US, Antigua Both Claim Victory Following WTO Appellate Body Ruling

The World Trade Organization's Appellate Body today filed its report on the dispute between the United States and Antigua and Barbuda and in doing so upheld a November dispute panel decision that cross-border gambling services fall within the scope of the General Agreement on Trade in Services (GATS).

The ruling recognizes that the U.S. Wire Act, Travel Act and Illegal Gambling Business Act fulfill the purpose of protecting public morals and maintaining public order, but the inevitable conclusion is that the prohibitions embodied in those measures are not applied equally to both foreign and domestic service suppliers of remote horseracing betting services. The panel, therefore, advises that the United States bring its federal laws governing remote gambling into conformity with its obligations under the GATS.

The inconsistency is drawn from the U.S. Interstate Horseracing Act, which permits American race wagering operators to provide account wagering services over the Internet. To the Appellate Body, this means that the United States treats domestic operators of online gambling more favorably than Antigua's operators.

The United States has two options if it wishes to bring itself into conformity with its GATS commitments: Prohibit all gambling over the Internet, including those services offered by domestic account wagering providers, or allow Antiguan gambling providers to provide their services to American citizens.

Mark Mendel, the lead legal counsel for Antigua, is calling the ruling a victory for his client.

"The impartial dispute resolution machinery of the WTO has functioned as we had expected," Mendel said. "Justice has been served, and potential compliance issues facing various U.S. corporations and the U.S. Department of Justice will now be resolved in a manner favorable to fair and responsible international commerce."

U.S. trade representatives, meanwhile, are claiming victory for their parties as well.

One U.S. trade official, who declined to be identified, stated, "Our initial reading indicates that U.S. restrictions on Internet gambling can be maintained." Another unidentified official added, "This is effectively a win for the United States, as [the report] seems to say that if we tighten U.S. Internet gambling restrictions, we'll be fine."

Interpreting the report as a victory for the United State, however, assumes that U.S. policymakers will have no qualms about eliminating online race betting. Efforts to do so would likely be opposed by the horseracing industry, which has proven to have a strong lobbying presence in Washington. In the past five years, the racing lobby has played a key role in forcing carve-outs in the Internet gambling prohibition bills, which have ultimately failed, in part because of the exemptions. It also helped bring about the amending of the Interstate Horseracing Act to authorize Internet gambling.

The Appellate Body's report marks the end of litigation in the WTO for the parties. The Appellate Body will forward its report to the WTO's Dispute Settlement Body, where it will be adopted within 30 days. There can be no more appeals.

The United States is normally obliged to abide by the Appellate Body's recommendations, but there has been much speculation that interactive gaming is not an issue on which the country is willing to bend. Following the adoption of the Appellate Body's ruling, the next likely action is the process of implementation, whereby the United States could request a reasonable amount of time (usually 15 months) to adjust its policies.

The WTO is not the sort of organization that can bring about rapid change in settling disputes. Cases often span several years, and although the litigation has ended in this case, the battle is probably far from over.

Click here to view the Appellate Body's Report.