WTO Reporter
Highlights
March 22, 2005
SERVICES: LEGAL EXPERTS SEE WTO GAMBLING RULING VULNERABLE TO APPEAL ON PUBLIC
POLICY CARVE-OUT
GENEVA--A World Trade Organization panel ruling that found in favor of
Antigua and Barbuda in its complaint against U.S. restrictions on cross-border
Internet gambling is vulnerable to reversal on appeal, according to a number of
legal experts following the dispute.
The experts said the panel's findings on the public policy "carve out" under
Article XIV of the WTO's General Agreement on Trade in Services (GATS) was
particularly problematic and would likely be overturned by the WTO's Appellate
Body.
But Antigua's lead attorney on the case vehemently rejected these claims,
arguing that the Appellate Body will be obliged to maintain the panel's
findings since the United States has provided no evidence showing that its
Internet gambling ban was needed to protect minors or prevent fraudulent
practices as U.S. officials claimed.
Article XIV states that the GATS agreement shall not prevent governments
from adopting or enforcing measures deemed necessary to protect public morals
or maintain public order; to protect human, animal, or plant life or heath; or
to secure compliance with laws or regulations concerning the prevention of
deceptive and fraudulent practices, the protection of individual privacy in
relation to personal data, and safety.
In its ruling made public Nov. 10, the panel concluded that the United
States had, contrary to its assertions otherwise, included specific commitments
on market access for gambling and betting services in its GATS services
schedule. It also found that the United States did not have the right to
resort to Article XIV to justify its restrictions on Internet gambling as an
exception from its GATS commitments.
The panel based its Article XIV findings in narrow grounds, arguing that the
United States failed to seek a good-faith solution by refusing Antigua's offer
to engage in discussions to determine whether there was a way to address its
concerns in a WTO-consistent manner.
The United States has appealed both the panel's finding that it made a
commitment on gambling and betting services as well as the Article XIV
finding. A ruling by the WTO's Appellate Body is due by April 7.
Experts Expect Reversal.
At a conference in Stresa, Italy March 11-13 to mark the 10th year
anniversary of the WTO's dispute settlement system, several legal experts said
they expected the panel's ruling would be reversed on appeal.
Ernst-Ulrich Petersmann, professor of law at the European University
Institute and former legal adviser in the GATT as well as the WTO, said the
Appellate Body was faced with a "very difficult task" in the gambling dispute
in demarcating the rights of WTO members to resort to the public policy carve-
out under Article XIV of GATS and, by extension, an identical provision under
Article XX of the GATT agreement on trade in goods.
"I hope the Appellate Body will not follow the panel," Petersmann said,
adding that the appellate judges "should probably interpret the 'necessity'
requirement in a different way than the panel."
Claus-Dieter Ehlermann, counsel with the Brussels office of Wilmer
Cutler Pickering, Hale and Door and former chairman of the Appellate Body, also
questioned whether the panel "got it right" in the gambling ruling. Others
speaking off the record said they believed the panel's findings on Article XIV
were faulty and would probably be overturned by the Appellate Body.
The United States argued in its Jan. 14 submission to the Appellate Body
that the panel erroneously interpreted the "deemed necessary" provision under
Article XIV as meaning the United States was obliged to "explore and exhaust
reasonably available WTO-consistent alternatives" to Internet gambling before
imposing the ban and erroneously created a new procedural requirement that a
WTO member consult or negotiate with another member before adopting, and while
maintaining, a measure that would otherwise fall within an Article XIV
exception.
Prior to the panel's findings in this dispute, no WTO panel nor the
Appellate Body has ever found such a requirement in applying this type of
analysis," the United States noted.
Labor and Human Rights Standards.
Petersmann said in a paper presented to the Stresa meeting that while the
public order provisions under Article XIV of GATS and Article XX of GATT are
exceptions to WTO rules, this "does not mean that the terms 'public order' and
'public morals' must be construed narrowly, or that the burden of proof must
exclusively lie with the country invoking such exceptions."
He added that the Appellate Body's ruling would have important implications
in other areas, notably in the relationship between trade and labor standards
or the protection of human rights.
"WTO diplomats might be surprised to learn from future WTO jurisprudence
that, even though 'public morals' and national human rights traditions may
legitimately differ from country to country, the WTO rules on the protection of
public order already include a 'social clause' and 'human rights clause' that
protects the right of WTO members to ensure respect for labor standards and
human rights inside their countries."
In an interview with BNA March 17, Mark Mendel, lead legal counsel for
Antigua in the WTO dispute, dismissed the chances of the Article XIV findings
being overturned as "extremely unlikely."
