WTO Deadline for U.S. Only Days Away

The United States' deadline to implement a ruling by the Dispute Settlement Body of the World Trade Organization is Monday, April 3, but the country has taken no observable actions towards conforming to the ruling. It can safely be assumed that on Monday neither the U.S.' opponent in the dispute-- the tiny island nation of Antigua and Barbuda—nor the Dispute Settlement Body will be satisfied with the U.S.' status report. The absence of action on behalf of the U.S. not only casts doubt on whether Antigua can reap any sort of reward from its victory, but on a larger scale it also seriously jeopardizes the integrity of an international body that is meant to provide a fair venue for disputes between countries both big and small.

Antigua initiated the WTO's dispute settlement process in June of 2003, charging that the U.S.'s refusal to recognize Antigua-based online gambling operators as legal businesses is a violation of an international trade agreement that the U.S. had entered into called the General Agreement on Trade in Services (GATS). Following deliberation on the matter, a three-person independent dispute panel ruled in favor of Antigua in March of 2004, then after an appeal by the U.S. which was followed by more deliberation, the Appellate Body of the WTO also ruled in favor of Antigua on April 7, 2005.

The Appellate Body's report on the issue states that gambling services are scheduled under the GATS and that the U.S. must therefore treat foreign providers of gambling services the same as it treats domestic providers. With that matter decided, the next important question before the Appellate Body was whether or not interactive gambling services should be classified the same as services offered by traditional bricks-and-mortars gambling establishments. The Appellate Body felt that there are sufficient differences between traditional and interactive forms of gambling that they be classified differently, and it agreed with U.S. arguments that interactive gambling brings increased risks of fraud, money laundering, compulsive gambling and underage gambling, and might therefore be prohibited in some cases in order to protect public order and morality. But even though the Appellate Body recognized that a country could justifiably prohibit online gambling services, it ruled that the U.S.' treatment of the issue was hypocritical because it permitted domestic horse race wagering providers to offer their services via interactive means.

The Appellate Body therefore concluded its report with the statement, "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."

An independent arbitrator would eventually examine the case and determine in August of 2005 that a one-year time period is a sufficient amount of time for the U.S. to make the necessary policy adjustments to come into conformity with the ruling, establishing April 3, 2006 and the deadline date for implementation.

To say that the U.S. has done nothing in the last year to work toward implementing the WTO ruling would an understatement; the only American policy-makers to address the online gambling issue have not only completely ignored the ruling, but they've proposed legislation that would codify a ban on foreign remote gambling services. Despite these facts, U.S. Trade Representative Steven Fabry has submitted the same contradictory statement at status report meetings of the Dispute Settlement Body: "The U.S. Administration, in consultation with the U.S. Congress, has been working on appropriate steps to resolve this matter."

At the moment there are two online gambling bills before the U.S. House of Representatives. Both propose to prohibit foreign remote gambling services. One seeks to accomplish this by targeting the payment processing mechanisms for online gambling transactions while the other would revise the definition of the federal Wire Act to clarify that all forms of unauthorized online gambling are illegal. The payment processing bill, which was introduced by Rep. James Leach (R-Iowa), has already been approved by a Financial Services Committee and has obtained 118 co-sponsors, nearly all of them Republicans.

Although the WTO Appellate Body recognized that the U.S. could justifiably prohibit online gambling services, the two bills before Congress would not fulfill implementation because they contain carve-out exemptions that would permit the domestic horse race wagering providers to continue offerings services via remote means. The bills also contain language that would exempt any state that might choose to license and authorize a form of remote gambling in the future.

Considering the almost complete absence of any discussion among American policy-makers about the WTO dispute, it is easy to speculate that the U.S. simply has no intention of complying with Appellate Body report. A sad fact of the matter, however, is that the United States brings more disputes to the WTO than does any other nation, and its failure to comply in this case ought to seriously jade the reputation of the organization. In the months following the dispute panel's report and then again following the Appellate Body's report, Antiguan representatives had hailed the decision as a testament that the WTO provided a venue for even the tiniest nations to receive fair treatment in disputes against the most powerful. But in the face of U.S. legislators moving in the opposite direction of compliance, the Antiguan delegation seems to be growing more apprehensive.

This is our first experience with the dispute resolution at the WTO, but we had perhaps naively expected that the United States would wish to engage with our government on devising an equitable solution to our dispute that would take into account the benefits accorded to Antigua under the recommendations and rulings, but also reasonably and comprehensively address the concerns raised by the United States during the course of the dispute as its justification for prohibiting the provision of services from Antigua to American consumers. To our great disappointment and in spite of numerous attempts on our part, the United States has shown absolutely no interest in engaging with us in this regard.

So reads part of a statement submitted by Dr. John Ashe, Amassador of Antigua and Barbuda, to a meeting of the Dispute Settlement Body on March 17. Ashe's statement later continues:

…We all know of the difficult questions facing many countries—particularly developing countries—when considering the costs and benefits of signing on to a multi-national trade organization such as the WTO. In Antigua, we have voluntarily complied with the demands of trading partners, including particularly the United States, based upon our commitments to our trading partners under the various WTO trade agreements. Some of these things have clearly had an adverse impact on our own efforts to enrich and achieve some autonomy in our small economy. But we have been encouraged by the dominant economies on this planet that this multi-lateral set of agreements would accrue to the benefit to all of us. That we could compete with larger economies and, in the case of a dispute, achieve a fair and balanced hearing which would provide us with a meaningful remedy despite our limited global economic consequence.

Ashe and the rest of the Antiguan delegation are now concerned that the U.S. may choose not to implement the Appellate Body's report, pointing out that the last course of action for Antigua would be sanctions against the U.S., which if applied could just easily harm Antigua more than it would harm the U.S.

Stated Ashe:

As reported on a website of an interest group in the United States, the USTR assured the participants at a conference held late last year that "as they see it, the most Antigua can do is levy tariffs on US imports equal to the 'damage' done by the US failure to comply with the WTO ruling. Antigua is a tiny economy and imports little from the US. Imposing additional duties would simply make American goods more expensive there." Further, at the same meeting, USTR representatives were quoted as saying that "if the WTO does not agree [with American compliance efforts], the issue will likely be litigated for at least another year."

(The website Ashe refers to is that of the National Coalition Against Legalized Gambling—www.ncalg.org— but the referenced document has since been removed.)

It would be possible within the procedures of the WTO for other nations to sign onto the Antigua complaint against the U.S. and apply tariffs, but it seems a bit unlikely. Some voices in the online gambling industry have expressed hope at the possibility that the UK could join the complaint, but in reality the UK is unlikely to take such action against ones of its closest allies, especially considering that the UK government hardly does much to back up its private I-gaming operators in disputes at the European Union level.

Meanwhile, the four Antiguan agencies of U.S.-based money transfer services company Western Union remain closed. Western Union services are known to have been one of the payment methods accepted by several of Antigua's online gambling operators, prompting speculation that Western Union may be reacting to the U.S. government's prohibitive approach to online gambling. Operations at Western Union's four Antiguan agencies were shut down on Jan. 4, 2005 as a result of what the company called an "ongoing internal review."