The online gaming dispute between U.S.A. and Antigua-Guest post by Vijayaraghavan

The impossibility of enforcing a ban on online gaming was once again apparent when U.S.A blocked gaming websites, seized .com domain names and seized funds of online gaming companies, while however, promising to return participants funds put up on those websites. Perhaps the futility and difficulty of blocking online gaming websites (as participants in U.S.A. can still access certain popular gaming websites) should remind the Indian State governments to regulate and allow this activity.

U.S.A. has continually blocked offshore gaming websites and paid a heavy price for disallowing it. Vijayaraghavan, student of NUJS throws some light on the nature of the W.T.O. dispute between U.S.A. and Antigua and Barbuda and takes us through the various stages of the W.T.O’s decision.

There has been considerable debate as regards to the legality of online gambling and offering of licensed online gaming facilities from an offshore destination to countries like U.S.A where online gaming is illegal. This discussion has found a new outlet in the form of the Antigua-USA dispute.

The Dispute: While it is a known fact, that gambling is largely prohibited across the United States of America, the status of Online Gambling in USA was ambiguous (until the Unlawful Internet Gambling Enforcement Act of 2006). Antigua and Barbuda is a recognized centre for online gambling, there were a number of online gaming sites licensed and hosted in Antigua and Barbuda. However, in 2003, the United States started blocking gambling sites hosted in Antigua and elsewhere, thus impeding the business of the websites hosting from there.. This led to severe losses to the Antiguan economy, to the tune of $3.44 Billion as per Antiguan accounts.

On 12 June 2003, Antigua and Barbuda requested the establishment of a panel. According to Antigua and Barbuda, the measures at issue may be inconsistent with the US obligations under the GATS and the US Schedule of Specific Commitments annexed to the General Agreement on Trade in Services (GATS), relevantly pointing out that the US permits online betting on State-Regulated Horse Racing.

Dispute Panel Decision: The Dispute Settlement Board of the WTO (DSB) established a panel at its meeting on 21 July 2003. Canada, the EC, Mexico and Chinese Taipei (Taiwan) reserved their third-party rights. The Panel found in favour of Antigua, and held the United States to be in violation with its commitments. It held that firstly, 3 of the American Federal Laws (the Wire Act, the Travel Act, and the Illegal Gambling Business Act) as well as 4 State Laws were contrary to the commitments of the United States, contrary to Article XVI:1 and Article XVI:2 of the GATS (which deals with market commitments). Secondly, the Panel held that the United States would not be able to invoke the exception provisions, this as the Panel did not believe that the Wire Act, the Travel Act, and the Illegal Gambling Business Act, would come within the ambit of “necessary”, under XIV(a) and XIV(c) of the GATS(clauses pertaining to exceptions). In Response to the Panel’s decision, the United States notified its intention to appeal, and did so on January 7, 2005, this being met with a cross-appeal by Antigua.

Appellate Panel Decision: The Appeal of the United States was rejected largely by the Appellate panel, The panel’s Report was 4 pronged;

Firstly, the United States was held to have made a commitments to permit free cross border supply of betting and gambling services  in its schedule of commitments to the General Agreement on Trade in Services (“GATS”).  The Appellate Body  held the commitment to be made under   Sub-sector  10.D of the US’s GATS Schedule, under the heading “Other Recreational Services (Excluding Sports).

Secondly, the Appellate Body ruled American  “measures” to be in interfence  with its obligation to provide free trade in betting and gambling services with Antigua. It accepted the claim of Antigua that the impugned American laws prohibited Antigua’s gambling services.

Thirdly, the Appellate Body found that the “measures” established by Antigua – the three federal statutes – violated Article XVI of the GATS.

