Understanding the WTO Decision: Part 1 of 2

The Latest Meeting

On Thursday, May 19th delegates from Antigua and Barbuda met with United States trade representatives in front of the World Trade Organization's Dispute Settlement Body in Geneva. The U.S. informed the panel that it does intend to implement suggestions listed in the WTO Appellate Body's report, but it did not reveal how it plans to go about implementing those suggestions.

Dr. Errol Court, Antigua's Minister of Finance and the Economy, delivered a speech to the Dispute Settlement Body in which he expressed his disappointment that the U.S. has not come forth with a definite plan of action. "Under Article 21(3) of the DSU, we believe we are entitled to hear at this meeting specifically what the United States proposes to do to comply with the decision and what time frame it suggests in which to accomplish that," he stated.

"The statement of the United States Ambassador today gives us no substantive guidance as to the United States' intentions, and we would respectfully ask the United States to be more specific in front of this Body today. Failing that, at the very least, I will extend an invitation to the United States delegation to meet with out delegation following this meeting in order that we may promptly get the clarity to which we are entitled."

Overview

On April 22nd the WTO's Dispute Settlement Body adopted the report of its Appellate Body, which ruled that the United States’ prohibitive approach to foreign gambling services violates international trade agreements. Because the U.S. permits some domestic betting companies (horse race wagering companies for example) to offer gambling services over the Internet to U.S. citizens while prohibiting foreign companies from doing the same, the Appellate Body ruled that the U.S. gives preferential treatment to U.S.-based companies, which it cannot do under the terms of the General Agreement On Trade in Services (GATS). The report therefore recommends that the U.S. alter its gambling laws in order to satisfy those obligations.

The ruling has no immediate impact in the U.S.. For now the legal and regulatory systems in the country remain exactly the same as they were before the issue of the report. Advertising and banking firms have no more freedom now to execute remote gambling-related deals than they did before the ruling was issued.

In actuality, there will be a period of many months before some, if any, regulatory changes do take place in the U.S, and for now it remains unclear whether any such changes would serve to open the market or restrict it even further.

Both Antigua and the U.S. have declared the report a victory for their own interests. Antigua representatives believe they have received the ruling they sought because the dispute process found that the U.S. violates trade obligations and is therefore advised to adjust its policies to eliminate those violations.

On the other hand, the U.S. has seized upon the fact that the Appellate Body recognizes that a prohibition on remote gambling can be justified as "necessary to protect public morals or to maintain public order." The only reason the United States was found to be in violation of the GATS is because it permits domestic companies to offer wagering on horse races while foreign companies are not permitted to do so. The U.S. Trade Representative has issued statements indicating that the U.S might try to change its Interstate Horseracing Act so that both domestic and foreign companies may offer online horse race wagering while at the same time maintaining its ban on all other forms of remote gambling.

Findings and Conclusions of the Appellate Body

At the heart of the dispute is the question of whether or not the GATS obliges the U.S. to allow the free trade of gambling services. The GATS schedule does not explicitly mention gambling services, but Antigua has argued that the U.S. is obliged to provide for the free trade of gambling because the U.S. has not excluded gambling from its schedule. The Appellate Body has inevitably agreed with the earlier Dispute Panel conclusion that "subsector 10.D of the United States' Schedule to the GATS includes specific commitments on gambling and betting services." Although it has been acknowledged that it is only accidentally that the U.S. has undertaken commitments on gambling, it is not the role of the WTO to interpret intentions but to apply the GATS in light of the facts. It is too late for the U.S. to correct its mistake, and the Appellate Body's ruling is final. There can be no more appeals of this or any other findings in the dispute.

Having established that the U.S. has in fact scheduled gambling commitments, the Appellate Body's next question is whether remote gambling services are to be treated differently than traditional gambling services at brick-and-mortar locations. Here, the Appellate Body concluded that by prohibiting remote gambling, the U.S. is limiting the total number of service operations and the total quantity of service output from foreign countries (specifically Antigua). This limiting of Antiguan services constitutes an unfair treatment. The Appellate Body concurred with the Dispute Panel that "by maintaining the Wire Act, the Travel Act, and the Illegal Gambling Business Act, the United States acts inconsistently with its obligations." Although the Dispute Panel had ruled that the laws of four states-- Louisiana, Massachusetts, South Dakota and Utah—are inconsistent with the United States' obligations, the Appellate Body has disagreed and reversed that finding.

Both the Dispute Panel and the Appellate body did agree, however, that the United States, by citing problems of fraud, money laundering, compulsive gambling and underage gambling, has provided sufficient evidence to prove that remote gambling threatens public morals and public order. Both also agreed that "the concerns which the Wire Act, the Travel Act and the Illegal Gambling Business Act seek to address fall within the scope of 'public morals' and/or public order.'"

A very crucial difference between the Dispute Panel's ruling and the Appellate Body's ruling is that the Dispute panel believed that the U.S. was not able to justify its federal laws as "necessary" to protect public morals because it did not enter into consultations with Antigua. The Appellate body, however, rejected the finding that lack of prior negotiations with Antigua made the ban unnecessary, and ruled instead that it is the responsibility of the complainant (Antigua) to propose prohibition alternatives that are consistent with the WTO. The Appellate Body therefore ruled that the Wire Act, the Travel Act and the Illegal Gambling Business Act are indeed "measures… necessary to protect public morals or to maintain public order." This is the finding on which the U.S. Boasts its claims of victory.

Although the United States was able to prove that remote gambling services do pose a large enough threat to public order to justify a prohibition, the country inevitably lost its overall case because it does not apply the prohibition equally to foreign and domestic suppliers. The United States' Interstate Horseracing Act permits certain American companies (TVG, Capital OTB and Xpressbet.com are explicitly listed in the Appellate Body's report) to offer wagering services over the Internet. The Appellate Body has found that the operation of these companies' services over the Internet is inconsistent with the U.S.' claims that a prohibition on remote gambling services is necessary to preserve public order. The Appellate Body therefore ruled that "the United States has not demonstrated that—in the light of the existence of the Interstate Horseracing Act—the Wire Act, the Travel Act, and the Illegal Gambling Business Act are applied consistently with the requirements of the chapeu."

Because of the Interstate Horseracing Act's inconsistency with a ban on interactive gambling services, "The Appellate Body recommends that the Dispute Settlement Body request the United States to bring its measures, found in this Report and in the Panel Report as modified by this Report to be inconsistent with the General Agreement on Trade in Services, into conformity with its obligations under that Agreement."

What Happens Next

Now that it has declared its intentions to implement the ruling, the U.S. will now be given what is determined by both parties to be a reasonable amount of time in which to come into conformity with WTO policy. In many cases where immediate implementation is not possible, the parties involved come to an agreement about the length of time for implementation, but based on how this case has transpired so far it does not seem likely that the two countries will be able to come to any timetable agreement. If that is the case, then an arbitration panel will decide how much time the U.S. should be given to implement the ruling. The general guideline for arbitration is that a country should not get more than 15 months to implement, but it could also receive as little as a few months. Most experts believe the U.S. will indeed receive the maximum allotment of 15 months. The implementation period begins as soon as the Dispute Settlement Body adopts a ruling, so even if the U.S. were successful in delaying the arbitration phase as long as possible, it would not be successful in pushing the implementation deadline back any further.

The Dispute Settlement Body keeps implementation processes under surveillance until a case is resolved; to that end, six months after the adoption of the report the U.S. will be required to present each Dispute Settlement Body session with a status report until implementation is complete.

View Part 2