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Deadline for U.S.Compliance With WTO Gambling Ruling Comes and Goes With No U.S. Action

April 3, 2006

Deadline for U.S.Compliance With WTO Gambling Ruling Comes and Goes With No U.S. Action

Bush Administration Ignores Demand by Bipartisan Group of 29 State Attorneys General to Remove U.S.Gambling Policy From WTO Control

WASHINGTON, D.C. – Today marks the deadline for the United States to bring into compliance U.S. laws relating to the ban on Internet gambling that a World Trade Organization (WTO) tribunal ruled against last year. The U.S. government has taken no action to change the U.S. law that the WTO panel identified as violating U.S. WTO obligations. Thus, the United States is now subject to trade sanctions.

Shortly after the ruling, a bipartisan group of 29 state attorneys general sent a letter asking United States Trade Representative (USTR) Rob Portman to remove gambling from the list of U.S. service sectors bound to meet WTO rules, writing, “USTR assured state officials that if the Appellate Body upheld the lower panel’s ruling on this point, the United States could act to withdraw the gambling sector from the United States’ specific GATS [General Agreement on Trade in Services] commitments. We urge you to do so … We believe that under our constitutional system of federalism, states should continue to have the flexibility and sovereign authority to determine whether and under what conditions gambling occurs within their borders.” However, this demand has not been heeded by the Bush administration, thus exposing many more U.S. gambling laws, including state laws, to challenges by other countries at the WTO.

“The fact that the Bush administration has not removed U.S. gambling policy from the jurisdiction of the WTO, even after the urgings of 29 U.S. state attorneys general, highlights the pervasive threat to U.S. sovereignty posed by the WTO’s expansive requirements,” said Lori Wallach, director of Public Citizen’s Global Trade Watch division. “Now, instead of fighting to withdraw U.S. gambling policy from the WTO’s jurisdiction, U.S. officials are gathered with WTO negotiators from around the world this week in Geneva to extend WTO services rules to many new service sectors.” This week’s negotiations are part of the WTO’s “Doha Round” that is slated to be concluded in 2006.

When the WTO’s lower panel first ruled in November 2004 that United States laws banning Internet gambling violated GATS commitments, the USTR stressed that the United States could withdraw the gambling sector from the agreement if the ruling were upheld. Before a nation can withdraw a service sector from the terms of the agreement, GATS Article XXI requires that nation to compensate its WTO trading partners for real and theoretical lost business opportunities. Thus, once a country commits a service sector to meeting WTO GATS requirements, it cedes an enormous amount of authority over domestic policies affecting that service sector because GATS rules make it difficult and costly to reverse course.

In April 2005, the WTO’s Appellate Body struck down certain aspects of the lower panel ruling and upheld others. Over the strenuous objections of the U.S. government, the WTO declared that the United States had committed the entire gambling sector to the GATS, because the United States had made commitments under a category called “other recreational services.” Under a United Nations (U.N.) service sector classification system used by some WTO nations, gambling is a sub-sector of “other recreational services.” The United States argued unsuccessfully that it was not using this U.N. system when it signed up recreational services in 1995.

This aspect of the 2005 WTO ruling means that all U.S. federal, state and local laws governing gambling are now subject to future WTO challenge if they don’t comply with GATS rules. GATS rules forbid limits on the number of service suppliers (i.e. on the number of casinos), prohibit monopolies (i.e. monopolistic state lotteries) and prohibit exclusive service provider arrangements (i.e. Indian gaming compacts).

The WTO Appellate Body also ruled that a regulatory ban – in this case the U.S. ban on Internet gambling – in a covered service sector constituted a GATS-forbidden limit. Thus, nondiscriminatory policies criminalizing entire categories of activities are now presumptively illegal under WTO rules when a government has made full GATS commitments in a particular service sector. This implicates not only the complete gambling bans enacted by Utah and Hawaii but partial bans on certain forms of gambling enacted by numerous states and localities. It also implicates regulatory bans in other service sectors the United States has signed up, or is intending to sign up, to the GATS, including: health care, hospitals, financial services, energy, media, advertising, higher education and more.

“This ruling made it clear that the USTR is not only willing to commit states to the constraints of the GATS without their prior informed consent, but that it will not even take remedial steps to correct its own mistakes,” said Saerom Park, GATS organizer at Public Citizen’s Global Trade Watch. “ is not protecting states from the WTO’s constraints on essential public interest regulation, and showed that the USTR has failed in past GATS negotiations even to be precise about what aspects of the U.S. economy are subject to WTO rules. State and local officials need to be aware of the major GATS expansion being negotiated now in Geneva negotiations going on right now. Before they permit federal officials to sign up even more sensitive service sectors like higher education to WTO strictures, which allow state laws to be challenged as trade barriers, states must pressure the feds to create demand the right to decide if they want state policies to be bound to WTO authority., and must pressure federal trade negotiators to not open up even more service sectors to WTO rules.”

Also as part of the WTO ruling, the United States was ordered to change the federal Interstate Horseracing Act (IHA).The Appellate Body ruled that the U.S. ban on remote gambling was not applied in a nondiscriminatory manner because the IHA allowed U.S. gamblers to place bets across state lines while forbidding similar activity via foreign Internet gambling services. The WTO tribunal ordered the United States to address the situation or face trade sanctions. The USTR had two options: to unilaterally withdraw the gambling sector from GATS coverage, which it could do without congressional approval, or work with Congress to make its federal laws consistently prohibit remote Internet gambling. As no action has been taken, the United States may face trade sanctions from Antigua. Antigua is not a major trading partner, yet the long-term implications of this ruling outweigh the short-term ones, as U.S. gambling commitments under GATS expose state and local government gambling regulations to further WTO challenge.

“U.S. trading partners should take note that while the United States is advocating vigorously that other countries should bind more service sectors to GATS rules − to facilitate the entry of U.S. service providers into their markets − the United States is not willing to abide by those same rules, especially when a challenge comes from a small, developing country,” Wallach said.

For more information about U.S.commitments under the GATS, please see Public Citizen’s new GATS Directory, an online resource designed to demystify the GATS negotiations and highlight the danger they pose to state sovereignty and the public interest. The directory is available here.