Finally, the Body  ruled that the United States , could not invoke the “moral defense” to its violation of the GATS under Article XIV. In order to establish this  defense, the US was required to prove that the three federal statutes were necessary to protect public morals or maintain public order and satisfy a legal balancing test. The Appellate body determined that the first criterion was met, for the laws were made to protect public morals and safety. However, the second ground was failed to be established because the US either sanctioned or permitted “remote gambling” in the US, primarily in the form of off-track account wagering on horse races. The Appellate Body noted that there were several companies in the US that provided telephone and Internet betting services on horse races. These companies were sanctioned to provide these services by the Interstate Horseracing Act (“IHA”).

The appellate body concluded that the US could not justify why it permitted US-based companies to offer remote gambling ,while the US prohibited Antiguan companies from offering the same type of service were not By making this finding, the Appellate Body held that the US could not prevail on its morals defense – technically known as its Article XIV defense.

While the Dispute Panel report was wholly in favour of Antigua, the Appellate Panel’s decision did provide the Americans with a certain amount of leeway. It laid down a simple procedure by which the US could bring itself in compliance with the GATS, by either allowing Antiguan operators access to the US market or prohibiting all forms of remote gambling in the US- foreign or domestic (including horse racing).

Compliance of the Decisions: Under the WTO rules, the US had a “ reasonable time” to correct is laws, so as to be in compliance with the WTO rules. The parties were unable to agree upon a time period. In 2005, the Arbitrator issued a ruling in which he gave the US a little less than a year to comply, and this period passed on April 3, 2006 without any laws being adopted by the US to implement the rulings.. The US now claimed their compliance with the panel’s decision, relying solely on a statement made by the Department of Justice, which stated that it , “views the existing criminal statutes as prohibiting the interstate transmission of bets or wagers, including wagers on horse race”.

WTO Compliance Panel Report: In June, 2006, Antigua again sought recourse under the WTO rules, by claiming the non-complianceof the USA to the Orginal rulings. Antigua made a request for another Panel to be formed, to discuss the compliance, this was met by an extra-ordinary claim by the US of being in compliance with the WTO rulings. This was claim of the USA was slammed by the European Union ( a third party), that what the US needed to do was to bring inconsistent measures into conformity, while what it had done was present the same “old” measures again in a compliance proceeding. The United States sought to re-argue the case before the panel, which was rejected on two ground; 1) The United States could not re-argue the case that failed in the Dispute Panel and the Appellate Board, and, 2) In any case the Moral Defense was still not established. The United States was held to have made no attempt at ensuring compliance and alteration of policy.

Further Developments: In response to the adverse decision of the Compliance Panel, instead of ensuring compliance, the United States, decided to withdraw its commitment to allow the cross-border provision of gambling and betting services.
Under WTO rules, before the US can withdraw the commitment, it must find means of compensating “any affected” WTO members as a result of the withdrawal of the commitment. If the parties cannot agree on the “compensation”, then there is a procedure for arbitration of any dispute in that context. As a result of the US announcement, in addition to Antigua, the EU, Costa Rica, Canada, Macau, Canada and Australia filed claims for compensation with the US. In its response, Antigua, said that it could retaliate by suspending that amount annually in intellectual property rights held by U.S. Firms to the extent of $3.44 billion a year.

The Arbitration decision came out in December, 2007. It proved to be an extraordinary decision. While, it reduced the amount from $3.44 Billion, to $21 Million, it gave Antigua the right to violate copyright protections on goods like films and music from the United States.This includes the distribution of copies of American music, movie and software products.

However, there seems to be no end to this dispute. In April, 2011, there are signs of a new chapter in the dispute. The further closing down of another 3 online gambling sites, has got the Government of Antigua, itching for another round at the WTO. This ruling comes when various allegations of fraud and money laundering are leveled against the gaming sites.

The Author has referred to http://www.antiguawto.com/WTODispPg.html and the Summary on the Dispute prepared by Mendel Blumenfield LLP, who were legal counsels for Antigua. For those  interested in this the subject  they may  refer to the website, which serves as a commendable compendium of material on the Antigua dispute.