Professor Joseph Kelly on the WTO
World Trade Organization Dispute between Antigua and Barbuda (Antigua) and the United States
Presently, no jurisdiction that strictly regulates interactive gaming, such as Antigua, Alderney, or the Isle of Man, requires its licensees or franchisees to exclude U.S. players. Nobody has suggested that Great Britain, when it enacts interactive regulations, will require its interactive casinos to prohibit U.S. customers. This is done notwithstanding the United States position that offshore interactive wagering violates U.S. law if the operator accepts U.S. players.
United States policy concerning offshore interactive gambling has consisted of federal action in the late 1990s against twenty-one individuals for violating the Wire Act (18 U.S.C. § 1084) by accepting sports bets from U.S. customers. The U.S. Justice Department has also sent letters and subpoenas to various media and other entities, but there have been no criminal proceedings. One major stumbling block for federal prosecutors has been the December 2000 Amendment to the Interstate Horseracing Act (IHA)(15 U.S.C.3002) which opened the door to state-licensed, interactive, interstate horserace betting. The U.S. Justice Department, however, has denied that the Amendment legalized state-licensed, interactive, interstate horserace betting and has insisted that three federal laws, the Wire Act (18 U.S.C. § 1084), the Travel Act (18 U.S.C. § 1952), and the Anti-Gambling Business Act (18 U.S.C. § 1955), have prohibited all remote gambling.
In 2001, Antigua amended its Internet gambling laws so as to minimize suspicious transactions and insure the solvency and suitability of its licensed operators. Antigua claimed that U.S. pressure subsequent to its revised laws resulted in many of its operators leaving for other jurisdictions. Eventually, it sought relief before the World Trade Organization (WTO) alleging a violation of the General Agreement on Trade in Services (GATS). After negotiations with the U.S. failed, the WTO Director General appointed a three-member panel on July 21, 2003, to adjudicate Antigua’s complaint against the U.S. prohibition of cross-border supply of gaming and betting services. It was only the fourth dispute concerning GATS, and the first dispute which decided whether public order/public policy would be a valid defense to a restrictive practice (“United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services,” Report of the WTO Panel, WT/DS285/R, November 10, 2004, at par. 6.206, 6.447).
Antigua was successful on almost every issue. The Panel Report concluded that WTO had jurisdiction in that gaming was a covered “service” and the U.S. had failed to exclude gaming from being a covered matter. The Report also concluded that three federal laws (the Wire Act, the Travel Act, and the Anti-Gambling Business Act) were “inconsistent with U.S. obligations under … the GATS” (Id. par. 6.454). The Report also concluded that the U.S. could make a public policy defense based on factors such as a connection between remote gambling and money laundering/underage gambling. However, the U.S. had failed to accept Antigua’s invitation to negotiate in order “to determine whether there is a way of addressing its concerns in a WTO-consistent manner” (Id. par. 6.534). The Report also concluded that the 2000 Amendment to the Interstate Horseracing Act legalized interstate, interactive horserace wagering and thus provided an arbitrary or unjustifiable discrimination to the U.S. prohibition of remote gambling. While the U.S. Justice Department vehemently denied that the Amendment allowed interactive, interstate horserace betting, no serious scholar has ever accepted the Justice Department position.
The Report was issued in March 2004 but was not made public in final form until November 10, 2004, partly in order to allow the parties to negotiate a compromise. Predictably, the U.S. appealed to the WTO Appellate Body which issued a decision on April 7, 2005 (“United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services,” Report of the Appellate Body).
In effect, the Appellate Body affirmed most of the Panel decision but often for different reasons. It concluded that the GATS did include gambling and betting services. It also concluded that the three relevant federal laws (the Wire Act, the Travel Act, and the Anti-Gambling Business Act) were in violation of GATS (par. 154). The most important finding of the Appellate Body reversed the Panel’s conclusion that the U.S. had to negotiate with Antigua prior to utilizing the public policy defense to justify its prohibitionary or restrictive policy which would have been in violation of GATS (par. 317). The Appellate Body also reversed the Panel’s conclusion that the U.S. had discriminated in favor of U.S. interstate horseracing by not prosecuting domestic operators (par. 356).
The only major victory for Antigua was the Body’s finding that U.S. law might exempt “only domestic suppliers of remote betting services for horse racing” from the three federal laws and that the U.S. “has not demonstrated that—in the light of the existence of the IHA—the Wire Act, the Travel Act, and the IGRA are applied consistently” with GATS requirements (par. 365, 369). It would seem that the U.S. might have two choices: amend the Wire Act so as to include foreign horseracing or ban all interactive, interstate horseracing.
