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The WTO Report - the Impact, the Meaning and the Future

21 December 2004

The World Trade Organization dispute panel's ruling in favor of Antigua and Barbuda, which states that U.S. policies restricting online gambling violate the United States' commitments under the General Agreement on Trade in Services (GATS), has been interpreted by many proponents of online gambling liberalization as a major accomplishment. Others minimize the ruling's positive effect on the industry's standing.


"It is a bit surprising that the (dispute) panel has not yet addressed every aspect of the case but has instead limited itself to the cross-border trade issue."
- Philippe Vlaemminck
Vlaemminck & Partners

A panel of experts representing the only global international body that deals with trade between nations has declared that the United States is at fault and can only remedy the situation by changing its laws to permit cross-border Internet gambling.

Nevertheless, the case is far from over, and even if Antigua is successful in obtaining the same ruling from the WTO's appellate body, most experts doubt the final outcome will be as favorable as many in the I-gaming industry are hoping.

For help interpreting the dispute panel's final 287-page report (published Nov. 10, 2004), IGN turned to Philippe Vlaemminck, a senior partner of Belgian law firm Vlaemminck & Partners who has appeared before WTO dispute settlement bodies at both the panel and appellate levels. He has also been involved in every gambling law case that has ever reached the European Court of Justice.

"It is a bit surprising," said Vlaemminck, "that the panel has not yet addressed every aspect of the case but has instead limited itself to the cross-border trade issue."

Antigua presented to the panel a number of different articles to strengthen its case, but in the end the only ones that mattered were those pertaining to commitments on cross-border trade. For example, the question of national treatment, which asks whether foreign companies are given the same treatment as those inside the country, was expected to be an important part of the panel's decision-making but was instead glossed over. The same was essentially done with the issue of like services, which asks whether an Internet casino is the same as a land-based one.

"The panel did make very general statements about the Internet being just another form of distribution of a service," Vlaemminck explained, "but they really limited themselves to a very narrow scope of what the Internet could be."

Perhaps the most important declaration of the panel is that the United States is bound to the Central Product Classification (CPC) system of the United Nations. The CPC states that gambling is a recreational service, and if the U.S. permits cross border trade of recreational services then cross border trade of gambling services must also be permitted.

But according to Vlaemminck, whether the Unite States has bound itself to the CPC is disputable. During the Uruguay round of trade talks that created the WTO and the GATS in 1995, the United States referred to the CPC when making provisional proposals about what sorts of goods and services it wanted to commit. However, the United States did not refer to the CPC when it made its final GATS proposal. Nevertheless, the WTO dispute panel has ruled that because the United States referred to the CPC during the Uruguay round, it has established a negotiation history of binding itself to it.

"This is where I think that the panel--which I suppose could be overruled by the appellate body--adhered to a very narrow line of thinking," Vlaemminck said. "I think this is a systemic question of law: When a country has indeed made a final proposal of commitment whereby it does not expressly make a reference to something, can it therefore be assumed to have committed itself to a certain interpretation? My view is that until you make your final proposal, you cannot legally be bound by the interpretation of your previous provisional proposals."

It is important to note that although the panel's final declaration is that the United States has indeed bound itself to certain commitments, it seems reluctant to issue that ruling. The panel stated in its final remarks:

The panel wishes to note that it is well aware of the sensitivities associated with the subject matter of this dispute, namely gambling and betting services. Our conclusions are directly linked to the particular circumstances of this dispute. We note in this regard that the United States may well have inadvertently undertaken specific commitments on gambling and betting services. However, it is not for the Panel to second guess the intentions of the United States at the time the commitment was scheduled. Rather, our role is to interpret and apply the GATS in light of the facts and evidence before us.

We also wish to emphasize what we have not decided in this case. We have not decided that WTO members do not have a right to regulate, including a right to prohibit, gambling and betting activities. In this case, we came to the conclusion that the U.S. measures at issue prohibit the cross-border supply of gambling and betting services in the United States in a manner inconsistent with the GATS. We so decided, not because the GATS denies members such a right but, rather, because we found, inter alia, that, in the particular circumstances of this case, the measures at issue were inconsistent with the United States' scheduled commitments and the relevant provisions of the GATS.

Having seen the reservations held by the dispute panel in delivering its ruling, one can safely say there is still room for much debate on the question of U.S. commitments, which after all, entail a much wider arena than just gambling services.

"The ruling is huge," Vleemminck explained, "because gambling means little when compared to the overall impact of the interpretation as to whether the U.S. is bound by the CPC to interpret everything it has been committing in services. That's the issue at stake."

