Insights: The US-Antigua WTO Settlement

9 January 2008

Nearly five years have passed since Antigua first complained to the World Trade Organization about America's interactive gambling policy. As the case ensued, the WTO ruled that the United States gives preferential treatment to domestic service providers in violation of an international trade agreement, and it advised the country to bring its policy into conformity with the agreement. The United States seemed not to care, however, so now an official remedy has finally been declared to compensate Antigua for the harm its economy has endured.

Antigua emerges as the victor in the books, but most professionals in the interactive gambling industry are disappointed with the outcome. Some once dreamed the case would open the United States to regulation, but the settlement seems too small to harm the United States and the country appears to have found a cheap way to squirm out of its trade obligations.

It's a very complex case, so we've asked our experts to tell us what they think about the decision and what it means -- particularly to the parties they represent. Here is what two of them had to say. Check back later in the week to see how other folks from around the industry feel about the decision.

Philippe Vlaeminck: Any trade expert would have told you from the beginning that this would be the outcome, but some people preferred to dream. The United States did on the merits only lose the case on a very limited item. The next steps were totally predictable. The United States would request the normal reasonable implementation period and clarify its position. The panel, deciding afterwards on the compliance, rejected the approach by the United States, finding that compliance was not comparable to a new round on the merits of the case. Immediately afterwards, the United States took the option to unbind its GATS commitment on gambling services instead of looking for further implementation. This option is perfectly legal under WTO law. Why would the United States unilaterally have opened its market while others have no commitment to do so? The European Union remains perfectly closed for U.S. operators, so the United States logically re-established the balance. This can be frustrating for Antigua, but the U.S. action is legally and politically correct.

The retaliation arbitration of Antigua brought nothing new. Already several years ago we defended Ecuador in the EU banana case and succeeded in obtaining the right to retaliate under TRIPS (Agreement on Trade Related Aspects of Intellectual Property Rights) for GATT (General Agreement on Tariff and Trade) and GATS violations. Antigua tried this as well. The victory is just a pyrrhic victory as Antigua will not gain anything with this ruling. In the meantime, the United States settled with most of its important trading partners and compensated them in other more important GATS areas, which ends the case. Antigua can still try to get further compensation in other economic areas but this will only close the door for cross-border gambling services even more -- and certainly for a much longer time (the U.S. compensation has to be paid off). The strategy of Antigua and the remote gambling industry to claim enormous damages was the biggest mistake they have made. They received only $21.1 million instead of the billions requested, and besides, the panel was very clear that the issue of unrestricted market access was by no means to be taken into consideration as the circumstances of the case were very particular. According to the panel, the United States had consistently relied upon the defence of its public order, so this had to be taken into consideration. The arbitrator ruled that:

In considering this question, we find it appropriate to take account of the specific circumstances of this case. We note in this respect that the United States has consistently asserted a public morals and public order policy both in the original proceedings and again in the compliance proceedings as a basis for maintaining restrictions on access to the United States remote gambling market. The United States has thus asserted this policy objective before and beyond the end of the reasonable period of time, which is the date at which the counterfactual situation is assumed to start.

We further note that the Appellate Body found that US measures restricting access to the remote gambling market were "necessary" within the meaning of Article XIV of the GATS for the protection of public morals and public order, and found that the United States had not shown, "in the light of the Interstate Horseracing Act, that the prohibitions embodied in those measures are applied to both foreign and domestic service suppliers of remote betting services for horse racing and, therefore, had not established that these measures satisfy the requirements of the chapeau.

We may also see now more prosecution in the United States, like the actions emerging in online gambling advertising. Don’t forget that the retaliation panel did not consider the prosecution to be discriminatory:

We are mindful of the fact that the US measures, in particular the enforcement actions involving the prohibition for credit card companies and systems such as PayPal to make payments to overseas gambling operators, are capable of affecting all providers, and not only those from a particular country of origin. As far as the risk of criminal proceedings is concerned, all remote gambling operators a priori seem to be an equally likely target, even though a number of Antiguan operations may have been subject to prosecution in the past.

I don’t think that the approach of the retaliation arbitration has been of any help to Antigua and/or the remote gambling industry.

As head of Vlaemminck & Partners, Philippe Vlaemminck mainly works in EU, international trade and corporate law. Vlaemminck has an acknowledged expertise in EU and WTO law, particularly agricultural law, internal market (lotteries and gaming, information society services, media services), trade, and research and development. He advises operators, regulators and governments in several jurisdictions on national and European regulatory affairs and has played a proactive and decisive role in several cases before the Court of Justice of the European Union, including in issues about internal market (like all the gaming law cases from Schindler to Gambelli), anti-dumping and implementation of WTO law.

Sanford Millar: First, no money changes hands and none will. The decision would allow Antigua to suspend WTO obligations to the United States so as to affect trade in an amount up to $21.1 million per year.

The most important part of the ruling was that the suspension would apply not only to services, but to intellectual property rights. The impact would be to allow, implicitly, Antigua to avoid its obligations under the WTO accord to protect against infringement of intellectual property rights.

The United States has initiated specific compensation negotiations with Antigua which will, when completed, have the effect of modifying the schedule of commitments. The United States has asked Antigua to continue to honor existing WTO commitments -- including those regarding protection of intellectual property rights -- pending completion of the negotiations. The United States has already completed negotiations with Canada, the EU and Japan.

The ultimate result of the decision is that the U.S. laws are not going to be changed regarding Internet gambling by business based outside the United States, except that the United States will clarify its schedule of services commitment under the GATS, with the result that the exclusion of Internet gambling will no longer be out of compliance. The United States was clearly the winner in this case.

Sanford I Millar is Chief Operating Officer and General Counsel of the UItimate Blackjack Tour, LLC. He is a certified specialist in taxation law and is admitted to practice before all courts in the state of California. Prior to joining the Ultimate Blackjack Tour, he was in private law practice for 30 years. Based in Los Angeles, Mr. Millar has represented clients in diverse businesses in domestic and complex cross-border transactions. He is frequently consulted as an expert on business and taxation law matters and has handled numerous transactions in the gaming and non-gaming sectors. A past member of the Taxation Law Advisory Commission of the State Bar of California, he has also lectured to members of professional associations and served as an instructor at the University of Southern California Graduate School of Business, where he taught advanced corporate taxation.