US Admits Defeat in Antigua Gambling Case at the WTO

[Jay Cohen]

US Admits Defeat in Antigua Gambling Case at the WTO

Seeks to take ball and go home

While Americans Eagerly Expand Domestic Gambling, the Normally Free-Trading United States Trade Representative Announces a Bizarre Move at the WTO to Cutoff the Foreign Competition: Is the Bush administration morally opposed to online gambling or just trying to stifle the foreign competition?

Washington D.C. (4 May 2007) - Today the Antigua Gambling case before the World Trade Organization (WTO) took a stunning turn of events. After suffering defeat after defeat, and with one appeal remaining, the United States has announced it is withdrawing its commitments in the gaming sector from its GATS schedule. This move by the United States is unprecedented in the WTO.

Antigua and Barbuda, one of the smallest members of the WTO, had successfully challenged the United States’ protectionist trade policy against remote wagering. Just when the United States was facing with having to comply with the ruling, the US is trying to walk away from the process.

This has international trade implications and could lead to the break up of the WTO. What is the point of having an international trading system enforced by a neutral court in Geneva when a developing member like Antigua successfully challenges the largest trading member in the world, and the large trading member simply quits after a losing verdict in one case? What is the developing world supposed to think after a small country with virtually no resources invests three years and millions of dollars challenging a large member who simply “takes his ball and goes home” after losing a case? How can an international trade dispute process work when a large country can change the playing field whenever there is an adverse decision against them?

This will forever mark the United States as a country not committed to free and fair trade, but as a sore loser on the global stage. The rest of the world is watching this move and it will be at the forefront of their minds as the United States tries to press for more concessions from smaller nations at the present DOHA round of negotiations.

The USTR claims today that it made its GATS commitment by mistake and that no WTO member could have anticipated remote gambling back in 1993 when the United States and other countries were drafting their international commitments to open their markets to recreational services. These claims are absurd and disingenuous.

By 1993, the concept of cross-border remote gambling was not new to anyone. At the time the GATS schedules were being drafted, the “remote” gambling industry was a thriving business in America, and had been in existence for more than 100 years! In the early 1990s there were state-owned and operated betting enterprise that had been openly offering telephone wagering to residents of New York and certain other states for years. Is the USTR claiming today it didn’t know in the early 1990s about the Interstate Horseracing Act (IHA), a federal law passed in 1978 for the specific purpose of regulating interstate bets on horse races?

The existence of cross-border gambling in America was an old concept by the early 1990s. There were mail order lotteries and race wires before the 20th century began. How could the USTR have not known in the early 1990s that gambling could occur via electronic means?

The USTR’s claim that it mistakenly committed to gambling in the early 1990s is simply untrue. Of the 150 countries who participate in the GATS, more 100 excluded gambling in their schedules. Most WTO members excluded gambling by simply not including the applicable sector, Sector 10 (Recreational, Cultural and Sporting Services), in their GATS schedules. But a number of countries, even in the early to mid 1990s, had the foresight to “opt out” making a commitment to allow foreign countries to provide cross-border gambling services. For instance, the European Community, Austria, Finland, Croatia, Slovenia and Sweden excluded cross-border gambling services from their GATS schedules under Sector 10. So did Egypt, Iceland, and Peru. Even Senegal had the foresight to exclude foreign gambling operators when it submitted its GATS schedule.

It is difficult to comprehend why the USTR is saying the gambling commitment was made by mistake. As part of the lengthy process to negotiate the GATS schedules, the US had longstanding access to its trading partners’ draft GATS schedules. These draft schedules had clear and unambiguous exclusions of remote cross-border gambling services. The US knew full and well what it was committing to back in 1993, and is only trying to back out now to avoid having to comply with the Antigua

[aislephive]

Sorry for sounding naive, but:

1. Is this good news?
2. What exactly does this mean?

[Uglyowl]

Sounds horrible to me. It sounds like the United States is saying, we hate the ruling so we're leaving the WTO. F you all.

[permafrost]

Can you show us a link to the news of this somewhat expected development?

[Little_Luck]

From the sounds of it, they will get away with it. It appears the WTO allows for such an amendment.

US Gov't has good attorneys.

Cliff notes:

WTO-"You said and committed that you want to belong to the GATS charter for gambling"

US-"Yeah, but we didn't know that by signing that we were held liable for any innovations in gambling. When Al Gore created the interweb, we didn't know people were going to just use it for porn and gambling. Children will suffer if we don't do something. See ya!"

[TheEngineer]

[ QUOTE ]
US Admits Defeat in Antigua Gambling Case at the WTO

Seeks to take ball and go home

[/ QUOTE ]

You sound surprised.

I wasn't being mean to you last week when I suggested this potential outcome. Actually, it was foregone, as the decision rejected states' rights. Essentially, Congress delegated authority to the WTO that it (probably...one could make an interstate commerce argument) lacked for itself -- the right to force individual states to allow all online gambling.

I actually hoped the U.S. would choose to comply, so I'm on your side. However, I did want to ensure that our guys wouldn't oppose the Frank bill on some false hope that somehow Antigua could force the U.S. to allow unfettered online gambling in states like Utah and Hawaii. As much as I would like that, for better or for worse it really is up to the citizens of those states, I think.

