deadline looms in US-Antigua internet gambling case
March 2006 -- Peter Riggs
Caribbean nation Antigua and Barbuda,
which last year won a major WTO dispute on gambling against the United States,
has protested new legislation in Congress that would tighten restrictions on transactions
by internet casinos.
Antigua’s Permanent Representative to the WTO,
John W. Ashe, noted in a 16 February letter to US Trade Representative Rob Portman
that legislation recently introduced in the US House of Representatives is “expressly
contrary to the rulings and recommendations of the Dispute Settlement Body of
the World Trade Organization.” The WTO Dispute Settlement Body gave the
United States until April 2 of this year to comply fully with the dispute ruling,
including possibly the amendment of the federal Interstate Horseracing Act and
other measures to improve access for internet casinos abroad into the lucrative
U.S. on-line gambling market.
Bills introduced by Representatives James
Leach and Robert Goodlatte would enable U.S. law enforcement officials to go after
companies that facilitate financial transactions with on-line casinos. Antigua
has argued that exceptions in the bills for transactions made in accordance with
the Interstate Horseracing Act, for in-state transactions, and for Native American
tribes all run afoul of the WTO ruling in the US-Antigua case.
at stake for states in this stand-off, too. States such as Utah and Hawaii that
ban all forms of gambling are very nervous about the implications of the WTO ruling.
Those states that obtain significant revenues from gambling are nervous for a
different reason: could an expanded market for on-line games of chance threaten
the growing percentage of state revenues that come from casino and lottery receipts?
The WTO case brought by Antigua is formally known as
States – Measures Affecting the Cross-Border Supply of Gambling and Betting
Services, WT/DS285. Lead counsel for Antigua in this case was provided
by an El Paso-based law firm, Mendel-Blumenfeld,
To summarize the case, the
WTO Appellate Body ruled that as part of its WTO General Agreement on Trade in
Services (GATS) commitments, the United States was required to follow Market Access
rules on gambling services. However, the WTO Appellate Body did allow the United
States to cite the GATS “public morals” exception, which excused US
violations of Market Access rules in some cases. But not all cases: the WTO Dispute
Settlement Body specifically cited the United States Interstate Horseracing Act
(IHA) as in violation of US GATS commitments, and therefore said that the “public
morals” exception did NOT apply to permit remote betting on horse races,
because the IHA discriminates against foreign gambling companies. The new legislation
proposed in Congress continues to provide exceptions for the Interstate Horseracing
Act—one of the issues that apparently triggered the recent letter from Antigua.
its original WTO complaint, Antigua also mentioned a number of state laws as possible
GATS violations. But the WTO Appellate Body decided to rule only on the federal
laws, stating that Antigua had failed to explain why the challenged state laws
violate GATS rules. That does NOT mean that state laws on gambling were seen as
“GATS-compliant”; on the contrary, the ruling appeared to leave open
the opportunity that Antigua, or another country, could re-file a WTO claim and
specifically go after state laws. This legal limbo has certainly been noticed
by on-line casino operators located in the United Kingdom—which is fast
becoming Europe’s main center for internet gambling. “The WTO case
should serve as a solid precedent should another jurisdiction decide to take the
US to the WTO along similar lines,” noted Wes Himes, director of the UK’s
Interactive Gaming, Gambling, and Betting Association.
As alarming as this
WTO decision is for the administration of state and federal gambling laws, many
states are even more concerned about how this international attempt to pry open
the US gambling market could impact their current revenue base. If restrictions
on gambling from home computers are weakened, how would that affect the number
of visitors to casinos, and the associated spending on food and entertainment
at these gaming centers? Would it reduce the number of residents willing to try
their luck through state lotteries?
Five states obtain more than 10% of
their total revenue from various forms of gambling (casinos, video poker terminals,
lotteries, etc.), and another five states are close to that double-digit figure.
Those states most dependent on gambling revenues were swift to pass laws banning
internet gambling. South Dakota, which has the second-highest percentage of revenues
from gambling of any state in the union (after Nevada), made it a felony to use
the internet for certain gambling activities—but then explicitly exempted
the State Lottery and licensed casinos in the state. Nevada passed similar legislation.
Nationwide, approximately 30% of total lottery spending ends up in state
coffers, and lottery revenues now account for more than 2% of total state revenues.
A 2005 New York Times article noted that “gambling revenues, once a mere
trickle, have become a critical stream of income in a number of states, in some
cases surpassing traditional sources like the corporate income tax and helping
states lower personal income or property taxes.”
The WTO ruling does not automatically “overturn”
federal law. But it would allow the winner in a dispute—in this case Antigua—to
apply economic pressure through tariffs or sanctions against the loser, if laws
are not changed to come into compliance with the WTO ruling. So this case raises
the following important questions:
the United States simply withdraw its GATS commitment on gambling services?
