Antigua offers a new proposal to end Internet gambling dispute with U.S.

Antigua is asking for $100 million in new proposal regarding Internet gambling, but at this point the tiny Caribbean nation has lost all bargaining power with the United States.

In the movie Monty Python and the Holy Grail there's a scene where The Black Knight valiantly defends a tiny foot bridge. Despite pleas by Sir Arthur to step down, the Black Knight refuses and fights the king. Sir Arthur cuts off the knight's right arm but the knight calls it "just a scratch" and continues to fight on. Eventually the Black Knight has all 4 limbs cut off and is left as a stump at which point the knight declares "ok we'll call it a draw," and then tells the king to get back there so he can bite his legs off.

Unfortunately the situation with Antigua and the United States has become almost that silly. The WTO posted a notice on its website that the new Gaston Browne administration has submitted a proposal to Washington to end the decade old dispute. The notice read:

"Antigua and Barbuda urged the U.S. to consider the proposal with good faith and to engage comprehensively with Antigua and Barbuda so as to end the dispute."

While no details were released on the website, sources close to the situation have indicated that Antigua is asking for $100 million in compensation either in cash or in trade incentives. This is down substantially from the last Antiguan government which demanded $300 million and a promise to be able to offer gambling to the U.S., if their values changed.

Antigua has to be commended for standing up to the U.S. government and taking them on despite the fact it was clear the U.S. were never going to give in. But the time has come for the island to accept that under no circumstances is the U.S. going to allow gambling services from Antigua nor will the U.S. ever give Antigua compensation as long as it looks like it relates to the WTO dispute. And truth be told Antigua has lost all its bargaining power.

For those unfamiliar with the situation, Antigua had decided to set up an infrastructure in the mid-1990s whereby for a moderate licensing fee gambling operators could take bets worldwide using Antiguan servers and be rest assured the activity was legal since it was sanctioned by the Antiguan government. The U.S. apparently encouraged Antigua to offer remote technological services in attempt to build its economy since tourism dollars were declining but the United States clearly hadn't envisioned the island resorting to offshore gambling and they certainly weren't expecting the island to license gambling websites which targeted Americans. The U.S. refused to accept that gambling from Antigua was legal and issued arrest warrants against American gambling site owners in Antigua, Costa Rica and other jurisdictions with Attorney General Janet Reno announcing "you can't hide offshore". Several owners returned to face the charges but Jay Cohen, a founder of World Sports Exchange (WSEX), licensed in Antigua, returned to fight the charges in U.S. court. In the end Cohen was found guilty and spent time in prison but at the encouragement of WSEX management along with other offshore sites based in Antigua the country took the U.S. to the WTO courts complaining they were in violation of a GATS treaty which the U.S. signed which said they would allow gambling services from other WTO nations including Antigua. The U.S. argued they signed that paper in error and meant to exclude gambling but in the end the WTO courts ruled for Antigua and offered compensation of $21 million a year in trade resolutions which was what they deemed Antigua would have garnered if they were allowed to offer remote horse racing. It was a far cry from the $3.4 billion a year Antigua was asking for but the courts allowed Antigua to use the award by bypassing trademarks and copyrights (TRIPS), i.e. offering cheap licensed versions of music, software and videos. The hope was that with that threat companies like Sony, MGM and Microsoft would lobby the U.S. government to end the dispute once and for all. And it possibly could have worked except the island continuously refused to use that ruling fearing retaliation by the American government against the island in the area of tourism bans, which would have completely devastated their economy.

Now more than a decade later WSEX is defunct and there are only a handful of offshore gambling establishments that still have licenses from Antigua, but most operate elsewhere. The benefits of operating from Antigua that once existed are now seen as better in jurisdictions like Kahnawake or Costa Rica. And for European gambling establishments that don't accept U.S. customers Antigua really offers them no benefits.

So the current proposal by Antigua to the U.S. is irrelevant. At this point the U.S. probably just views Antigua as a pesky fly that won't go away and in all honesty they probably don't care about the WTO case anyways, since several U.S. states including New Jersey, Nevada and Delaware are already offering online gambling and several others are about to follow suit. And as the United States proved with Black Friday, if they truly want to retaliate against offshore companies there's nothing the jurisdictions that license them can truly do. Alderney was useless in protecting Full Tilt Poker from being seized and the same held true for the Isle of Man and PokerStars. And the threat of using the TRIPS solution was lost when Antigua dithered for so long and failed to live up to the threat. Moreover, the U.S. government knows full well that Antigua companies would never sell unlicensed software, music or videos for fear of being seen in the same light as Chinese companies that break the law in that way. And more importantly, they know that legitimate businesses and law abiding American citizens would never buy the products from Antigua because they would view it as pirated goods. And those Americans who would buy those products can already purchase them from unlicensed foreign entities or at their local merchants that sell knockoff goods from China. The last time I spoke to Mark Mendel, Antigua's main council, it was clear that he had resigned to the fact that while Antigua was right to take the U.S. to court and while they should be pleased that they actually won the case in the WTO courts, the truth is that it was all in vain, since the U.S. never had any intentions of abiding by the WTO decision nor were they ever really willing to negotiate a settlement that both sides could live with.

"Antigua may have to just come to the realization that remote gambling is not in their future . . . "

So where does Antigua go from here? As difficult as this may be to accept, Antigua may have to just come to the realization that remote gambling is not in their future and that any compensation they receive will have to appear to be one out of compassion and not tied to the WTO case. It's uncertain what services or goods Antigua could offer that would bring in revenue similar to what offshore gambling did originally, but this is where the U.S. could actually help and where the U.S. Trade Representatives may be willing to finally cooperate with the Antiguan government. If there's one advantage the U.S. really has it's the technological experience and ability to recognize where opportunity exists. Perhaps the U.S. could send experts to the island and identify industries that Antigua could consider offering that would benefit both countries (and possibly others in the world). It could still be with technology and the Internet, it could be military based, and it could be by offering new crops or food sources. Regardless there is no doubt that the U.S. could see Antigua as a strategic ally in the Caribbean and provide opportunities and jobs that paid similar to what the offshore gambling industry paid and provide needed revenue to the island. Moreover the U.S. could probably help strengthen the Antiguan banking system so it is no longer seen as a rogue system that is avoided by most of the Western world and it could help promote the island to Americans as an ideal tourist destination.

By keeping on the same confrontational track, however, Antigua is only harming itself. So the best solution for Antigua is to announce that they are willing to accept that the United States is not obligated to them despite the WTO decision and are withdrawing their complaint. But they would appreciate help from the U.S. government to rebuild their economy in another direction. This will provide the U.S. a way to save face in the dispute and, while it may be humbling to Antigua, it would be a reason for the U.S. to finally sit down with the country and provide them with ways to build their economy. Moreover, it would provide a reason for the U.S. not to rewrite its commitments under GATS which would remove the U.S. government's obligations to Canada, the EU, Macau, Antigua and Japan as all those countries asked for compensation because of loses it could suffer should the U.S. rewrite its commitments.

Unfortunately, going along the current path, Antigua is not helping itself because at the present moment, like the Black Knight, Antigua is nothing more than a stump and has no bargaining power left whatsoever.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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