American 2+2ers: We should all still use the WTO decision in our appeals to Congress. We should also add that we need the WTO to protect our IP in China and to protect free markets. Do most Americans think we should throw Microsoft under the bus to keep Americans from CHOOSING to gamble online? After all, it's not like Antigua sent their "military" to America to force Americans to gamble against their will. Please write to your congressman and ask him/her to honor our commitments to the WTO. Let's ask that we at least negotiate a reasonable arrangement with Antigua that protects states' rights while opening access to states that have legalized gambling.

The tide is turning against the online gambling prohibitionists. Let's keep up the fight.

[TheEngineer]

[ QUOTE ]
Sounds horrible to me. It sounds like the United States is saying, we hate the ruling so we're leaving the WTO. F you all.

[/ QUOTE ]

Definitely horrible for us. Seems Antigua overreached. If they fought to be allowed to offer Internet poker in CA, where B&M poker is legal, they'd have a great trade argument. The overreach was trying to suggest that they had a right to force America to allow them to offer sports betting in Utah, where no U.S. company is permitted to offer any gambling. After all, gambling in Utah isn't a protectionist issue....it simply isn't allowed.

Hopefully we'll be able to prevail upon our Congress to revisit this issue. We need the WTO. We should negotiate a settlement with Antigua that provides their companies with the same access as U.S. ones (poker in CA, all betting in NV, none in Utah, poker and blackjack in IN, etc). Then, we can revisit GATS and add states' rights clauses, like the one that requires automobiles sold in CA to meet their emissions, rather than national ones (i.e., Japanese companies cannot sell non-compliant cars in CA, but neither can American companies...it's not protectionist).

Let's get to writing everyone. There's no way Microsoft and our other companies (or us, for that matter) should get thrown under the bus for this.

[disjunction]

If the U.S. were leaving the WTO it would be front page news, or at least front webpage news. A quick scan of cnn.com and I don't see anything.

So it sounds to me like the US strategy is still to ignore the issue until it goes away. In the words of Andrew Jackson, "Mr. Marshall has made his decision. Now let him enforce it."

[Jay Cohen]

This is a shocking development and will reverberate across the trade community. It is not clear whether or not they can change their commitments in the middle of a case and walk away from the adverse decision or if this would only apply to future cases brought by other countries. Needless to say the Antigua team is going to have a very busy week aead of them.

on the state by state issue, I meant to respond to TT in the other thread, but I may as well put it here and hope he sees it. These are two different responses from two different TRADE lawyers on the subject of the decisions and how it interacts with the domestic market. (I actually sent them TT's comments and these were their independent responses.)

Response 1

The US could pay the sanctions
assessed against them, which some commentators thinks will
happen.

But back to the point that the US only has to allow remote horse and
lottery - that's completely incorrect. The way the WTO case was
decided, the US has to allow access to any cross-border gaming services
offered by Antiguan operators unless the US can prove up its Article IV
defense (morals defense). The US made a full commitment in its
schedule - to free trade in gambling. The US could have exempted sports
gambling, or done a state-by-state exemption in its schedule of
commitments. But the US did not do so (interestingly over 100 of the
150 countries that are signatories to GATS exempted gambling services
one way or another).

The US lost its morals defense, and that opens the US to all forms of
remote gaming serviecs by Antiguan operators, and Antiguan operators
alone. The fact the US already allows remote horse wagering and to a
lesser extent remote lottery and even REMOTE ONLINE SPORTS BETTING (in
Vegas)is conclusive evidence that the US is NOT morally opposed to
remote gambing and that the US RECOGNIZES that online remote gambling
can be regulated/monitored in such a way to control any so-called moral
issues such as underage gambling, compulsive gambling, money laundering,
etc. Stated otherwise, if the US permits and recognizes remote
gambling, such gambling is per se not "immoral" under the WTO legal
standards, and then Antigua can access all types of remote wagering in
all states.

Americans often get hung up on a sport-by-sport or state-by-state
concept. They think if we Americans only have online horse racing
gambling in 18 states, then Antigua can only offer online gambling in
those 18 states. Or they think that Antigua can only offer online
horse racing. That is a misconception. First and foremost, when a
country makes a commitment and then has no moral exception to avoid that
commitment, then the commitment must be honored or the country must
otherwise comply/settle/pay sanctions. This statement alone defeats
everything you have said that limits Antigua. Second, under GATS, a
country is treated as one entity. Individual state laws don't govern
and really matter very little, if at all. Therefore, unlike our
federal system which recognizes state rights, GATS judges the US as one
collosal country. So, because 18 states offer online gambling, the
entire US is deemed to have waived any moral objection to and must
permit online gambling. The fact that the US allows horse racing
(which, after all is betting on an event - a horserace)and sports
gambling in a few states (betting on an event), the US waives any moral
objection to sports gambling on any basis.

Response 2

Under the GATS, if you give full access with no restrictions, then it
doesn't really matter what your domestic market is. So, there could be
a situation for example where there was no domestic industry at all, but
if a full commitment in the sector has been made in the GATS, then there
are no restrictions on foreign service providers.

[TheEngineer]

[ QUOTE ]
If the U.S. were leaving the WTO it would be front page news, or at least front webpage news. A quick scan of cnn.com and I don't see anything.

So it sounds to me like the US strategy is still to ignore the issue until it goes away.

[/ QUOTE ]

I've Googled for it a few ways and can't find it.

The U.S. actually isn't leaving the WTO, according to Jay. Rather, we're pulling out of the gambling-related part of it.

One irony is that our good friend Rep. Ron Paul has been trying to get us out of the WTO since we joined. I don't imagine this is what he had in mind (although his issue is the same...sovereignty).