Gambling "is an $80 billion industry in the United States, it's by far the
world's largest gambling market," Mendel declared. "Forty-eight of the 50
states have some form of legalized gambling. The United States cannot go
before the WTO and say they have a moral aversion to gambling."
"Ultimately, their argument is that this remote form of Internet gambling is
intrinsically worse and resulted in higher incidences of youth gambling,
organized crime, and health problems for adults," he added. "The fact of the
matter is that during the entire course of the panel proceedings, the United
States never presented any evidence of that whatsoever."
Remote Gambling in U.S.
"Their only evidence was statements of U.S. politicians or government
officials before Congress saying that Internet gambling is bad," Mendel
continued, "whereas we presented massive amounts of evidence of the occurrence
of all of those things in the U.S. domestic gambling industry itself, such as
money laundering, children gambling in casinos, and buying lottery tickets, and
that sort."
Mendel also described as "patently false" U.S. claims that remote gambling
does not exist in the United States, citing the ability to gamble on the
Internet across state lines on horse racing and the purchase of lottery tickets
on the Internet as two examples. "There is a huge, lawful remote gambling
industry in the United States itself."
"The U.S. argument on Article XIV was so poor, so sketchy, so shallow and so
unsubstantiated," Mendel declared. "If you look at past panel cases on Article
XX of GATT, they have imposed a stiff burden of proof and a need to really
argue and establish your case. The United States did not do that here."
Mendel said that more interesting will be the Appellate Body's ruling on
whether the United States actually scheduled a commitment on gambling and
betting services, since that decision would impact how other WTO members have
drawn up their schedules of GATS market access commitments.
The panel concluded that U.S. commitments under subsector 10.D of its GATS
schedule covering "other recreational services" should be interpreted as
including gambling services, despite U.S. assertions that it never intended to
make any commitments under the subsector heading on gambling. But the panel
said that a U.S. International Trade Commission document concerning the U.S.
schedule of commitments under GATS "clearly states" that subsection 10.D
"corresponds" to the United Nations Central Product Classification system
(CPC), under which gambling and betting services are covered.
Mendel cautioned that if the panel ruling is upheld by the Appellate Body,
it would not automatically mean that the floodgates to Internet gambling would
be opened in the United States. "It's Antigua against the United States, it's
not the Internet gambling industry against the United States," he said. "If
the decision is upheld it remains applicable to Antigua and not anybody else."
By Daniel Pruzin
Highlights
March 22, 2005
SERVICES: LEGAL EXPERTS SEE WTO GAMBLING RULING VULNERABLE TO APPEAL ON PUBLIC
POLICY CARVE-OUT
GENEVA--A World Trade Organization panel ruling that found in favor of
Antigua and Barbuda in its complaint against U.S. restrictions on cross-border
Internet gambling is vulnerable to reversal on appeal, according to a number of
legal experts following the dispute.
The experts said the panel's findings on the public policy "carve out" under
Article XIV of the WTO's General Agreement on Trade in Services (GATS) was
particularly problematic and would likely be overturned by the WTO's Appellate
Body.
But Antigua's lead attorney on the case vehemently rejected these claims,
arguing that the Appellate Body will be obliged to maintain the panel's
findings since the United States has provided no evidence showing that its
Internet gambling ban was needed to protect minors or prevent fraudulent
practices as U.S. officials claimed.
Article XIV states that the GATS agreement shall not prevent governments
from adopting or enforcing measures deemed necessary to protect public morals
or maintain public order; to protect human, animal, or plant life or heath; or
to secure compliance with laws or regulations concerning the prevention of
deceptive and fraudulent practices, the protection of individual privacy in
relation to personal data, and safety.
In its ruling made public Nov. 10, the panel concluded that the United
States had, contrary to its assertions otherwise, included specific commitments
on market access for gambling and betting services in its GATS services
schedule. It also found that the United States did not have the right to
resort to Article XIV to justify its restrictions on Internet gambling as an
exception from its GATS commitments.
The panel based its Article XIV findings in narrow grounds, arguing that the
United States failed to seek a good-faith solution by refusing Antigua's offer
to engage in discussions to determine whether there was a way to address its
concerns in a WTO-consistent manner.
The United States has appealed both the panel's finding that it made a
commitment on gambling and betting services as well as the Article XIV
finding. A ruling by the WTO's Appellate Body is due by April 7.
Experts Expect Reversal.
At a conference in Stresa, Italy March 11-13 to mark the 10th year
anniversary of the WTO's dispute settlement system, several legal experts said
they expected the panel's ruling would be reversed on appeal.
