America's OUCH! Case - The High Cost of Protectionism

America's OUCH! Case - The High Cost of Protectionism
October 10, 2007

While the legal ins and outs of the case are fascinating to lawyers and trade officials, the real guts of the thing is what we're seeing today: negotiations between the U.S. and the world's biggest trading nations -  involving sums now easily in excess of $100 billion USD - and this is just the beginning.  And for what, really? For the U.S. refusal to open its famously vigorous gambling market to outside service providers to further the noble WTO goal of mutually beneficial, open trade relationships. 

U.S. Exit GATS cost
And, frankly, as an aside, some of those U.S. trade relationships could use some jollying. Canada, for instance, which is among the seven nations in addition to Antigua preparing to belly up to the bowl for GATS-slash compensation, will no doubt bring significant bitterness to the bargaining table over the softwood lumber dispute as will Japan, which is STILL being prosecuted over a law the U.S. was obliged to repeal YEARS AGO! in the 1916 Anti-Dumping dispute.
Unfortunately, while Americans are a joy to do business with, the U.S. has also earned a reputation in trade as an especially muscular opponent and has been called to account for poor compliance more than any other WTO nation. Certainly this will feature in these negotiations. Goes with the territory.
Of course, the focus right now is on the EU, especially the UK, which has put considerable time and effort into establishing a solid legal framework for its lucrative Internet gambling industry.  For a long time industry watchers, PokerPulse included, have stood by gasping unbelieving at U.S. prosecutions like BetOnSports, wondering if major players like PartyGaming and Ladbrokes would lie down and take it or put a bit of stick about.  It's refreshingly clear lately from interviews with EU trade officials that they are indeed putting it about.  And the other GATS-slash claimants will be watching and learning to ensure each gets their proper cut.
How much will it cost at the end of the day for the U.S. to reduce its GATS commitment contrary to just about everything the WTO stands for so that it can uphold its right to continue the breach with Antigua? Actuaries could probably estimate.
Our purpose in tracking both the GATS-breach (original breach with Antigua) and GATS-slash negotiations in a series of graphs beginning this month is to show in the clearest way the outrageousness of the U.S. position in this dispute. Contrast, if you will, the tiny combined claim by Antigua against the super-sized $100 billion the EU is asserting. It's a position that makes so little economic sense that it seems, frankly un-American. 
It must be a tough sell in Congress, although the trickiest spanner in the whole works has been anticipating how U.S. politicians view this dispute. Bill Clinton, for example, was a major force in bringing about the WTO, so you would think Democrats favor liberal trade, but no such luck, apparently. U.S. Trade emissary Susuan Schwab, a Republican, apparently fights an uphill battle daily in Congress as a proponent of free trade... Huh?  The story now is that Democrats have recently backed down on trade in favor of organized labor, which views the open market as a job threat. A very uncertain climate, to say the least, but it also means a dark horse could emerge from any corner to champion the colors.  And, happily, the best feature of trade negotiations is the emphasis on negotiations, which keeps the issues safely and squarely in the realm of possibility.
The happiest outcome of the dispute so far, in our view, is the excellent rallying by WTO nations to the cause of tiny Antigua, which alone, would not be especially threatening. By deciding to slash GATS rather than settle with Antigua, the U.S. forced a sort of trade pep rally among the world's wealthiest nations, and we cannot help cheering for the home teams.

While ruminating dully over the CAFTA chapter summary following Costa Rica's recent vote to ratify, I noticed an exclusion in the agmt that might seriously impact Costa Rica if the U.S. does indeed slash gambling from GATS. Public Citizen (and numerous others) had expressed concern initially at the speedy and magnanimous (compared with the WTO) dispute resolution process available to CAFTA signatories, which seemed to bode well for the gambling industry. How will this exception work under CAFTA? Will CAFTA signatories be able to apply under the agmt for GATS-slash compensation or something similar? Will we be adding Costa Rica and the others soon to our America's Oops Case chart, I wonder?

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