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Online Gambling Update: U.S. vs. Antigua

Allyn Jaffrey Shulman Explains Just What's Going on with this Dispute

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There are inaccurate reports about Antigua and Barbuda's World Trade Organization case against the U.S.

Ruling v. GATS Commitments

The basic misunderstanding seems to be the difference between 1) the lawsuit won by Antigua and the sanctions that may be imposed juxtaposed with 2) the rights of other nations, not based upon the lawsuit at all, but instead, based upon the action taken by the U.S. to withdraw from our GATS Commitments, which allows other nations to file claims against us.

Pouncey Testimony

The brilliant testimony of U.K. attorney Craig Pouncey, submitted to the U.S. House Committee on Financial Services is the best explanation I have seen thus far. He explains to the House:

An Opt-In Agreement


The GATS, which is the relevant WTO Treaty here, works on an "opt-in" basis. This means that key obligations only apply to the extent that a country has "opted in" for a specific sector (or, in GATS language, made "specific commitments"). In the case brought by Antigua, the Appellate Body of the WTO found that the U.S. had made "specific commitments" with regard to the cross-border supply of gambling and betting services. As a result, the U.S. had to provide "market access" to the suppliers of such services from other WTO member countries. The Appellate Body went on to find that the U.S. violates that obligation because several federal laws prohibit the use of the Internet to supply gaming services from foreign jurisdictions to consumers in the U.S. By way of defense, the U.S. had invoked an exemption clause that allows a country to depart from its normal WTO obligations (i.e. in this case to prohibit access to Internet gaming services from countries such as Antigua) because of the need to protect public morals.

The U.S. Must Comply

The U.S. argued that Internet gambling posed uncontrollable risks of youth gambling, fraud, and money laundering. This defense failed, however, because the U.S. allows Internet betting on horse races. The U.S. was given until April 3, 2006 to comply with the findings of the Appellate Body Report.

On July 6, 2006, Antigua convened a WTO "compliance panel" to assess the steps taken by the U.S. to comply with the Appellate Body's findings. The U.S. used these proceedings, inter alia, to re-argue its case that Internet gambling cannot be regulated and that Internet horse race betting was not lawful in the U.S.

The WTO Ruling

The U.S. lost the argument again and, on March 30, 2007, the latest WTO report in this saga was issued. In the context of this debate, the most interesting points of this most recent WTO Report are the following:
  • There are at least 18 state laws that expressly authorize wagering by wire within the United States, including on a wholly intrastate basis.
  • The WTO Panel states that, while the U.S. originally argued that Internet gambling could not be regulated, it has changed its position because the Unlawful Internet Gambling Enforcement Act 2006 explicitly acknowledges that such regulation is possible.
  • The WTO Panel refers to the recent prosecution of foreign Internet gaming operators but adds that it finds it "striking" that the DOJ [Department of Justice] has never prosecuted any of the U.S.-based operators of Internet horserace betting.
  • The WTO Panel notes that the U.S. had an opportunity to clarify that Internet gambling on horserace betting is prohibited but that the Unlawful Internet Gaming Enforcement Act does precisely the opposite by deliberately maintaining the ambiguity.
The U.S. recently decided not to appeal this latest WTO report, which, therefore, became final.

How Sanctions Work

A WTO representative in Geneva explained to me that the WTO does not mete out punishment as in a court of law. Instead, now that Antigua received a favorable ruling, Antigua must ask for specific sanctions. Then the WTO makes a ruling regarding whether those sanctions are appropriate.

Antigua Asking for $3.443 billion Yearly!

Mark Mendel, the attorney for the WTO announced that: "Antigua has informed the WTO of its intention to seek concessions with an annual value of USD $3.443 billion, primarily through the suspension of Antigua's obligations in respect of copyrights, trademarks, industrial designs, and patents under the WTO's intellectual property rights or 'TRIPS' agreement. This action, once approved by the WTO, could have significant implications for American intellectual property rights and represents a material escalation in the stakes at play in the gambling case."

As I have previously explained, this means is that if the WTO rules these sanctions are fair, Antigua can violate copyright and patent laws and make a fortune on U.S. products. They can sell soda calling it Pepsi; they can sell Microsoft and not pay royalties.

In the Antigua vs. U.S. Case

The misunderstanding about the case seems to center around other countries' rights. Other countries have absolutely no rights in the case won by Antigua. Here's where the misunderstanding lies.

On May 4, 2007, our government announced that we would start a procedure to withdraw the U.S. commitment on gambling and betting services.

It is because the U.S. is withdrawing from our prior agreements, called "GATS commitments," which we entered into in 1995, that all WTO Members, not just Antigua, are entitled to claim compensation from the U.S. Pouncey explains it best:

This procedure has never been used in a context such as the one at issue here and the U.S. move is generally perceived as an attempt unilaterally to change the WTO contract after losing the legal fight…

[Other counties] may well find it difficult to believe that the U.S., which was the main driver of the GATS negotiations during the original negotiations, was unable to understand its own commitment.

The U.S. Knows

Further, it should be noted that the U.S. has requested, obtained, and used the right to impose countermeasures in a WTO dispute settlement case where such a "misunderstanding" had effectively occurred.

In the well-known bananas dispute between the U.S. and the E.U., the U.S. argued that the activities of U.S. companies such as Chiquita were "banana distribution services" covered by the GATS and the E.U.'s GATS commitment on "distribution services." The E.U. disagreed. In fact, the E.U. had taken a series of measures to protect its banana regime from being challenged in the WTO but it had never considered that its commitment on "distribution services" could have been used against its regime for the importation of bananas.

If the E.U. had realized this, it would no doubt have excluded "banana distribution services" from its commitment on "distribution services." However, the E.U. had not done that and thus lost the dispute with the U.S.

The U.S. Obtained Sanctions

The U.S. then obtained the right to impose painful economic sanctions on the E.U. for a total value of USD $191.4 million per year. This caused very serious hardship to the E.U. companies targeted by those sanctions and, in at least one case that I am aware of, it caused bankruptcy.

The total amount of these sanctions related to a lack of compliance with GATS obligations which the E.U. never intended to make. The same U.S. that requested, obtained, and applied these economic sanctions vis-à-vis the E.U. is now claiming that it can withdraw commitments without compensation because it did not intend to make these commitments. In my view this is wrong as a matter of law.

I am convinced, therefore, that a number of WTO member countries will take the same view and seek compensation from the U.S.

The Little Guys Are Coming after the U.S.

That is precisely what is now happening. Besides Antigua and Barbuda, it has been reported that the E.U., India, Japan, Costa Rica, Canada, and Australia have filed claims against the U.S.

Bush's Promise

The WTO issue with little Antigua has been ongoing since 2003; yet, last week President Bush promised Antigua Prime Minister Spencer that he would look into the issue. Let's see what happens now.
 
 
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Comments

djscottiboo
almost 11 years ago

Great job allyn, i love reading up on this (from you). i am a member of the ppl, but have not been happy with what they have done. being just a online freeroll player this STUPID bill has cost me plenty. im so sick of ll the donks in washington dc all the way to the top donk, and by the way lets start a bill that will get rid of the party animals, no more elephant and donkey's and lets just call them what they all are .......DONKS

keep it up allyn
djscottiboo

 
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djscottiboo
almost 11 years ago

oh yea allyn .........good luck on friday and the next 14 days.

 
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