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Jonathan Gottfried
 

Can Antigua and Barbuda Use the GATS to Break Open the US Internet Gambling Market?

29 September 2003

By Jonathan Gottfried

Back in March of 2003, the twin-island nation of Antigua and Barbuda requested via the World Trade Organization (WTO) that consultations be held with the United States regarding the latter's ban on the cross-border supply of gambling and betting services.

Subsequent to the breakdown of these consultations, Antigua & Barbuda requested on June 13, 2003 that a WTO trade panel be established to investigate alleged United States violations of the General Agreement on Trade in Services (GATS) commitments relating to the supply of gambling and betting services. In particular, Antigua and Barbuda claimed that a variety of American federal statutes, as well as laws in all 50 states and in U.S. territories such as Puerto Rico and Guam, unfairly exclude cross-border gambling and betting operators from the United States.

In its request for the establishment of a panel, Antigua and Barbuda cited as examples of illegal U.S. policy both case law such as United States v. Cohen (2nd Cir. 2001) and Vacco ex rel. People v. World Interactive Gaming Corp. (N.Y. Sup. Ct. 1999) and actions such as New York Attorney General Eliot Spitzer’s crackdown on financial institutions that allow their operations to be used to purchase gambling or betting services.

Here follows a summary and analysis of the issues being deployed by the two sides as well as a prediction of the dispute's outcome.

Issue #1: Does the US GATS schedule apply to cross-border gambling and betting?

Answer: Yes.

Among its many objectives, GATS liberalizes the provision of services "from the territory of one Member into the territory of any other Member." (GATS Article I 2(a)). However, this economic liberalization is subject to many qualifications. In particular, GATS member countries commit themselves to schedules that vary from one country to the next. These schedules detail the extent of liberalization of different economic sectors, from the fashion industry to sewage services. While there is no specific mention of "gambling" or "betting" in the United States' Schedule of Specific Commitments or subsequent commitments and exemptions, there is a category titled "Other Recreational Services" that may apply to gambling. This is not a certainty because there is no definition of "Other Recreational Services" or "Recreational Services" in the GATS (even "services" is circularly defined in Part I of the GATS as "any service in any sector except services supplied in the exercise of governmental authority").

However, the categories in the GATS schedules are often defined according to the United Nations' Central Product Classification (CPC) system, whose nomenclature places "gambling and betting services" (including "online gambling") under "Other Amusement and Recreational Services." Other internationally recognized classification systems, such as the International Standard Industrial Classification (ISIC) system, similarly place "gambling and betting activities" under the category of "other recreational activities."

Furthermore, even in those classification systems that do not explicitly mention online gambling, the WTO is not likely to claim that while gambling or betting falls under "Other Recreational Services," Internet gambling or betting does not. The Ministerial Conference, which is the WTO's topmost decision-making body, has stated that, "existing WTO rules, which are consistently technology-neutral, be applied to electronic commerce as far as possible, thereby obviating the need to classify it as a distinct regulatory domain in international trade" (WT/GC/25, July 5, 1999). Consequently, what's good for offline gambling or betting should be good for Internet gambling or betting.

Issue #2: Assuming that the U.S. GATS schedule applies to cross-border Internet gambling and betting, does the U.S. GATS schedule require a full American commitment to the cross-border supply of gambling and betting services?

Answer: With limited exceptions, no.

As mentioned above, the extent to which the trade in services is liberalized under GATS depends upon each country's schedule of specific commitments. For example, the U.S. Schedule of Specific Commitments specifies that licensure for a lawyer in the state of New Jersey depends upon the lawyer's maintaining an office in that state. Thus there would not be a violation of the GATS if a foreign lawyer that did not satisfy these criteria were denied a license to practice in New Jersey.

If gambling and betting falls under "Other Recreational Services" on the U.S. Schedule of Specific Commitments, then we must look at this section in order to determine the extent of liberalization that the US government has provided in this area. Although the United States could have chosen to implement all sorts of market barriers in the field of "Other Recreational Services," it did not. In fact, the United States has not specified any cross-border supply limitations to market access or national treatment in this sector. Consequently, if gambling and betting falls into the category of "Other Recreational Services," the United States must accord no less favorable treatment to foreign service suppliers as is accorded to domestic service suppliers.

However, the analysis does not stop there. The next question becomes whether the American government is discriminating against foreign gambling or betting service providers and in favor of domestic gambling or betting service providers. The U.S. government claims that the U.S.-Antigua dispute is not an instance where a country is allowing a domestic industry to flourish to the detriment of foreign competitors since cross-border domestic gambling and betting operations are allegedly also forbidden under US law.

And this claim is more or less true. For example, Antigua and Barbuda has cited the Wire Act (18 USC Sec. 1084) and the Travel Act (18 USC Sec. 1952) as examples of American federal laws that infringe on the obligations of the United States under GATS. However, these laws apply as much to interstate as to international gambling or betting transactions. The point is that the Wire Act is not being applied in one way to an American gambling operation and in a completely different fashion to an Antiguan operator. Yet Antigua and Barbuda has a stronger argument with respect to the Interstate Horseracing Act (15 USC Sec. 3001-3007) which, as a result of the 2000 amendment, permits certain types of cross-border Internet betting. Although, as its title suggests, the Interstate Horseracing Act (IHA) contemplates "interstate" as opposed to "international" wagers, one might argue that an Antiguan operator who fulfills the requirements of the IHA should, under the U.S. Schedule of Commitments in GATS, be entitled to provide its betting services to American customers. Yet, as the following section suggests, the American government might also be able to counter this argument. . .

Issue #3: Does the public morality or order exception apply to the cross-border supply of gambling and betting services?

Answer: Probably.

Article XIV(a) of the GATS provides an exception for those measures that are "necessary to protect public morals or to maintain public order." A footnote to Article XIV states, "[t]he public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society." One can argue that the same qualification might also be applied to the "public morals" exception since a broad reading of "public morals" would allow this exception to undermine the economic liberalization at the heart of GATS.

The government of Antigua and Barbuda has tried to preempt any invocation of the public morals or public order exceptions. It claims that its country is in compliance with anti-money laundering and terrorism guidelines promulgated by the OECD's Financial Action Task Force on Money Laundering. Furthermore, underage gambling is prohibited in Antigua and Barbuda.

Yet the American rhetoric surrounding gambling legislation is heavily grounded in notions of public order and morality. Concerns about the corruption of youth and about epidemics of pathological gambling, organized crime and money laundering are frequently invoked by opponents of gambling and betting. And even when permitted in the United States, gambling is heavily regulated so as to limit supply. In short, the government’s hand is favored over the market’s invisible one. Consequently, even in those limited instances where American law permits interstate gambling, the American government has a strong argument in the WTO dispute that its interest in limiting supply to gambling falls under a "public morals" or "public order" exception.


The bottom line is that Antigua is unlikely to prevail in its efforts to use GATS to open up the American market to foreign gambling and betting suppliers.

Can Antigua and Barbuda Use the GATS to Break Open the US Internet Gambling Market? is republished from iGamingNews.com.
Jonathan Gottfried
Jonathan Gottfried