Understanding the WTO Decision: Part 2 of 2

Part 2 of "Understanding the WTO Decision" examines the United States' options for implementing the Appellate Body report as well as various scenarios U.S. representatives could encounter.

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Implementation Options

Complete Allowance

One scenario in which the United States could come into compliance with its GATS obligations on gambling is to alter the Wire Act, Travel Act and Illegal Gambling Business Act so that foreign-licensed remote gambling operations are no longer prohibited. This is the dream scenario for Antigua and a lot of online gambling operators throughout the world, but based upon the U.S. approach to Internet gambling in the past, such action will only be taken if the United States loses a series of battles, and only then as a very last resort. As we shall see, the United States has options to explore before taking this course.

Of course, if the country were to actually give foreign operators access to its market, it seems plausible that it would also introduce legislation to license and regulate companies to operate from within the United States so that it could at least make revenue off of the enterprise.

Complete Prohibition

The most likely scenarios involve the United States fighting tooth and nail to maintain a prohibition on remote gambling. Given the ruling of the Appellate Body, one very viable solution is to adjust the Interstate Horseracing Act to prohibit all forms of remote gambling, including account wagering on horse racing.

The initial statement from the Office of the U.S. Trade Representative (USTR), Peter F. Allgeier, indicates that tweaking the Interstate Horseracing Act is the country's most likely approach. Allgeier's stated, "The United States needs to clarify one narrow issue concerning Internet gambling on horse racing in order for the public morals/public order exception to the GATS to apply. . . . USTR will be exploring possible avenues for addressing this finding. USTR will not ask Congress to weaken U.S. restrictions on Internet gambling."

By prohibiting domestic providers of horse race wagering from offering their services through remote means, the United States would no longer be guilty of giving preferential treatment to American companies. The country would be able to maintain its prohibition on all other remote gambling services while also becoming compliant with its GATS obligations. However, prohibiting America's horse racing industry from offering wagers via remote facilities would not be an easy task.

The National Thoroughbred Racing Association (NTRA), a representative body of the horse racing industry in the United States, recently secured the services of law firm Sidley & Austin to represent its members in discussion with the U.S. Trade Representative as the association tries to provide its input on the various options for compliance with the WTO ruling.

According to Greg Avioli, executive vice president of legislative and corporate planning for the NTRA, "Remote wagering is the single most important part of our business right now. It is the largest growth area, whereas wagering at race tracks is flatter and declining year to year over the last few years. Meanwhile, licensed online wagering is growing in double digits every year."

Avioli says his organization will "vigorously oppose" any attempt by the United States to prohibit remote wagering on horse races.

NTRA Commissioner D.G. Van Clief, Jr. added, "The horseracing industry has operated for more than 25 years pursuant to the Interstate Horseracing Act, a federal statute that provides a framework for interstate simulcasting of horse races among 42 states. These state-licensed and regulated activities account for more than 80 percent of our industry's revenues, generate more than $1 billion in annual local, state and federal taxes, and are the primary economic engine that supports the 472,000 workers in the $34 billion racing and breeding agribusiness."

Among the industry's lobbying achievements is the very amendment to the Interstate Horseracing Act in 2000 that permits account wagering providers to use the Internet as a means of accepting bets. The amendment was necessary because the U.S. Department of Justice, when asked for its opinion, stated its belief that not only account wagering over the Internet, but also account wagering via telephone--even in states where horse race wagering is legal--violated the Wire Act (even though the Interstate Horseracing Act of 1978 was intended to permit account wagering over the telephone). Despite the DOJ's position on account wagering, various companies in a number of states had operated account wagering via the telephone for over two decades without ever facing prosecutions.

In response to the DOJ's statement regarding the Interstate Horseracing Act, an effort to clarify the Interstate Horseracing Act was spearheaded by three Congressmen from Kentucky who were successful in inserting the following language into the IHA:

. . . and includes pari-mutuel wagers where lawful in each State involved, place or transmitted by an individual in one State via telephone or other electronic media and accepted by an off-track betting system in the same or another State, as well as the combination of any pari-mutuel wagering pools. . .

