Snake Eyes for US at the WTO

Article excerpt

AFTER LOSING a World Trade Organization (WTO) case concerning online gambling, the United States in May said it will no longer agree to subject its Internet gambling rules to WTO jurisdiction. The move opens the United States to sanctions from any of the 149 member countries in the WTO that can show their businesses were harmed by U.S. actions.

"We did not intend and do not intend to have gambling as part of our services agreement," says Deputy U.S. Trade Representative John Veroneau. "What we are doing is just clarifying our commitments."

Under the WTO's General Agreement on Trade in Services (GATS), members are allowed to select which services to include for coverage. While some members only included a few services in their commitments, others listed more than 120. The United States originally included gambling on its service list, thereby subjecting it to WTO standards. By withdrawing gambling from its list of commitments, the United States in the future will not have an international obligation to allow foreign investors to provide gambling services and can regulate Internet gambling without fear of retaliation from other WTO countries.

The chain of events leading to the U.S. decision to pull its gambling regulations from WTO jurisdiction began in March 2003, when the twin Caribbean island nation of Antigua and Barbuda filed a suit against the United States challenging U.S. remote gambling laws as "barriers to trade" in "cross-border gambling services" under GATS.

"The law appeared to be solidly on our side, despite the fact that a number of WTO legal issues had not been considered before," says Mark Mendel, Antigua's lawyer in the matter. "We thought it was going to be very hard for the United States to defend the case with a straight face, given how pervasive legalized gambling is in America. We have since learned that having a straight face is not a prerequisite for a job at the" U.S. Trade Representative (USTR).

In November 2004, a WTO dispute settlement panel ruled for Antigua. The United States then appealed to the WTO Appellate Body, arguing that its laws were "necessary to protect public morals," and therefore were protected by a WTO exception. The United States argued that Internet gambling nurtures gambling addictions and makes it difficult to screen out minors and prosecute fraud. The Appellate Body accepted this reasoning for three of the challenged laws, but ruled that another law, the Interstate Horse Racing Act, still violated GATS because it allowed bets to be placed remotely across state lines, but not from Internet servers based in foreign nations.

The United States further argued that it should not be liable under WTO rules because no one had envisioned the availability of online gambling, when the Clinton administration signed the trade agreement in 1994. "It never occurred to us that our schedule could be interpreted as including gambling until Antigua-Barbuda brought this case," Veroneau says.

"What the United States is now claiming is 'mistake,'" Mendel says, "and arguing that as a 'mistake,' no other nation should have a claim based upon it. What a horrible thing to say to your trading partners, and what an awful precedent to set. …