Europe's internal market regulator, the European Commission, announced Thursday that United States Internet gambling laws are inconsistent with World Trade Organization rules, but stressed a round of negotiations between European and American trade officials should precede any action at the W.T.O.
"It is for the US to decide how best to regulate Internet gambling in its market, but this must be done in a way that fully respects WTO obligations," Catherine M. Ashton, the European trade commissioner, said in a prepared statement. "I am hopeful that we can find a swift, negotiated solution to this issue."
The commission said its investigation -- the results of which are contained in a draft report just finalized -- found that United States laws "deny access and discriminate against foreign suppliers of gambling and betting services inconsistently with US WTO obligations" and that W.T.O. proceedings against those laws "would be justified."
The investigation began last March after the Remote Gambling Association lodged a complaint, under the European Union's Trade Barriers Regulation, alleging the United States Justice Department had broken W.T.O. rules by selectively targeting and prosecuting European online operators for past offences, but not domestic ones.
Under the administration of George W. Bush, the Justice Department maintained that all Internet gambling was illegal. During that time, federal attorneys in Missouri and New York targeted executives from London-listed firms like BetonSports and Neteller but not those from horsebetting operators like Youbet.com Inc. of California.
The commission's draft report, now, will be sent to European Union member states for comment before being publicized. Clive Hawkswood, chief executive of the Remote Gambling Association, told IGamingNews the comment period ends on April 6.
The report also comes a week after Ron Kirk, Barack Obama's pick for United States trade representative, was sworn in. Unsurprisingly, Mr. Kirk's office kept things concise when asked Thursday to respond to the commission's findings.
"U.S. government agencies, including USTR and DOJ (Justice Department), are studying the report and will discuss it with the European Commission," Nefeterius Akeli McPherson, a public affairs officer with the trade representative, told IGamingNews.
Naotaka Matsukata, director of policy planning under Robert B. Zoellick, who was trade representative between 2001 and 2005, told IGamingNews Thursday that the Remote Gambling Association's complaint is unprecedented in that it could force the W.T.O., a global trade referee, to adjudicate on the enforcement of American criminal law.
"The other part of the story to this is the Department of Justice, and how they want to respond," he said. "In many respects, this is a case targeted toward their activity. They have now to come up with some response as well to this development."
The possibility of W.T.O. involvement in the federal law-enforcement process here, meanwhile, is likely to worry some conservative, liberal -- even centrist -- lawmakers.
"To certain members of Congress, the question becomes, 'Why is it that some international organization is telling us how we enforce our laws?' " said Mr. Matsukata, who is now a senior policy advisor with the law firm Alston & Bird in Washington, D.C.
He said the overhang of W.T.O. involvement, furthermore, could result in Congress pressuring Mr. Kirk's office to settle with the European Union.
It is unclear at this point, however, how the trade dispute will affect the introduction of new regulatory legislation from Barney Frank, Democrat of Massachusetts, which is expected this spring.
"It may accelerate the process a little bit, but it's hard to say," Mr. Matsukata said.
Mr. Frank has been openly critical of Mr. Kirk's predecessor, Susan C. Schwab, who -- without Congress' blessing -- negotiated the withdrawal of gambling from the United States' commitments under the General Agreement on Trade in Services, an international trade agreement that took effect in 1995.
"Your agency has chosen not to consult with Congress, but instead to take what we view as a drastic step which could have significant consequences for the whole WTO system," Mr. Frank said in a 2007 letter to Ms. Schwab.
For his part, Mr. Hawkswood said of Thursday's announcement from the commission: "Obviously we welcome the outcome and can only hope that the EU's modest and reasonable request will be met by the U.S."