according to a source.      In calculating so-called dumping, the margin is calculated by how much above the home country price the export price is. The United States sets any negative margin - higher export price than domestic price - at zero.      The panel ruled this to be WTO-inconsistent, although it upheld the use of it during administrative reviews, according to an analysis by attorney Brendan McGivern of the White & Case office in Geneva. Losing For Winning?      It might be argued that Antigua has lost the case even in winning. Unless it reaches a negotiated settlement, Antigua will not likely obtain access to the gambling market in the United States. It also will not receive anywhere near the damages it claimed.      And it faced a negative public relations impact when some media and blogs painted the country as a "pirate of the Caribbean" -- suggesting it had sought an outcome that allowed it to dodge the intellectual property protections of the TRIPS agreement because it supports piracy, rather than simply following the agreed-upon WTO procedure intended to provide leverage to open markets.      Retaliation "goes against the basic mission of the WTO, which is to liberalize trade," said the diplomatic source, adding: "Here we are, the WTO, authorizing you to break its laws. That's the irony."      Editor's note: William New, editor-in-chief of the Geneva-based Intellectual Property Watch, is a former reporter for National Journal's Technology Daily who now regularly contributes to CongressDaily.

- Advertisement - - Advertisement - Staff, Beats And E-mail Addresses Phone: 202.739.8480 · Fax: 202.296.6110 Customer Service: 202-266-7230 · Advertising Inquiries: 202.739.8462 Have an event for the CongressDaily calendar? Fax details to 202-544-4825, or e-mail to agenda@find-inc.com. CongressDaily is published Monday-Friday by National Journal Group Inc. 600 New Hampshire Avenue, NW, Washington, DC 20037. Copyright 2008. Retransmission or reproduction of more than one copy is prohibited without express permission of the publisher. For additional information, including subscription prices, go to http://nationaljournal.com/congressdaily/.