The World Trade Organization ruling, Antigua's reason for filing the lawsuit, the issue of "remote gambling," and the recent statement from Deputy United States Trade Representative John K. Veroneau are all very simple to understand. Some background is necessary.
Antigua's Reason for Filing the Lawsuit
When I recently visited Antigua and interviewed key government officials, the experience gave me a tremendous appreciation for the dilemma faced by little Antigua, with its population of 80,000.
The small developing nation of Antigua has limited natural resources and therefore relies heavily upon tourism. Because tourism is at the mercy of natural disasters, economic realities, and other factors, a country cannot sustain itself by tourism alone. Therefore, in 1982, Antigua enacted legislation geared toward the provision of international financial services in order to enable economic diversification.
Antigua currently licenses and regulates only 38 gaming companies. Those companies must reside in Antigua, which means employment for many Antiguan citizens.
Antigua brought the World Trade Organization (WTO) dispute on behalf of legally licensed gaming operators in Antigua who want to provide gambling services on a remote, cross-border basis to U.S. customers. The U.S. has taken the position that all "remote" betting violates state and federal law. To explain the problem simply, when someone is prosecuted in the U.S. for something legal in Antigua, it ultimately harms Antigua's economy.
The WTO
Established in 1995, the WTO is the only international organization dealing with the rules of trade between nations. With a membership of approximately 150 countries, accounting for more than 97 percent of world trade, the WTO assures fair trade between nations.
One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT), established in the wake of the Second World War. While the WTO is still young, the multilateral trading system that was originally set up under GATT is well over 50 years old.
So there's no confusion: The original General Agreement on Tariffs and Trade (GATT) is over 50 years old, but the agreements by which the U.S. are bound, called the General Agreement on Trade in Services (GATS) was agreed upon in 1995.
The concept of the WTO is simple: Under the GATS agreements, countries cannot discriminate between their trading partners. This principle is known as most-favored-nation (MFN) treatment.
The GATS Agreements
The General Agreement on Trade in Services begins by recognizing the growing importance of trade in services for the growth and development of the world economy. The goal is: "To establish a multilateral framework of principles and rules for trade in services with a view to the expansion of such trade under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries."
In other words, the world economy benefits by rules of fairness agreed upon and enforced by all nations and by promoting the growth of developing countries.
In 1995, many countries, including the U.S., agreed to be bound by the rules enunciated in the GATS agreements. One nation cannot discriminate against anther. There are a few caveats to this basic principle. If a nation forbids all its citizens from owning a certain product or doing a certain thing, another nation cannot offer that forbidden item to the nation where it is illegal. What
is protected is the right for other nations to offer products and services to U.S. citizens that we allow.
What that means here is that if the United States forbids all forms of remote betting, Antigua cannot offer remote betting to U.S. citizens.
Antigua vs. the U.S.
The WTO lawsuit brought by Antigua against the U.S. basically alleges that the U.S. has engaged in protectionism by allowing certain activity within the U.S. but prohibiting that same activity by offshore entities.
Further, offshore operators have been prosecuted for certain types of remote betting where U.S. operators have not.
Antigua claims the loss of more than $90 million and 4,000 jobs due to the Bush administration's attempts to prohibit offshore online betting. Antigua's attorney Mark Mendel says, "There are ways to get an offending nation to pay a little bit of attention."
Remote Betting
Remote betting is gambling in which the bettor and the operator are not in the same physical proximity. The bettor is in one physical location and communicates his wager via telephone or other electronic means to an operator located at another location.
Since the '70s, U.S. wagering companies have openly offered state-sanctioned intrastate remote betting in the U.S.
Currently there are 18 states that have enacted licensing schemes that sanction and regulate remote parimutuel account wagering. Operators accept cross-border wagers from residents of at least 39 states. The U.S. parimutuel betting industry now encompasses a network of more than 1,000 wagering sites nationwide, including racetracks and off-track wagering facilities.
Americans wager approximately $15 billion per year on horse and dog races. For the past few years, more than 85 percent of this total wagering "handle" was placed at off-track locations. The National Thoroughbred Racing Association estimates that remote betting makes up more than 20 percent of the parimutuel handle.
In summary, in different places in the U.S., we have remote betting for race- and sports-book wagering; we also have remote lottery play and other types of remote gambling.
The WTO Ruling
The simplest explanation of the WTO ruling is that remote betting is allowed within the U.S. so it cannot be prohibited where offshore interests are concerned. Although there is some ambiguity within the law, that ambiguity was further complicated by the passage of the UIGEA, a portion of which specifically states that the UIGEA changes nothing.
The more complicated explanation is that there is ambiguity in the U.S. laws and instead of clarifying those laws, the U.S. passed the UIGEA which clarified nothing. Since horse betting is permitted remotely within the U.S., it should be permitted with offshore companies as well.
The U.S. Position
After the original ruling against the U.S. in 2005, the U.S. stated publicly that it intended to comply with the WTO ruling. Thereafter, the U.S. changed its position many times.
Recently, Deputy United States Trade Representative (USTR) John K. Veroneau informed the WTO that it intends to "clarify" its WTO commitments with respect to Internet gambling services.
The USTR claims that the U.S. will comply fully with the report, with the caveat that the U.S. never really agreed that gambling services would be covered by the General Agreement on Trade in Services (GATS) when the agreement was finalized.
The gist of the argument is that somehow America naively signed on to GATS without knowing what it was doing, although many other signatories specifically excluded gambling services from their commitments.
Mark Mendel, Antigua's lead counsel in the WTO proceedings, said that the U.S. 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 10 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."
The USTR's claim that the U.S. mistakenly committed to gambling is outrageous. Of the 150 countries who participate in the GATS, more than 100 excluded gambling in their schedules. Most WTO members excluded gambling by simply not including the applicable sector, Sector 10 (Recreational, Cultural, and Sporting Services), in their GATS schedules.
It is offensive and incomprehensible that the USTR could take the position that the U.S. gambling commitment was made by mistake.
After a hard-fought battle with Antigua, a nation of 80,000, the U.S. with our population of 300 million, should graciously admit defeat and work toward compliance of global fair trade rules. There is no other alternative.
A Little Gossip
The untenable position taken by the U.S. government was announced by Deputy United States Trade Representative John K. Veroneau. He previously held the title of "Legislative Director" for the now-departed Republican Majority Leader Bill Frist, a social conservative and rabid opponent of online gambling who snuck the Unlawful Internet Gambling Enforcement Act (UIGEA) into the port security bill under cover of night. Am I the only one uncomfortable with this?
