A Step Closer to Solution

A former member of the U.S. Trade Representative's (USTR) office believes that EU Trade Commissioner Peter Mandelson's visit to Capitol Hill last week is a step in the right direction in the negotiations over the United States' withdrawal of certain World Trade Organization (WTO) commitments.

Mandelson was in Washington, D.C., meeting with trade representatives and legislators to address issues relating to trade, including the U.S. ban on Internet gambling and the country's subsequent decision to withdraw gambling services from its commitments to the General Agreement on Trade in Services (GATS).

The European Union has been in compensation talks with the United States since June over the USTR announcement that it would remove gambling from its GATS commitments. If a solution is not reached, the European Union could ask the United States for $100 billion in compensation for closing its borders to EU operators. The United States in September dismissed the amount as being "based on faulty and exaggerated assumptions."

Nao Matsukata, former director of policy planning for U.S. Trade Representative Robert B. Zoellick and now senior policy advisor at Alston & Bird, indicated that Mandelson's visit signifies a very positive step in the process of reaching a solution on the issue.

"Up till now Mandelson has only been dealing with the USTR, and when he's only dealing with the USTR, at least in my view, he's looking at this issue in a broader context of all the trade issues between the United States and the European Union," he said.

"In other words, he's looking at it potentially as a way to trade this off with something else, maybe in the Doha round or something else. But once he moves, [once] he's strictly looking at this from a congressional perspective, there's only one solution they're looking at when they're negotiating with Congress -- and that's the resolution of the WTO case. So, in that regard I think it's very important that he's now working directly with Congress on this. And I imagine that it will only continue to deepen. And the only real solution will lie with Congress going forward."

Matsukata explained the trade relationship between the United States and European Union as one that they try to manage in the sense of trying to keep it from getting out of hand, particularly in this case because the USTR has taken a very tough position on this issue.

"Really, the compromise or the meaningful and the right solution is through the congressional process," he said. "Now Mandelson is fully engaged in that and by coming here he understands this is actually a viable option."

If a satisfactory solution is not reached, it could be damaging to the United States from the perspective of reputation, in terms of undermining their credibility, Matsukata said. But if they do negotiate a settlement, it probably won't be as much as the European Union would like, but probably more than the United States would like to pay, he added.

On the other hand, if the dispute goes into arbitration, it could be very damaging because the number "could be a lot higher than the United States wants to be giving anybody at that point," he said.

If the long-running dispute between the United States and Antigua is any indication, this is likely to be an uphill battle. The United States has remained stalwart for four years through multiple rulings against them, ultimately resulting in the decision to withdraw gambling from GATS.

"The only way you're going to get them to move off of that position is if you can get Congress moving, and they feel that they are starting to lose control of the issue," Matsukata said.

On Thursday, Mandelson met with Rep. Barney Frank, D-Mass., to discuss a possible legislative solution to the U.S.-EU trade skirmish. While the meeting took place behind closed doors, Matsukata had a chance to speak briefly with him afterward.

"He seemed very upbeat and positive about the meeting that he had with Mr. Frank," Matsukata said. "And it seemed, at least from my perspective, that they really turned the corner on this issue about congressional involvement in the solution to the problem."

Matsukata did not have the chance to meet with Frank, but said Mandelson was a supporter of Frank's bill, the Internet Gambling Regulation and Enforcement Act, introduced last April.