Antigua v. USA – Gambling and WTO-Law

Rechtsanwalt Martin Arendts, M.B.L.-HSG

Arendts Rechtsanwälte
Perlacher Str. 68
D - 82031 Grünwald (bei München)
Dear reader,

we have already reported about the crucial meaning of the Gambelli-case for the liberalization of the gambling market in the European Union. A groundbreaking opinion was rendered concerning a case pleaded before a WTO-court. The panel established that the restrictive practice of the US not allowing cross-boarder gambling had to be considered as a breach of WTO law. The following essay of lawyer Martin Arendts discusses the backgrounds of this decision.

The Commission of the European Communities (hereinafter Commission) has taken the Gambelli-decision serious as well. It has taken first steps to initiate an action for infringement of the treaty against Denmark which restraints operation and advertisement for foreign gambling providers. The Commission now reviews whether these Danish provisions are conform to the freedom of establishment and the freedom to provide services. Germany could face similar consequences, if it is not willing to liberalize its gambling market and continues to protect state providers.

The administrative high court does not believe in liberalisation though as is shown in a new decision reported on by lawyer Wulf Hambach. It dismissed appeal with formal arguments mainly.

2. Antigua v. USA – Gambling and WTO-Law

The Caribbean state of Antigua and Barbuda initiated a WTO procedure against the U.S claiming its legislation on Internet gambling violated WTO rules. The small Caribbean state counting 67.000 inhabitants only, invoked the considerable economic importance of Internet Casinos and other online gambling offers. According to the foreign minister of Antigua about 3.000 jobs depend on the gambling industry. The freedom to provide services granted by the General Agreement on Trade and Services (GATS) were infringed by the U.S. and its states. US legal conception holds that according to the Wire Act of 1961 all online gambling is illegal.

Whereas the predecessor of the WTO (Word Trade Organisation), the GATT (General Agreement on Tariffs and Trade) affected trade related questions only, the GATS (one of the WTO-agreements) brought progress in liberalising service commerce as well. The offering of games of chance also falls under the scope of this agreement. One of the basic principles of the WTO-agreement is the imperative of resident-like treatment. It obligates the member states (Antigua participating since 1995) not to treat foreign services worse than domestic ones. From the point of view of Antigua the U.S violates this principle by prohibiting Americans to place wagers with foreign Internet Casinos. Antiguan gambling providers were discriminated compared to American ones. Thus the U.S. infringed Art. II, VI, VIII, XI, XVI and XVII of the GATS.

With its legal conception the state of Antigua which had initiated the formal WTO-procedure after unsuccessful mediation has been successful so far. Unlike the old GATT the new WTO-system now allows a formalised system of conflict settlement the so called Dispute Settlement Understanding (DSU). It provides for a panel of three (in exceptional cases five) WTO-Experts to advise on the case. This panel must come to a decision within 6 months. This decision will then be rendered to the Dispute Settlement Body, which decides on whether to accept the advice or not. The decision is subject to appeal to the appellate body.

So far not more than an (actually confidential and not yet published) „Interim Report“ of the panel on the Antigua case exists. According to press reports it finds a U.S. violation of WTO-principles. Due to the considerable economic importance (not only for the U.S., but also for other WTO member states like Germany) the decision was often reported on.

It is already conceivable that the dispute will continue until the appellate body�s decision. A corresponding proclamation was announced by the U.S. after the decision became public. It is also doubtful whether the U.S. would abide by the negative decision reached (just like it did not in many other cases an U.S. infringement was found). In this case Antigua could theoretically be authorised to impose sanctions but certainly with little effect on the U.S.

In case Antigua were successful other WTO member states would surely be sued too, and would be more likely to act in conformity to WTO rules. Although the ECJ rejected a direct applicability of WTO rules in his decision Portugal v. Council of 1999, individuals too could invoke that national law had to be interpreted in conformity with WTO rules, arguing that the member state was obliged to implement the commitments entered by ratification. Insofar the up-coming fundamental judgement will be of considerable importance for Germany.