Two weeks ago trade representatives for the United States reached an agreement with representatives from Antigua and Barbuda to suspend litigation in their World Trade Organization dispute over the provision of online gambling services. Now, three months after its initial reaction of outrage at the dispute panel's decision in favor of Antigua and Barbuda, the United States has agreed to negotiate a compromise.
Most observers agree that the United States is not likely to amend legislation to permit online gambling. But what sort of agreement between the parties could put an end to this case?
We asked trade attorney Kay Georgi and gaming attorney Philippe Vlaemminck:
What sort of compromise might Antigua and Barbuda hope to obtain from the United States in the two countries' WTO dispute?
Kay Georgi and Philippe Vlaemminck: We are necessarily operating in the dark, as the final WTO panel decision remains confidential, and we would not request, nor would we publish, any confidential information regarding the negotiations or negotiating strategies of the U.S. or Antiguan governments. In short, the following opinions are purely speculative, although the speculation is based on our knowledge of the arguments made before the WTO Panel, WTO procedures and the past positions made public by the two parties.
With these caveats, we believe that the U.S. negotiating goal is likely to prevent the circulation to the WTO members and the adoption of the report by the Dispute Settlement Board (DSB), while at the same time committing to make as few legislative changes as possible. The final report has reportedly not been submitted to the DSB, and, provided that Antigua and the United States can reach an accommodation during the period of suspension (currently through Aug. 23, 2004), they should be able to prevent either its circulation and/or its adoption. Once circulated, the latter may be difficult, as dispute settlement reports must be adopted unless the DSB decides by consensus not to adopt the report.
What can the U.S. offer Antigua that will persuade Antigua that its interests are best served by settlement while at the same time preserving its interpretation that the Wire Act prohibits foreign and U.S. persons from engaging in the business of betting or wagering from knowingly using the Internet as a means to transmit bets or wagers in U.S. foreign or interstate commerce?
The options are limited:
Money may be one option, although it would likely need to be a substantial amount given Antigua's allegations of $90 million in past lost revenues. Of course, money can be supplied through various government programs rather than a pure settlement. (In addition, it is at least theoretically possible that the United States could offer concessions to Antigua in other areas, although we would not hazard a guess as to what might be tabled.)
However, we would assume that the remuneration would need to be coupled with some form of agreement that would permit Antigua to assert that it had still gained something for its Internet gambling industry going forward, while still allowing the U.S. government to maintain that nothing has substantially changed in U.S. law. One possibility that the U.S. government might be willing to consider is fine-tuning its enforcement guidelines so as to reduce the risk of prosecution to Antiguan Internet gambling service providers. For example, the United States could provide guidance as to when an Internet gambling service provider would be found to "knowingly" place bets in U.S. commerce under the Wire Act. The Antiguan companies would necessarily need to follow some "safe harbor" guidelines, such as not targeting the U.S. market or U.S. consumers, not advertising in the United States, or taking other acts to attempt to winnow out U.S. customers.
On the E.U. side for instance, the European Commission Competition Directorate did already distinguish between active and passive sales (guidelines on vertical restraints and the block exemption on automobile distribution). In this way, it is understood that as long as no advertising (for example, through banners) takes place, nor any other mean of targeting a consumer in another jurisdiction used, an operator selling goods or services over Internet is not acting "actively." An exclusive dealer does not violate its contract by "passively" selling to consumers outside his exclusive territory through the Internet.
Provided the Antiguan (or other) companies stayed within a similarly defined "safe harbor," they would not be targeted for prosecution. Similar arrangements would need to be worked out, however, for other related Internet gaming services and under other federal laws.
The advantages of this solution would be significant for both sides. Antigua could obtain a worthwhile settlement, plus an assurance that, as long as their providers remained within the "safe harbor" guidelines, they would not be prosecuted nor company executives jailed within the United States. It is true that Antigua would not have the firm victory of the formal adoption by the DSB of the WTO Panel Report. However, Antigua has already enjoyed to some extent favorable publicity surrounding the alleged "win" as it was leaked to the press. Moreover (and again, without having read the panel determination), Antigua may be concerned about the risk of losing key points on appeal to the Appellate Body. The United States has made it clear that it will appeal if no settlement is reached. Once this window of opportunity for settling the case is passed, Antigua's ability to bargain may be substantially reduced.
On the other side, the United States would avoid the adoption of a panel report that -- according to published sources--appears to have been a significant defeat, and one that could potentially have significant ramifications for U.S. government by reason of its likely interpretation of the U.S. schedule of commitments under the General Agreement on Trade in Services (GATS). It bears noting that, of course, this would be one more WTO defeat for the United States, right before the presidential election in November, on a potentially difficult topic. Moreover, under this possible settlement, the United States would not need to amend its laws, as this (based on the recent attempts to revise U.S. tax laws and the Byrd amendment) could take years. Indeed, the United States could even take the position that it is simply elaborating its interpretation of the Wire Act and other laws and that nothing has really changed.
Whether the two sides are able to reach accommodation on this or other grounds, the delay could, if the parties agree, extend beyond the current expiry date of Aug. 23, 2004. Under Article 12.12 of the Dispute Settlement Understanding (DSU), the panel can suspend its work at any time at the request of Antigua for a period of up to 12 months. An additional few months would push the negotiations past the November elections when the U.S. Administration, whatever Administration that might be, may have a freer hand to settle the matter.
Kay Georgi (georgiK@coudert.com) is a partner in the Washington, D.C. Office of the international law firm of Coudert Brothers LLP. She advises clients on trade-related matters, including representing clients in WTO matters, including section 301 proceedings before the USTR, and trade remedy cases before the International Trade Commission, the U.S. Department of Commerce and U.S. courts.
Philippe Vlaemminck (ph.vlaemminck@vlaemminck.com) is a senior partner of the Belgian law firm Vlaemminck & Partners and visiting professor of European law at Ghent University (1998-1999 and 2001-2002). He is a member of the International Masters of Gaming Law. He has a pan-European gaming law practice advising both operators and regulators in several European jurisdictions. He has appeared before WTO dispute settlement bodies (Panel and Appellate Body) and has been involved in all of the gambling law cases before the European Court of Justice (from Schindler to Gambelli).