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Statement on Internet Gambling

 

 

Washington, D.C. - In response to an award from a World Trade Organization Arbitrator today in a dispute brought by Antigua & Barbuda (Antigua) involving Internet Gambling, United States Trade Representative Spokesman Sean Spicer made the following statement:  

“Because the United States is already taking steps to bring itself into compliance by clarifying its WTO commitments with respect to internet gambling, the Arbitrator’s award issued today is not paramount,” said USTR Spokesman Spicer.  “The United States has already initiated the formal process under the WTO for clarifying its schedule of commitments and is engaged in compensation negotiations with Antigua and six other WTO Members that have claimed to be affected.  We announced a compensation agreement with three of those Members earlier this week, and are continuing discussions with the others.  We would expect that Antigua would not suspend its WTO commitments to the United States while that process is underway.”   Spicer further explained that, “Once the process of clarifying the U.S. schedule of commitments is complete, any issues in our bilateral dispute with Antigua will be moot, and there will no longer be any basis for suspending WTO commitments in accordance with the Arbitrator’s award.”

The WTO Dispute Settlement Body had previously found that the United States had not brought certain federal gambling laws involving Internet gambling on horse racing into compliance with obligations under the General Agreement on Trade in Services (GATS).  As a result of the Arbitrator’s award, Antigua – upon a subsequent request to the WTO Dispute Settlement Body – would be entitled to suspend Antigua’s WTO obligations to the United States so as to affect trade between the United States and Antigua in an amount up to $21 million per year.   The Arbitrator also found that Antigua is entitled to suspend WTO benefits not only with respect to services, but also with respect to intellectual property rights.  Contrary to some reports, the WTO does not impose fines or monetary penalties.

In the arbitration, Antigua claimed that its level of impairment of WTO benefits resulting from U.S. noncompliance amounted to $3.4 billion per year – a figure more than three times the size of Antigua’s entire economy.  During the arbitration, the United States explained to the Arbitrator that Antigua's claim was patently excessive.  The United States is pleased that the figure arrived at by the Arbitrator is over 100 times lower than Antigua’s claim.

The United States is concerned, however, that the Arbitrator agreed with Antigua’s request to suspend WTO concessions not just with respect to services, but also with respect to intellectual property rights (IPR).  Any authorization pursuant to the award would be strictly limited to Antigua; every other WTO Member remains obliged to protect U.S. IPR under WTO rules, including enforcement against any IPR-infringing goods.  Moreover, even with respect to Antigua, it would establish a harmful precedent for a WTO Member to affirmatively authorize what would otherwise be considered acts of piracy, counterfeiting, or other forms of IPR infringement.  Furthermore, to do so would undermine Antigua’s claimed intentions of becoming a leader in legitimate electronic commerce, and would severely discourage foreign investment in the Antiguan economy.

Background:

GATS Article XXI Process:

In May of this year, USTR announced that it was invoking procedures under Article XXI of the GATS in order to clarify its commitment involving “recreational services,” which was interpreted in the course of WTO dispute settlement as including a U.S. commitment to allow internet gambling services.  The Article XXI procedure involves negotiations with any WTO Member that claims to be affected together with compensatory adjustments in other areas of the U.S. schedule of services commitments.  Once the Article XXI process is complete,  the U.S. schedule of services commitments will reflect the original U.S. intent of excluding gambling from the scope of U.S. commitments, and the United States will no longer be out of compliance with the earlier WTO ruling.

On December 17, USTR confirmed that the United States had reached agreement in the GATS Article XXI process with Canada, the EU and Japan.  The agreement involves U.S. commitments to maintain liberalized markets for warehousing services (excluding services supplied at ports and airports), private technical testing services, private research and development services, and postal services relating to outbound international letters.  These commitments meet the WTO obligations of the United States under GATS Article XXI to make a compensatory adjustment in WTO services commitments.  December 17 starts a 45-day period during which the remaining claimants, including Antigua, have a right to request arbitration on the adequacy of the U.S. compensatory adjustments.  The United States strongly believes that arbitration, if requested, would show that the U.S. has met its Article XXI obligations.  Nonetheless, the U.S. hopes to be able to resolve this matter with the remaining claimants.  

Bilateral WTO Dispute with Antigua on Gambling Services:

The WTO dispute was originally filed by Antigua and Barbuda in 2003.  In the course of the dispute, the WTO found that the U.S. GATS schedule included a market access commitment covering internet gambling based outside of the United States.  This finding was the unintended consequence of imprecision in the drafting of the 1994 U.S. GATS schedule.  In fact, as the WTO panel recognized, gambling or betting services are generally prohibited or highly restricted in the United States for reasons of public morality, law enforcement and protection of minors and other vulnerable groups, and the United States never intended to make a GATS commitment covering gambling. 

Despite the unexpected finding that the United States GATS schedule extended to cross-border gambling, the United States had other defenses to the claims raised by Antigua.   In particular, the United States believed that although its gambling laws predated the WTO, these laws were both consistent with GATS obligations, and would qualify for a GATS exception for laws necessary to protect public morals or to maintain public order. 

In a report issued in April 2005, the Appellate Body agreed with the United States that the U.S. federal statutes at issue in the dispute are necessary to protect public morals or to maintain public order, within the meaning of an exception to GATS market access obligations.  However, the Appellate Body found that, with respect to one narrow aspect involving horse racing, U.S. federal gambling laws could not qualify for the GATS exception.  In particular, the United States could not show that federal gambling prohibitions applied equally to foreign and domestic suppliers of remote betting services for horse racing.  The Appellate Body report did not find WTO-inconsistencies in any State laws. 

Antigua subsequently requested a WTO compliance panel.  In a report issued in March 2007, the compliance Panel found that the United States did not bring its federal gambling laws into compliance with the rulings in the Appellate Body report.  In June 2007, Antigua filed its request for authorization to suspend trade concessions.  The matter was referred to the WTO Arbitrator in July 2007. 

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