The scope of the dispute panel's report deals primarily with commitments, but Vlaemminck believes that the appeal will deal with more than just commitments. A great deal of discussion, he said, is also likely to focus on the issue of public order.

"Regarding public order, I believe the panel has made a very dangerous mistake," Vlaemminck said. "The WTO Panel has interpreted the provisions of Article XIV as laying down a two-tiered justification test. In a first phase, the Panel has investigated whether the US measures can be justified by one of exceptions of Article XIV. So far there is no real problem except that the Panel rejected the recourse to Article XIV (a) because of formal reasons relating to the decline by the United States to engage in consultations and/or negotiations with Antigua. If public order is an exception to be invoked by a WTO member, how can that be subject to bilateral negotiations? In a second phase, the Panel held that the prohibition was not applied consistently since three US-based companies have been offering remote gambling services without being stopped by the US enforcement authorities.

"It is a little bit strange the way the panel has addressed public order compared to the way public order has been addressed by the European Court of Justice, which has a more systematic approach that entails analyzing whether a country's global policy is proportionate to the ends pursued and whether the country's limitation is necessary. In the case at hand, however, we have a very factual, almost case by case assessment, which I don't think is the right approach to public order. So I also expect that discussion of public order will be a matter that the Appellate Body will address. It will be the first time they need to address the concept, but considering the far-reaching implications of it I assume there will be a lot of discussion on it."

The appeal process at the WTO is one that in many ways resembles that of a national supreme court. Although they are limited to the rules of law, appeals can be very long, and Vlaemminck himself has handled WTO cases where the appellate body report was over 300 pages long. According to Vlaemminck, "The Appellate Body is not allowed to say the panel interpreted the facts wrong or that a party presented the facts in a wrong manner; it is limited to the question of the law, but that question is large enough in this case."

If the appellate body inevitably upholds the dispute panel's report, the WTO dispute settlement body (DSB) can agree with the ruling and can request that the United States abide by the panel's and appellate body's recommendations, which in this case would entail changing U.S. federal laws to permit Antiguan I-gaming operators access to the American online betting market. The United States is normally obliged to abide by the recommendation, but if it does not there are different processes to deal with non-abidance. Through a process called implementation, the United States could request a reasonable period of time, generally 15 months, to bring its laws into conformity. After the 15-month period, an arbitration session could be held to determine whether the United States has complied. If the decision is that the United States has not complied, another discussion would take place to determine what kinds of sanctions Antigua could take.

Vlaemminck said that generally, if a country does not abide by a WTO ruling, the other party is entitled to withdraw some concessions in return for the other country's right to enter its market.

"From an Antigua vs. U.S. viewpoint," he said, "there doesn't seem to be much that Antigua can do against the U.S., except for instance if it were to do what I did with bananas in Ecuador, where we had sanctions against the EU. We applied sanctions against intellectual property, saying that Ecuador was legally entitled to violate intellectual property of EU products to certain amounts. In such an instance, Antigua may not obtain access, but it would be able to retaliate by taking measures against the U.S. for amounts an arbitration board has accepted as a proper level of compensation to balance the U.S.'s non-abidance."

In theory, retaliation is supposed to be only a temporary fix, and not a permanent solution. However, if at the end of the dispute settlement process, the United States still has not brought its laws into conformity, there is little more that Antigua can do.

Representatives from Antigua have stated on occasion that the United States will eventually comply because the WTO is such an important organization. (The United States brings more cases to the dispute settlement body than any other nation).

But the United States is a nation with a reputation for stubbornness. Remember that at the heart of the panel's report is an interpretation that the United States has committed itself to allowing the cross-border access of certain goods and services that it feels it hasn't.

"For whatever service they have committed is a question of how do you interpret what they have committed," Vlaemminck explained, "and I think the U.S. is very much relying on its own independence in that regard and does not want anybody else to say what rules should be applied to interpret its own commitments.

He added, "It is always a politically sensitive issue, especially with a Republican majority, when an internationally body decides what the U.S. has to do. At the end of the day, this case is a battle that does not have the immediate impact of a court order. It is not so."

The WTO Report - the Impact, the Meaning and the Future is republished from iGamingNews.com.
Bradley Vallerius

Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials.

Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

Bradley Vallerius Websites:

www.FortheBettorGood.com
Bradley Vallerius
Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials.

Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

Bradley Vallerius Websites:

www.FortheBettorGood.com