04-Feb-2012
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In the U.S.: WTO Ruling Raises Key Issues |
In the U.S.: WTO Ruling Raises Key Issues; Outlook for the New Congress; and Progress in Casino City Test Case
The election of a new Congress means another round of lobbying; in the Courts the Casino City case moves slowly forward, while the WTO case causes ripples in the Midwest. Rick Smith, Executive Director, and Keith Furlong, Deputy Director of the Interactive Gaming Council report on the
latest from the United States.
The most important recent story involving online gambling and the United States was the release on Nov. 10 of a World Trade Organization ruling supporting Antigua and Barbuda in its claim that the U.S. prohibition of Internet gambling violated the General Agreement on Trade in Services, known as GATS.
Under the dispute resolution procedure of the GATS, Antigua requested in June 2003 that the WTO appoint a panel to examine its complaint. Antigua argued that while gambling and betting services are widely permitted in most of the United States, federal and state laws and measures taken by federal and state officials amount to a “total prohibition of gambling and betting services offered from outside the United States . . . .” Antigua’s ambassador to the WTO said the prohibition had cost the tiny country thousands of jobs and millions of dollars in revenue.
It’s been known since last spring that the panel ruled in favor of Antigua, but the 287-page text of the ruling was withheld until November, to give the parties time to negotiate a settlement. Five rounds of talks failed to produce a settlement, however.
A U.S. lawyer who was not involved in the case called the lengthy ruling “a perfect cure for insomnia!” The bottom line, however, is that the panel declared that three federal laws and four state laws are “inconsistent” with U.S. obligations under the 1995 GATS.
This case set several precedents. It is only the fourth WTO dispute involving the GATS. It is the first one involving Internet commerce, and is the first time that a GATS signatory has invoked the “public morals” and “public order” clause of the GATS to defend a trade policy.
The dispute came down to two basic issues: Whether gambling and betting services are covered by the U.S. commitment to end trade barriers under a sub-sector of the treaty titled “Other Recreational Services (except sporting),” and whether the U.S. is entitled to use the “public morals” clause to avoid such a commitment.
There were lengthy discussions over the definition of “sporting.” The panel concluded that sporting does not include gambling. More important, it noted that the U.S. had the opportunity to provide its own definitions under this sub-sector, and failed to do so. Because the U.S. did not specifically exclude gambling and betting services, the panel ruled, these services are included in its GATS commitments.
In what the Office of the U.S. Trade Representative called a “backup” position, the U.S. invoked Article 14 of the GATS, which permits countries to have laws that protect public morals. The panel stated that laws aimed at protecting problem gamblers, preventing gambling by minors and fighting organized crime [ITALICS]could fall within the scope of Article 14. But because the U.S. spurned Antigua’s offer to discuss these issues, the panel ruled, the U.S. “failed to pursue in good faith a course of action” that could have led to a “WTO-consistent alternative.”
The Interactive Gaming Council, which for eight years has argued for the rigorous regulation of online gambling, is pleased to see the attention given to regulation in the panel’s ruling. In its submissions to the panel, Antigua said that this case is not about unregulated, “free for all” gambling. Antigua said that it has always regulated Internet gambling and that it had overhauled its regulations twice, the last time with advice from U.S. experts in gambling law. Antigua pointed to its laws aimed at preventing money laundering and prohibiting gambling by minors. It also said that its regulatory system includes requirements for identity verification and fraud prevention, and requires site operators to post information to assist problem gamblers.
Antigua told the panel that it offered to meet with the U.S. to discuss any concerns that the U.S. might have regarding these issues. The U.S. refused to engage in such discussions, Antigua said. Furthermore, the U.S. did not challenge the adequacy of Antigua’s regulatory system.
The IGC has also fought for the principle of technological neutrality. We believe that the Internet is simply another means of delivering the product of gambling. When gambling in real-world casinos is legal and regulated, as it has been for years in many countries, we believe that gambling via the Internet, or via the telephone or mobile devices, must also be legal and regulated. We note that the WTO panel concurred:
“The Panel concludes that mode 1 [cross-border supply] under the GATS encompasses all possible means of supplying services from the territory of one WTO Member into the territory of another WTO Member. Therefore, a market access commitment for mode 1 implies the right for other Members’ suppliers to supply a service through all means of delivery, whether by mail, telephone, Internet, etc., unless otherwise specified in a Member’s Schedule. We note that this is in line with the principle of ‘technological neutrality,’ which seems to be largely shared among WTO Members.”
