WTO Interim Ruling Against U.S Internet Gambling Restrictions

Overview

The World Trade Organisation (WTO) has been at the center of an ecommerce challenge between the tiny Carribean Island nation-state of Antigua and Barbuda and the U.S since March, 2003.  

The tiny island depends heavily on online gambling to fund its struggling economy which relied heavily on internet gambling after the nation’s original economic staple, sugar exportation, took a devastating decline in the 1960’s. The new-found economy was hit hard by restrictions made by the U.S in recent years; the U.S has banned all cross-border internet gambling. 

However, the WTO has found in a private report that the U.S has violated commitments made under the WTO’s Services Sectoral Classification List and the United Nation’s Provisional Central Product Classification (CPC) system.  The CPC system implies all participating countries, including the U.S, commit to the cross-border supply of betting and gambling services.  

A private report found the U.S was in violation of these commitments however the report was never made public. Both parties petitioned the WTO to allow private negotiations. The negotiations failed. In October, 2004, the U.S announced its plan to appeal the WTO’s decision.  While the U.S may consider changing its commitments to WTO, it is unlikely to be “..easy or wise in the broader context [of rules governing commercial services because it would reduce faith in the system]…[1]”. The likely outcome of the pending appeal is unknown.

Background

Antigua and Barbuda (Antigua) first brought the issue of the U.S’s ban on cross-border betting and gambling to light in early 2003. Antigua’s economy had suffered a massive downturn as a result of the ban. Antigua claimed the ban was in violation of International Trade Law[2].

The WTO found in favour of Antigua in March, 2004. In a private report, WTO found the U.S had violated its commitments under the WTO[3].  The report was never made public: the parties underwent private negotiations. By October, 2004 the negotiations had failed. Office of the U.S Trade Representative spokesman Richard Mills announced that the U.S would appeal the ruling[4].

Issues

GATS stands for the General Agreement on Trade and Services – it governs trade and services among WTO and ensures that all members are treated equally by each other. That is, all countries must be competitive. The U.S provisions require full GATS compliance. However, GATS classifies the cross-border supply of gambling and betting services under “other recreational services…[5]”. The WTO therefore found that the U.S cannot use specific types of trade restraints, as this would in contradiction to the GATS classification, hence the WTO commitments. There are however exceptions to the commitments. 

One such exception, and a matter of much contention is that governments are able to restrain certain types of trade in order to protect the morals of its population.

The U.S did not explicitly state gambling and betting services in its commitments to the WTO. Antigua claims that they were implicitly provided for under subsector 10.D[6] of the Central Product Classification (CPC). This is where gambling and betting are believed to fall under “other recreational services” as defined in the CPC.  

The appeal

The U.S claim that there are entitled to enforce the cross-border ban on gambling and betting services as they were not bound by the CPC’s definition.  This is becuase the commitments did not explicitly refer to the CPC[7]. The U.S appeal also relies partly on the fact that there are preexisting regulations on gambling within the country. As GATS allows for governments to protect public morals, the U.S has claimed this is a concern to them. 

Nine states within the U.S have prohibited internet gambling, and there is ongoing debate whether internet gambling is legal in the other states[8]. The Wire Act of 1961 suggests that internet gambling is in fact prohibited within the country, however the policy has not been strictly enforced[9]. 

An amendment to the Act would be required to make it clear what the prohibitions are and how they should be enforced. It is unlikely that it will be found that the U.S is upholding public morals; the U.S is the world’s biggest consumer of all forms of gambling and betting services[10].  Despite the apparent illegality of online gambling, U.S citizens are rarely prosecuted.

The U.S also claims that Antigua’s services are not provided in a ‘like’ manner to those provided within the U.S[11]. Due to the complex system used in the U.S, this is likely to be established. However, Antigua may still be able to show that the U.S prohibits market access of cross border betting and gambling by implicit numerical limitations[12]. Without the use of explicit numerical limitations however, this is likely to prove a difficult task for Antigua.

Likely outcome

Given the unexpected findings of the preliminary findings in the private report of 2003, it is almost impossible to predict the outcome of the appeal. It is possible that the Appellate Body of WTO will find that cross-border betting and gambling services were provided for in U.S’s commitment. Despite the lack of explicit inclusion of the CPC’s definitions, it is likely the findings made in the preliminary report could be upheld. That is, the CPC’s definition may be found to be implicit in the commitment. It is also very possible that the prohibitory laws will not be found necessary to protect public morals in the U.S. Given that more U.S citizens gamble than any other nation[13], it would appear somewhat hypocritical to suggest that the moral of their nation will somehow be corrupted by cross-border gambling and betting.  

However, Antigua is likely to find it difficult to prove their services are ‘like’ the U.S’s.  Due to the highly complex manner in which the U.S’s services are run, it is possible Antigua will fail to make out this important factor of the appeal.

Ultimately, the likely outcome is anyone’s guess.

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