The next stage was the establishment of procedures to implement the Appellate Body Report. When Antigua and the United States could not agree upon what would constitute a “reasonable period of time” to implement the findings, Antigua then requested that the matter be determined by binding arbitration. When the U.S. and Antigua could not agree to an arbitrator, one was appointed by the Director General of the WTO (“United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services,” WT/DS285/13,”Award” August 19, 2005, at 1).
The major issue before the Arbitrator was the amount of time the U.S. should have to implement the rulings of the body. The U.S. requested at least fifteen months from the time of the April 7, 2005 body ruling. Antigua had requested six months. The Arbitrator, after a detailed analysis in a twenty-five page opinion, concluded that the “reasonable period of time” should be eleven months and two weeks from April 20 2005, which would be April 3, 2006.
The major issue was the length of time it would take the U.S. Congress to pass legislation that would either prohibit all online gambling, including interactive, interstate horseracing and interactive, Internet lotteries, or allow other countries to have equal opportunities to U.S. horserace wagering. The matter was complicated further by U.S. insistence that the December 2000 Amendment did not legalize interstate horserace wagering and the U.S. citation of a statement by President Bill Clinton when he signed the bill which “expressed the view that nothing in the IHA overrode previous enacted criminal laws.” The Arbitrator, however, gave little credence to this point. “The Panel in this dispute found that this statement was not sufficient to resolve the ambiguity in the relationship, and the Appellate Body did not depart from this view” (at p. 3).
Concerning proposed Congressional legislation, there was a basic misunderstanding by the Arbitrator of the U.S. legislative process. In the United States, the President and both Houses of Congress are controlled by the Republican Party. In most parliamentary democracies, the Prime Minister or Premier would be able to enact legislation if he had a parliamentary majority and exerted party discipline. In the U.S. Congress, a President would have to rely on Congressional leaders who may have minimal interest in an online gambling prohibition bill. Moreover, a powerful opposition leader, such as Sen. Harry Reid (D. Nev.) was able to prevent a full Senate vote on an earlier anti-interactive gambling bill of Sen. Jon Kyl (§ 627) because Kyl’s anti-interactive gambling bill had an exemption for state-sponsored, interactive, interstate lotteries.
A U.S. Congress lasts for two years. In the present 109th Congress (January 2005 to January 2007), what is remarkable is that no anti-remote gambling bill has been introduced in either the House or the Senate. By this time in earlier Congressional Sessions, an interactive gambling bill would not only have been introduced in each house, but would have been submitted to Committee votes and public input. The Arbitrator’s Report contains a totally incorrect statement submitted by the United States at oral hearing that there is already “one bill under consideration by the United States Congress related to the subject of Internet gambling” (p. 2), viz., HR 1422, the Student Athlete Protection Act. This bill, which was introduced on March 17, 2005, is now before the House Subcommittee on Commercial and Administrative Law. If enacted into law, it would prohibit betting on college/student sports in Nevada, and the bill would have nothing to do with interactive gambling.
Congressional legislation had been introduced in the 108th Congress with the expectation of eventually regulating and taxing interactive gambling, e.g., the Conyers/ Cannon Bill (HR 1223). The bill got nowhere, and if it is introduced in the present Congress, it will not be enacted into law. When Kyl’s anti-interactive gambling bill is introduced in the 109th Congress, perhaps in September 2005, it will probably not be enacted into law because those members of Congress who oppose prohibition will use the poison pill procedure—exemptions for interstate, interactive horseracing and Internet, interstate lotteries. Any bill that does not exempt both does not reach a House or Senate vote and the exemptions may prevent passage. The members who want to see any bill fail will try to strike the exemption for both the horseracing industry and a state lottery. Interestingly, two of the few groups that supported the United States in the dispute with Antigua were the World Lottery Association and the International Federation of Horseracing Authorities.
Thus, by April 2006, nothing will have happened in Congress. The Arbitrator will probably again mention how certain bills had passed quickly through Congress and were quickly enacted into law—but they were non-controversial. The Arbitrator will probably again mention how it took only five months for the 2000 Amendment to the Interstate Horseracing Act to become law—but that Amendment had little opposition.
Was the matter an exercise in futility? In the long run, Antigua may have gained little. There are, however, other WTO members who have not excluded gambling from covered services and who license interactive gaming monopolies. It is doubtful whether one of these countries that has licensed interactive horseracing,sports betting, or lotteries would be successful in utilizing the public policy/public order exception. The one major thing the United States had going for it was that it could say that it prohibited all remote gambling.
About the Author
Professor Kelly, Ph.D., J.D. is professor of Business law at SUNY College Buffalo. He is licensed to practice law in Nevada, Illinois and Wisconsin. His publications in gaming and other topics have been cited as authority by federal district and appellate courts as well as state appellate and supreme courts and by government and statutory authorities both in the U.S. and abroad. |