Predictably, the Office of the U.S. Trade Representative denounced the panel’s ruling as “deeply flawed.” An official said it is “frankly inconceivable” that U.S. negotiators in 1995 thought that their commitment included gambling services. The official cited the ruling as an example of “judicial activism,” which is a phrase that U.S. conservatives often use to describe court decisions that they don’t like.
The U.S. will appeal, and has 60 days to do so. A WTO appellate body would be expected to rule sometime in the first half of 2005.
The IGC, of course, hopes that the panel’s ruling is upheld. We have no illusions that, in the short term, this would force the U.S. to change its course on Internet gambling. But this case has already received extensive notice in the mainstream U.S. press. Reporters who were briefed by a U.S. trade official posed some sharp questions about the “public morals” argument before the WTO panel, and the illegality of Internet gambling vs. Las Vegas gambling. It’s reasonable to assume that more federal and state legislators will also start to ask questions about U.S. policy.
A gaming columnist for a Midwestern newspaper recently cited the ruling in a column headlined: “Let’s legalize cyber gambling so we can regulate it.”
U.S. ELECTIONS AND THE OUTLOOK IN WASHINGTON
In the U.S. Congress, we expect more of the same when it comes to online gambling. The industry’s enemies are still there. Unfortunately, Senate Minority Leader Tom Daschle, Democrat of South Dakota, who opposed the Senate version of the Unlawful Internet Gambling Funding Prohibition Act, was defeated in the Nov. 2 election. Republicans, who tend to be more hostile to online gambling than Democrats, increased their margins in both the Senate and the House.
Congress is now in its lame duck period, and it’s nearly certain that no measures affecting online gambling will be enacted before this session of Congress ends. Rep. Michael Oxley, Republican of Ohio, was ultimately unsuccessful in attaching the provisions of the Unlawful Internet Gambling Funding Prohibition Act to the legislation that would reform the country’s intelligence system, legislation that itself is unlikely to pass this year.
The good news for the online gambling industry is that efforts to enact federal laws trying to prohibit the industry must start from scratch when the new session of Congress convenes in late January. The House approved the Unlawful Internet Gambling Funding Prohibition Act in 2003, but that vote is meaningless once the current session of Congress expires (sessions last for two years).
The fact that prohibitive legislation must start all over again in the new Congress means that the IGC has new opportunities to cultivate allies and exploit contradictions among the opposing forces. One of our newer allies, the U.S. Chamber of Commerce, may become even more motivated to oppose prohibitive legislation after reading the ruling of the WTO panel in the Antigua case. The Chamber is sensitive to anything that may interfere with international trade opportunities for U.S. businesses. If the U.S. defies a WTO decision, assuming that its appeal of the Antigua ruling is denied, an ominous precedent could be set for any country that loses any WTO decision.
CASINO CITY UPDATE
U.S. lawyers who support the cause of legal, regulated Internet gambling seem pleased with the progress of the Casino City case. Casino City is a gaming portal and publisher of directories of both online and offline casinos. In August, it sued the Department of Justice, challenging the constitutionality of the Department’s campaign of intimidation against media that accept ads for online casino and sports betting sites. In October, the Department responded with a motion to dismiss, using technical arguments that Casino City lacked legal standing to file such a case.
Late in November, Casino City replied to the Department’s motion, arguing that the Department was trying to “effectively immunize itself from judicial review of any course of conduct designed to stifle free speech.”
Patrick O’Brien, one of Casino City’s lawyers, told Interactive Gaming News that the Department made a “major admission” in responding to the suit, by claiming that accepting ads for illegal casinos and sportsbooks does not constitute “aiding and abetting” a crime. Including advertising under the theory of aiding and abetting is exactly what the Department did in its infamous warning to media in June 2003. That warning, followed by subpoenas, resulted in major broadcasters refusing to accept ads for Internet gambling sites.
The Casino City suit is a test case for the advertising of online gambling. The IGC and other interested parties hope the case will be heard by the court sometime in 2005.
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