Antigua's Fight in the World Trade Organization

Challenging the Ban on Internet Gambling in the United States: Antigua's Fight in the World Trade Organization

7/9/2008
By: Scott R. Knapp and Peter J. Kulick The gaming industry rarely focuses on the industry as part of the world of international trade(1). The globalization of the gaming industry, including the expansion of traditional commercial casinos throughout the world and the advent of internet gambling, has made the gaming industry cognizant of the concepts of international trade. A long simmering World Trade Organization ("WTO") dispute between the country of Antigua and Barbuda ("Antigua") and the United States has brought to the forefront the international trade consequences of Congress's efforts to limit internet gambling in the United States. The dispute between the two countries is by no means a recent development. Rather, the dispute dates back to June 12, 2003(2). Over the past 5 years, the dispute has navigated its way through the WTO dispute resolutions process. It is anticipated that Antigua and the United States will reach a final settlement in the coming days - possibly as soon as July 11, 2008. The final resolution will likely have an impact on the vitality of United States' laws governing internet gambling, such as the Unlawful Internet Gambling Enforcement Act ("UIGEA"), the Wire Act, the Travel Act and the Illegal Gambling Business Act. The Background of the Antigua-United States WTO Dispute The WTO dispute between the United States and Antigua arose from Antigua's desire to gain access for internet operators based in Antigua to the lucrative online sports betting and gambling market in the United States. Antigua contended that the United States(3) had committed to "free trade" for "betting and gambling services" in its Schedule of Commitments to the General Agreement on Trade in Services (GATS). Congress, along with a few states, has enacted legislation which generally prohibits internet gambling in the United States. Consequently, Antigua contends Congressional efforts to ban internet gambling violates the United States commitments under GATS to provide "free trade" for "betting and gambling services."(4) Not surprisingly, the United States has taken the position that it never committed to free trade for betting and gambling services under GATS(5). Thus, in the view of the United States, congressional bans on offshore websites providing sports betting and casinos gambling to United States residents are valid under GATS. Needless to say, the resolution of the United States-Antigua WTO dispute will have broad implications on continuing validity of the ban on online gambling in the United States. The WTO Decision Antigua initiated the World Trade Organization (WTO) Settlement Dispute Process on March 21, 2003 to contest the United States'(6) ban on offshore internet gambling by requesting consultations with the United States. Antigua and the United States failed to resolve the trade dispute through the pre-dispute negotiation process. Thus, on June 12, 2003, under WTO protocol, Antigua requested that a Panel be convened to resolve the dispute. On November 10, 2004, the Panel issued a report favorable to Antigua.(7) Both the United States and Antigua appealed the report of the Panel(8). On April 7, 2005, for alternate reasons, the Appellate Body upheld the Panel's findings by concluding that "the United States' schedule includes a commitment to grant full market access in gambling and betting services," and the United States was acting in an inconsistent manner to specific Articles of the GATS by enacting laws which limited market access not otherwise specified in its Schedule of Commitments to the GATS(9). The Appellate Body also held that the Wire Act, the Travel Act and the Illegal Gambling Business Act violate Article XVI of the GATS. The Appellate Body further found that the United States could not succeed in the proceedings by offering a "moral defense" to Antigua's charges. Essentially, the "moral defense" would allow the United States to abrogate its commitments under GATS and ban internet gambling without repercussions from the WTO. The Appellate Body found that despite the fact that the laws may be necessary to protect public morals, the laws were not applied equally to domestic and foreign operators(10). The unequal application of United States laws have been demonstrated by some legal commentators who have concluded that an Antigua internet sports betting website which accepts a wager from an internet user located in the United States has committed a felony under federal law; however, a commercial casino which operates a sports book in Nevada is not exposed to criminal liability because sports wagering is legal in Nevada and exempted from the federal prohibitions.(11) On April 20, 2005, the Dispute Settlement Body (DSB) adopted the Appellate Body Report and the Panel report with certain modifications set forth in the Appellate Body Report.(12) The United States expressed its intention to implement the DSB's recommendations at a meeting of May 19, 2005.(13) The reasonable period of time for implementation, as required by the WTO, was determined through binding arbitration to be eleven months and two weeks from April 20, 2005.(14) The United States ultimately did not implement the DSB's recommendations within the time period. On March 30, 2007, a WTO Compliance Panel, established at Antigua's request, issued a ruling again in favor of Antigua. The WTO Compliance Panel ruling was critical of the actions of the United States. The ruling affirmed that: (a) the United States was not in compliance with the previous Panel rulings; (b) the United States could not reargue its failed case; and (c) even if the United States were allowed to reargue its case, a case based on a "morals defense" would not likely succeed on its merits.(15) The Compliance Panel ruling also allowed Antigua to impose trade sanctions against the United States.(16) United States Withdrawal from its GATS Commitments and the Response of Other Nations In May 2007, following the Compliance Panel ruling, the United States declared that it would withdraw its original commitment to allow trade in gambling and betting services. A nation may withdraw its commitment under the WTO provided that any WTO members affected by the withdrawal are compensated.(17) Once a WTO member expresses an intent to withdraw its commitments, any WTO member affected by the action may request compensation for lost benefits.(18) Thus, following the United States announcement of its intent to withdraw its commitment, several other countries have filed claims for compensation.(19) On December 17, 2007, the United States reached agreements with the European Union, Japan and Canada to compensate for lost revenue arising from the United States' laws effectively barring internet gaming.(20) Resolving the Dispute? United States-Antigua Settlement Negotiations On June 21, 2007, Antigua requested trade sanctions in the staggering amount of $3.44 billion a year as compensation for the United States' violation of its commitment. A WTO arbitrator on December 21, 2007, awarded Antigua the right to retaliate against the United States by suspending its own obligations under the WTO Agreement in an annual value of up to $21 million.(21) Furthermore, the WTO arbitrator held that Antigua could retaliate by suspending its commitments to upholding intellectual property protections on products from the United States.(22) Antigua filed a notice in January 2008 requesting arbitration by the WTO on the issue of the United States' proposed withdrawal from its GATS commitment. The WTO ordered Antigua and the United States to enter negotiations with the goal of reaching a fair settlement. Antigua and the United States remain in settlement negotiations. A successful settlement must address the issue of Antigu
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