ANTIGUA, US GAMBLING DISPUTE: APPELLATE BODY ISSUES MIXED REPORT

On 7 April, the WTO Appellate Body released its ruling in the "gambling dispute" brought by Antigua and Barbuda against certain US laws restricting the cross-border supply of gambling and betting services from foreign operators (see BRIDGES Weekly, 17 November 2004; and BRIDGES Weekly 24 November 2004). Although the Appellate Body's ruling was mixed, it upheld the panel's findings on two of the most crucial issues in this case, albeit for different reasons.

US did not exclude gambling services from GATS commitments

First, the Appellate Body agreed with the panel's conclusion that US market access commitments outlined in a schedule attached to the General Agreement on Trade in Services (GATS) covering "other recreational services" included gambling services. The US had argued that it never intended to allow the cross-border supply of such services and that "gambling services" are not specifically mentioned in the schedule in question.

The Appellate Body further upheld the panel's findings that restrictions under three US federal laws on several means of supplying gambling services amounted to a failure to offer services and service suppliers from Antigua treatment "no less favourable" than that set out under its GATS schedule of commitments. However, the Appellate Body disagreed with the panel's findings that some eight state-level laws were also inconsistent with the US' GATS commitments. According to the panel, "Antigua failed to identify how these [state] laws operated and how they were relevant to its claim of inconsistency" with GATS market access provisions.

Appellate Body partly reverses the panel's ruling on public morals

Second, the US had argued that the remote supply of gambling and betting services raised significant concerns relating to the maintenance of public order and the protection of public morals, an exception provided for in both the GATS and the General Agreement on Trade and Tariffs (GATT). In response to this defence, the panel agreed that the challenged US federal laws constituted measures to protect public morals or public order, but found that they were not "necessary" to do so -- in the sense that the US had not explored and exhausted reasonably available alternatives such as engaging in bilateral and multilateral consultations with Antigua to determine whether it was possible to address its public morals concerns in a WTO-consistent manner.

The Appellate Body disagreed with the panel's reasoning that US had failed the "necessity test" outlined under the public morals defence in the particular GATS clause and in WTO jurisprudence because it had not entered into consultations with the small Caribbean island state. According to the Appellate Body, "engaging in consultations with Antigua, with a view to arriving at a negotiated settlement … was not an appropriate alternative for the Panel to consider because consultations are by definition a process, the results of which are uncertain and therefore not capable of comparison with the measures at issue in this case." According to the Appellate Body the only inconsistency with the US defence under the GATS public morals clause stemmed from the fact that the US did not demonstrate that the prohibition embodied in the measures at issue applied to both foreign and domestic suppliers of remote gambling services. The Appellate Body based this latter conclusion on a federal law -- the Interstate Horse Racing Act (IHA) -- that appeared to permit domestic service suppliers to supply remote betting services for horse racing.

Both Antigua and US claim victory; US civil society groups concerned

Both US and Antiguan trade officials have claimed victory in this case. A senior official in Washington said that it would be relatively easy for the US to adapt its laws to comply with the aspects of the panel report left intact by the Appellate Body. In a separate statement, Acting US Trade Representative Peter Allgeier also noted that "by reversing key aspects of a deeply flawed panel report, the Appellate Body has affirmed that WTO members can protect the public from organized crime and other dangers associated with Internet gambling."

Lawyers from Antigua, on the other hand, pointed out that the report would "pave the way for new... opportunities for Antiguan gaming operators" and that "this is a landmark victory for Antigua as the first, and smallest, WTO member to defeat the United States, the largest member, in this well-respected international trade court."

However, several civil society groups in the US have raised concerns about the implications of the Appellate Body ruling for public morals as well as the prerogative of the US to regulate its own gambling industry. For instance, the National Coalition Against Legalized Gambling said it was "highly disturbed" by the ruling, which could open the way for further future challenges of US federal, state and local gambling regulations covering casinos, slot machines and lotteries. Public Citizen's Global Trade Watch said that the "explosive ruling" should arouse public attention to the "serious threat to democracy and sovereignty... posed by the WTO."

The full Appellate Body report, WT/DS285/AB/R, is available at http://docsonline.wto.org.

ICTSD reporting; "Antigua, U.S. both claim win in WTO gambling fight," Reuters, 7 April 2005; "WTO Gives U.S. Scope to Maintain Online Gambling Ban," Bloomberg, 7 April 2005.