Ernst-Ulrich Petersmann, professor of law at the European University
Institute and former legal adviser in the GATT as well as the WTO, said the
Appellate Body was faced with a "very difficult task" in the gambling dispute
in demarcating the rights of WTO members to resort to the public policy carve-
out under Article XIV of GATS and, by extension, an identical provision under
Article XX of the GATT agreement on trade in goods.
"I hope the Appellate Body will not follow the panel," Petersmann said,
adding that the appellate judges "should probably interpret the 'necessity'
requirement in a different way than the panel."
Claus-Dieter Ehlermann, counsel with the Brussels office of Wilmer
Cutler Pickering, Hale and Door and former chairman of the Appellate Body, also
questioned whether the panel "got it right" in the gambling ruling. Others
speaking off the record said they believed the panel's findings on Article XIV
were faulty and would probably be overturned by the Appellate Body.
The United States argued in its Jan. 14 submission to the Appellate Body
that the panel erroneously interpreted the "deemed necessary" provision under
Article XIV as meaning the United States was obliged to "explore and exhaust
reasonably available WTO-consistent alternatives" to Internet gambling before
imposing the ban and erroneously created a new procedural requirement that a
WTO member consult or negotiate with another member before adopting, and while
maintaining, a measure that would otherwise fall within an Article XIV
exception.
Prior to the panel's findings in this dispute, no WTO panel nor the
Appellate Body has ever found such a requirement in applying this type of
analysis," the United States noted.
Labor and Human Rights Standards.
Petersmann said in a paper presented to the Stresa meeting that while the
public order provisions under Article XIV of GATS and Article XX of GATT are
exceptions to WTO rules, this "does not mean that the terms 'public order' and
'public morals' must be construed narrowly, or that the burden of proof must
exclusively lie with the country invoking such exceptions."
He added that the Appellate Body's ruling would have important implications
in other areas, notably in the relationship between trade and labor standards
or the protection of human rights.
"WTO diplomats might be surprised to learn from future WTO jurisprudence
that, even though 'public morals' and national human rights traditions may
legitimately differ from country to country, the WTO rules on the protection of
public order already include a 'social clause' and 'human rights clause' that
protects the right of WTO members to ensure respect for labor standards and
human rights inside their countries."
In an interview with BNA March 17, Mark Mendel, lead legal counsel for
Antigua in the WTO dispute, dismissed the chances of the Article XIV findings
being overturned as "extremely unlikely."
Gambling "is an $80 billion industry in the United States, it's by far the
world's largest gambling market," Mendel declared. "Forty-eight of the 50
states have some form of legalized gambling. The United States cannot go
before the WTO and say they have a moral aversion to gambling."
"Ultimately, their argument is that this remote form of Internet gambling is
intrinsically worse and resulted in higher incidences of youth gambling,
organized crime, and health problems for adults," he added. "The fact of the
matter is that during the entire course of the panel proceedings, the United
States never presented any evidence of that whatsoever."
Remote Gambling in U.S.
"Their only evidence was statements of U.S. politicians or government
officials before Congress saying that Internet gambling is bad," Mendel
continued, "whereas we presented massive amounts of evidence of the occurrence
of all of those things in the U.S. domestic gambling industry itself, such as
money laundering, children gambling in casinos, and buying lottery tickets, and
that sort."
Mendel also described as "patently false" U.S. claims that remote gambling
does not exist in the United States, citing the ability to gamble on the
Internet across state lines on horse racing and the purchase of lottery tickets
on the Internet as two examples. "There is a huge, lawful remote gambling
industry in the United States itself."
"The U.S. argument on Article XIV was so poor, so sketchy, so shallow and so
unsubstantiated," Mendel declared. "If you look at past panel cases on Article
XX of GATT, they have imposed a stiff burden of proof and a need to really
argue and establish your case. The United States did not do that here."
Mendel said that more interesting will be the Appellate Body's ruling on
whether the United States actually scheduled a commitment on gambling and
betting services, since that decision would impact how other WTO members have
drawn up their schedules of GATS market access commitments.
The panel concluded that U.S. commitments under subsector 10.D of its GATS
schedule covering "other recreational services" should be interpreted as
including gambling services, despite U.S. assertions that it never intended to
make any commitments under the subsector heading on gambling. But the panel
said that a U.S. International Trade Commission document concerning the U.S.
schedule of commitments under GATS "clearly states" that subsection 10.D
"corresponds" to the United Nations Central Product Classification system
(CPC), under which gambling and betting services are covered.
Mendel cautioned that if the panel ruling is upheld by the Appellate Body,
it would not automatically mean that the floodgates to Internet gambling would
be opened in the United States. "It's Antigua against the United States, it's
not the Internet gambling industry against the United States," he said. "If
the decision is upheld it remains applicable to Antigua and not anybody else."
By Daniel Pruzin
