Insights - Antigua's WTO Complaint

30 December 2003

Antigua and Barbuda has challenged the United States before the World Trade Organization, arguing that the States' anti-online gambling policies are badly damaging the islands' economy. The Caribbean nation also claims that the United States, by prohibiting financial institutions from delivering funds for online gambling transactions, is in violation of the General Agreement on Trade in Services.

Antigua has followed the necessary steps for resolving a conflict within the WTO and has succeeded in having a dispute panel established to mediate the issue. Both parties have already submitted written arguments to the panel, and this month the panel heard oral arguments from both sides. The panel is expected to render a decision in early 2004.

We asked international law expert Bruce Zagaris:

What is the likely outcome of the WTO dispute between the United States and Antigua and how will the United States respond if the organization decides in favor of the islands?

Zagaris answered with the following article:

The government of Antigua and Barbuda has brought a petition in the World Trade Organization (WTO) against the United States under the WTO dispute resolution procedure for violating the right of persons in Antigua and Barbuda to the right of national and most-favored-nation treatment in engaging in cross-border Internet gaming and betting services. This piece discusses the case after the first panel meeting on Dec. 10, 2003. Basically, the Antiguan chances are quite good, certainly better than a crapshoot. Its biggest hurdle is that in the WTO, jokers are wild and, as the world's superpower, the United States holds and can play most of the jokers (i.e., resources, experience with and knowledge of the WTO procedure).

Whether the US Maintains Complete Prohibition or Total Ban on Provision of Gambling and Betting Services from Antigua and Barbuda

Antigua and Barbuda would seem to have a very strong case in proving that the United States maintains "measure" that result in a complete prohibition or a "total ban" on the provision of gambling or betting services from Antigua and Barbuda into the United States. Here the U.S. formalistic position that Antigua and Barbuda as having "refused to provide the panel with the text of actual laws or regulations" is likely to fail. Indeed, just the Wire Act (18 U.S.C. §1984), the "Travel Act" (18 U.S.C. §1952) and the "Illegal Gambling Business Act" (18 U.S.C. §1955) by themselves prohibit the cross-border supply of gambling and betting services from Antigua. In addition, the combination of these and state laws criminalizing cross-border betting outlaw wagering.

The General Agreement on Trade in Services (GATS) defines "measures" quite expansively in Article XXVIII(a). The Antiguan presentation is likely to also succeed on this point because the prohibition measures could arguably be applied independently of each other against Antiguan gaming operators.

US Commitments

The Antiguan brief has a better-than-even chance to persuade the WTO that the United States has in Subsector 10D of its schedule of specific commitments under the GATS made full mode 1 and mode 2 market access and national treatment commitments with respect to gambling and betting services. Indeed, the third-party submissions of the European Communities, Canada and Japan support the Antiguan arguments and are likely to be influential.

'Likeness' and Less Favorable Treatment

A major issue is the United States says it need not accord "national treatment" under the GATS because the United States as a WTO member must only "accord to services and service suppliers of any other member, in respect of all measures affecting the supply of services treatment not less favorable than that is accords to its own like services and like service suppliers." The United States tries to differentiate between various kinds of gambling games and activities, contending that the ownership or structure of particular service suppliers renders them "unlike," and the services and suppliers from Antigua and Barbuda are allegedly not subject to the same regulatory, health and law enforcement concerns applicable to those in the United States. Under the WTO jurisprudence Antigua and Barbuda has a good shot at succeeding, especially since it will win on three of the criteria: the extent to which the products are capable of serving the same or similar end-uses; the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and the international classification of the products for tariff purposes. One of the criteria--the international classification of the products for tariff purposes--is more difficult to assess.

The Antiguan brief has a strong chance of succeeding, insofar as it shows that the U.S. lottery and horse race betting are offered remotely and cannot be distinguished from Antiguan remote betting. Indeed, these arguments have played out for several years in the U.S. Congress where efforts to ban Internet gaming while preserving some forms of Internet gaming have been shown to be hypocritical and without basis.

Law Enforcement and Health Concerns

Perhaps a more difficult area for the Antiguan argument will be the U.S. argument that law enforcement and health issues make the Antiguan cross-border Internet gaming services and service providers different from those in the United States, allowing the United States to depart from national and MFN treatment. In particular, the United States argues that concerns of underage gambling, pathological gambling, money laundering (and organized and other crime), fraud and consumer protection validate the difference. These issues are relatively novel, at least insofar as they concern cross-border Internet gaming. In this regard, the WTO's decision and its handling of these arguments will be of potential importance for precedence in other services cases.

Likely US Action If WTO Rules for Antigua and Barbuda

It is difficult to predict the likely U.S. action without seeing the WTO decision. However, in the event Antigua and Barbuda wins, the United States is likely to revise its legislation in a way that tries to change some of potentially offending laws so that it complies with the WTO ruling, but does not dismantle the effect of its regulatory measures. This potential reaction would also provide more time, but it may not comply with the WTO ruling. The U.S. response to the WTO ruling that the Foreign Sales Corporation (FSC) incentive legislation violated the WTO resulted in the enactment of the Extraterritorial Income Exclusion Act of 2000 (ETI Act), which in turn the WTO found violated the initial ruling that the FSC violated the WTO. A wild card is that, similar to the constituency in the United States for the FSC, the U.S. gaming industry and the political environment is still quite divided on regulating the Internet gaming generally and different components of it. The division of gaming regulatory policy is complicated by the lack of a true federal regulator and the diverse state and local government policies.

Bruce Zagaris is a partner at Berliner Corcoran & Rowe in Washington, D.C. He has written a number of articles and advised clients on international regulation of Internet gaming and trade in services. The firm is registered as an agent under the Foreign Agent Registration Act. However, the firm has not participated in the WTO litigation and this article is not prepared on behalf of the client (Antigua and Barbuda) or seen by the client and in no way reflects the client’s thinking.