Another example of the U.S. horse racing industry's lobbying prowess is its success through the years in protecting its interests when prohibitory online gambling bills have come before Congress. One group of manifestations of prohibitory bills failed because groups representing horse racing, fantasy sports and lottery interests raised enough opposition to kill them. In response, legislators have drafted bills with carve-outs to protect those special interests, and these bills were inevitably unsuccessful because anti-gambling advocates felt they were no longer tough enough.

One effort that could change the legality of remote wagering in the United States is already underway in the form of the Unlawful Internet Gambling Enforcement Act of 2005, drafted by longtime interactive gaming foe Sen. Jon Kyl, R-Ariz, who has authored many of the previously mentioned failed prohibitory bills over the years. Like older versions, the 2005 bill would bar financial institutions like banks and credit card companies from transmitting funds for the purpose of online gambling. His latest bill, which has not yet been introduced to the Senate, reportedly does not include exemptions for horse race wagering. The passage of such a bill would repeal the Interstate Horseracing Act and make account wagering via Internet and telephone illegal.

Gaming lawyer Anthony Cabot told MarketWatch, "The new Kyl bill is the most likely vehicle. It can effectively shut down any interstate betting that would go through a financial transaction service provider."

It may be worthwhile to consider that that taking away the bettors' ability to wager online is not likely to force them back to the tracks. Although a change to the Interstate Horseracing Act could certainly be effective in prohibiting U.S.-based companies from offering horse race betting over the Internet, it would not prevent American customers from using the Internet to gamble on horse racing, as offshore providers would be more than eager to inherit the lost business from American companies. Even some U.S. companies that conduct wagering over the phone and Internet might relocate offshore. As Charlie Ruma, owner of America Tab, explained to the online publication Bloodhorse, "How many people in the country are betting their dollars on poker with Internet betting companies that are all offshore? Are you going to keep American citizens from wagering? I don't think so. It'll never stop. If it stops in the U.S., companies like mine will go outside the U.S."

At any rate, the repeal of the Interstate Horseracing Act threatens not only account wagering providers, but also the existence of the horse racing industry in America.

Allowance of Remote Horse Race Wagering Only

A third, murkier scenario might involve the United States attempting to come into conformity with the WTO Appellate Body ruling by permitting both domestic and foreign companies to provide remote horse race betting services, but no other forms of remote gambling. In taking this approach, the United States would use its implementation period to adjust the Interstate Horseracing Act and/or other federal laws.

Whether such a measure would be compliant with the WTO, however, isn't clear. Mark Mendel, lead attorney for the government of Antigua, does not believe this is a viable option for the United States because he believes the Appellate Body report does not distinguish between one form of gambling and another, meaning it is not possible to permit licensed foreign companies to offer horse race wagering but not poker or casino gaming.

"It is not a "horse racing" issue in the eyes of the WTO; it is a "remote" vs. "non-remote" issue," Mendel said. "The horse racing is an example of how the US does not apply its laws fairly, not the only area in which it doesn't. Because it failed this part of the Article XIV defense, it lost on the entire defense. That is the way the provision works. So, they should give us market access, period.

"Now, I think they would have the alternative of prohibiting all remote gambling throughout the United States, not just horse racing, but all remote gambling. Only in that case could they say they are not discriminating against us. In no part of the ruling was it decided that there is or should be distinctions between different things on which to bet or different ways to bet."

Even if Mendel is correct, the United States has already demonstrated a case history of delaying proceedings at almost every possible junction. It is difficult to predict how a scenario like this would play out, but such an approach might be effective in buying the U.S. many more months of time by forcing Antigua to launch appeals. Or, in a worst-case scenario, if the United States followed this approach without any interruptions by the Dispute Settlement Body, Antigua might be required to file a completely new case. Thus, the Antiguan plight could be prolonged for up to two more years.