YES. Article XXI of the GATS allows WTO member countries to “modify or withdraw
any commitment in its Schedule.” The US would have to do two things to withdraw
its commitment on gambling. First, it would have to give other WTO members at
least three months notice of its intention to do so. More importantly, according
to Article XXI, any WTO member affected by the proposed modification or withdrawal
would be able to engage the United States and seek a “compensatory adjustment….[so
as] to maintain a general level of mutually advantageous commitments not less
favorable to trade that that provided for in Schedules of specific commitments
prior to such negotiations.” Plain-English translation: If the US were to
withdraw the gambling commitment, it might have to offer new or amended commitments
elsewhere in the US GATS schedule that are “not less favorable to trade”
with WTO members.
Note that it’s
not just Antigua that can ask for such negotiations. Europe could too. So could
Costa Rica, another big player in the global gambling market. For example, rather
than ban internet gambling, the European Union has opted to regulate (and tax)
on-line casinos. European trade negotiators would be expected to seek a “compensatory
adjustment” through the opening up of another GATS sector if the US moved
to withdraw the gambling commitment. The EU has long-standing GATS “requests”
of the United States in areas ranging from banking to legal services to water.
Another major issue: It can be expected
that the “compensatory adjustment” would be based on the size of the
market-access offer being withdrawn. Internet gambling is a $7.5 billion business
at present, and with annual growth rates in excess of 20%, is expected to more
than double in the next five years. Every year that the United States waits before
withdrawing that commitment, the bill for a “compensatory adjustment”
could also grow by more than 20%.
Antigua, or another country, re-file a WTO complaint on internet gambling?
YES. As noted above, gambling interests in the European Union view the US-Antigua
case as a “solid precedent” for filing a WTO case against the United
States “along similar lines” to that pursued by Antigua in its filing.
The dispute panel in the US-Antigua case confined its analysis to the US federal
laws at issue, and did not address the complaints Antigua made against various
state laws. It is therefore likely that the complaining party in any future WTO
dispute filing would comprehensively detail the ways in which existing US state
laws are not in keeping with the US commitment under “other recreational
Antigua, or another country, file a complaint on internet gambling against the
United States using another trade agreement? Antigua is not
currently party to a bilateral or regional free trade agreement with the United
States. But NAFTA or CAFTA member countries—several of which are home to
powerful internet gaming interests—might very well be tempted to bring a
claim against the United States using the investment chapters of those agreements.
To begin with, the GATS Article XIV clause that allowed the United States to “dodge
a bullet” on the Antigua case—the “public morals” exception—is
not a part of the investment chapters in either NAFTA or CAFTA. USTR could have
negotiated a definitive carve-out of gambling regulation from investment rules
in Annex II of CAFTA—but failed to do so. Costa Rica is a big player in
the world of on-line gambling. Indeed, this CAFTA-member country will play host
to the International
Gaming Conference and Expo in April of this year, and the
keynote speaker for that conference has been asked to address opportunities for
expanding markets for on-line gambling enterprises.
Forum on Democracy & Trade is currently analyzing the possible threats to
US state and federal gambling regulations presented by these FTA investment chapters;
please contact for further information
Does Antigua have any economically meaningful way to retaliate against the United
States? Given the tiny size of Antigua’s economy vis-à-vis
the United States, any punitive tariffs that Antigua might want to slap on the
import of US goods are likely to be felt more by Antigua’s consumers than
by US exporters. However, there is a precedent at the WTO for retaliation in other
ways—such as through the suspension of intellectual property protections.
At this stage, however, Antigua has chosen to stress the importance of U.S. compliance,
rather than raising the specter of specific retaliatory actions. But Antigua’s
recent letter to Ambassador Rob Portman suggests its growing impatience with the
United States. Regarding the two bills introduced by Representatives Goodlatte
and Leach, Antigua noted in its letter to USTR that “we can only assume
that this legislation was neither sponsored by nor enjoys the support of the USTR
and the current American administration.”
If the United States does NOT amend its laws to comply with the WTO ruling, how
does that affect its “moral authority” to argue for new commitments
in current WTO services negotiations? The deadline for compliance in
the Antigua case comes right at the “crunch time” for completion of
the current Doha Round of WTO negotiations. Not just Antigua, but more than 140
other WTO member-countries, will be watching to see whether the United States
intends to comply with the decision made by the WTO in this case. Again from Antigua’s
letter to Rob Portman: “[the United States] has a vested interest in providing
developing country members of the WTO with assurances that the WTO dispute resolution
system is indeed a ‘two-way street’ that provides a level and fair
playing field for all members.