US Antigua Decision Is Slight To WTO

by Jeremy Hetherington-Gore, Tax-News.com, London

08 May 2007

The United States decision last week to withdraw from one of its WTO commitments after it finally lost its battle with Antigua and Barbuda over on-line gaming has evoked a storm of outrage and concern.

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

The WTO treaty allows a country to withdraw commitments to open its services market to foreign investors, but since the treaty was originally negotiated multilaterally (as with all WTO treaties) the US will now have to negotiate with any of the other 149 member countries that objects to the move and wants to renegotiate any of their own commitments in return.

To call this opening Pandora's box must surely be an understatement. Adjectives used by commentators over the weekend to describe the US action included 'absurd' and 'disingenuous'. Said one anonymous spokesman: "This action is more surprising to me than had President Bush announced he was coming out of the closet today regarding his sexual preference."

"I am disappointed to see our country lead a degradation of the system," said James Jochum, a partner at the law firm of Mayer, Brown, Rowe & Maw LLP in Washington and former Bush administration official. Jochum represents the Antigua Online Gaming Association. "The implications are so serious because of the precedent it sets."

Senior officials in Antigua and Barbuda were taken aback by the decision. "While we had of course been aware of the possibility of the United States taking such an action, we frankly considered it extremely unlikely," said Dr Errol Cort, Antigua's Minister for Finance and the Economy. "It is almost incomprehensible that the United States would take such an action in the face of an adverse dispute resolution ruling. This is going to have very severe consequences for the global free trade movement."

Mark Mendel, Antigua's lead counsel in the WTO proceedings, said that the US was wrong to say that it didn't intend to include gaming in its services commitments: "There is simply no basis for such a statement. When the schedules were drawn up over ten years ago, there was extensive debate, proposal and counterproposal from all WTO members in determining what commitments would be made. More than a dozen countries were able to expressly exclude gambling from their commitments, and many dozens more excluded the commitment in other ways. For the United States to say this was a mistake is just not true."

Actually, for the US to take this action at such a crucial moment in the WTO Doha Round negotiations is nothing short of tragic. What does the USTR think will now be in the minds of its negotiating partners among the dozens of economically weak developing countries who rely on the rule of law to hold their own in the trading ring against such Titans as the United States and China?

Charlie McCreevy, European Commissioner for Internal Market and Services, said recently that the US rules against processing of international on-line gaming transactions were a prima facie case of protectionism and that the World Trade Organisation was a possible venue for tackling them. But he said that while negotiations were continuing over the WTO's Doha Round, he would not rush to file a complaint. "It's not something of major momentum," McCreevy said.

He told the the European Parliament: "In order to protect, I'd say, their own business, their industry there, they have de facto prevented foreigners from online betting into the United States. In my view it is probably a restrictive practice and we might take it up in another forum." McCreevy said he had not discussed the issue in any depth with Peter Mandelson, the EU trade commissioner, who would front any EU attempt to challenge the US legislation.

In its recent ruling against the US over Antigua's complaint that the US was unlawfully banning payments to offshore gaming web-sites, a World Trade Organization Dispute Resolution Panel noted that the 2006 legislation (which post-dated both Antigua's original complaint and the first WTO ruling in its favour) confirmed the lack of conformity of US law with its obligations under the GATS.

In its minutely argued report, the Panel comprehensively dismissed all attempts by the US to wriggle out of the need to bring its laws into conformity with the GATS, either by banning equivalent domestic betting transactions, or by allowing parity for overseas transactions.

The US passed the Unlawful Internet Gambling Enforcement Act in 2006, which while expanding domestic opportunities for legal gaming, effectively bans all international and inter-state online gaming, by making it illegal for banks and credit card firms to make payments to such internet operations.