Analysis of WTO case

As I’ve been saying for about a year, Antigua’s suit against the US before the WTO is about more than Internet gaming: it is about the integrity of international borders in the Internet age. So I was happy to see legal analyist Joost Pauwelyn discuss the implications of this case.

From the American Society of International Law:

Antigua�s argument rested on whether the U.S. made any international commitments with respect to gambling services. In its schedule to the General Agreement on Trade in Services (GATS), the U.S. agreed not to impose a number of restrictions on the importation of �recreational services.� For Antigua, and now the WTO, this includes the free flow of cross-border �gambling services.� The U.S., in contrast, has always maintained that it never intended to bind itself in this sensitive sector. First, its GATS schedule explicitly excludes �sporting� services, which on the U.S. reading includes gambling. Second, internet gambling is prohibited within the U.S. so why, the U.S. argued, would it permit foreigners to supply those services?

Pursuing a very textual interpretation, the WTO panel sided with Antigua. It equated the U.S. ban with a prohibited import restriction and found a violation under Article XVI of GATS.

This is where moral values enter the scene. The WTO offers an escape clause for trade restrictions necessary to protect �public morals� or �public order� (GATS Article XIV(a)). Citing concerns of money laundering, organized crime and unrestricted access for minors to internet gambling, the U.S. explained that it is exactly for those reasons that it bans online wagering both domestically and from overseas.

On this point, the Panel sided with the U.S. The Panel relied on, among other things, statements made before Congress by the then U.S. Attorney General, Robert F. Kennedy. Nevertheless, the Panel stopped short of excusing the U.S. ban, for two reasons. First, although the ban is related to public morals, the U.S. should have negotiated with Antigua to see whether less trade restrictive alternatives (other than an outright ban) are available. On that ground, the Panel did not find that the ban was truly �necessary� to protect public morals as required under the escape clause. Second, the panel found that U.S. enforcement efforts are skewed in favor of U.S.-based suppliers of gambling services. Because the U.S. seemed to prosecute foreigners more frequently than U.S.-based suppliers, the panel was not convinced that the ban was applied in a non-discriminatory manner.

In sum, for the WTO panel, the U.S. ban on internet gambling is a trade restriction and cannot be excused on grounds of public order or morality. On that basis, it is about protectionism, not moral values.

The U.S. is certain to appeal this panel ruling. In the meantime, it is worth pointing out some striking features of this latest WTO case and to highlight some of the weak points in yet another controversial WTO ruling.

This case is important for at least two reasons. First, it is the first time that the WTO (or, for that matter, its predecessor, the GATT) ruled on the thorny issue of public morals and whether they can excuse a trade restriction. In rather summary fashion, the panel judged whether internet gambling raises issues of public order or morality and ruled on whether the U.S. had dealt with them in an appropriate manner. This illustrates once more how deeply WTO commitments may penetrate the regulatory powers of its member countries. One week after a U.S. presidential election in which �moral values� voters appear to have played a key role, the ruling is likely to stir up further criticism in the United States of un-elected judges overturning core U.S. values from Geneva. The WTO dispute settlement process is one of the few international dispute mechanisms embraced by the United States (in contrast, most notably, to the International Criminal Court). The WTO risks losing the U.S. as one of its staunchest supporters if it appears to be insensitive to U.S. demands, including those related to �moral values.�

Second, the gambling dispute is a true David against Goliath story. It shows that even the smallest player, Antigua, can win against the biggest trading nation, the United States. At the same time, the dispute also unearths another trend: the growing privatization of WTO dispute settlement. On paper the mechanism is strictly a process between states. Yet, in an increasing number of cases, a single company stands behind the scenes of the state-sponsored complaint (in this case, Mr. Cohen and World Sports Exchange). Moreover, businesses engage in what one could call �state shopping.� In the gambling case, for example, Mr. Cohen, a U.S. national and investor, lost his battle within the U.S. itself, and then obtained the support of a foreign government, here Antigua, to sue the United States. The WTO case thus could be seen as pitting a U.S. investor against the U.S. government.

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It would be good to see more mainstream consideration of this case.

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