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Statement on Internet Gambling

December 21, 2007



Washington, D.C. - In
response to an award from a World Trade Organization Arbitrator today in a
dispute brought by Antigua & Barbuda (Antigua) involving Internet Gambling, United States Trade
Representative Spokesman Sean Spicer made the following statement:

“Because the United States is already taking steps
to bring itself into compliance by clarifying its WTO commitments with respect
to internet gambling, the Arbitrator’s award issued today is not paramount,”
said USTR Spokesman Spicer.  “The United
States has already initiated the formal process under the
WTO for clarifying its schedule of commitments and is engaged in compensation
negotiations with Antigua and six other WTO
Members that have claimed to be affected.  We announced a compensation
agreement with three of those Members earlier this week, and are continuing
discussions with the others.  We would expect that Antigua would not
suspend its WTO commitments to the United States while that process is
underway.”   Spicer further explained that, “Once the process of
clarifying the U.S. schedule
of commitments is complete, any issues in our bilateral dispute with Antigua will be moot, and there will no longer be any
basis for suspending WTO commitments in accordance with the Arbitrator’s

The WTO Dispute Settlement Body had previously found that the
States had not brought certain federal gambling
laws involving Internet gambling on horse racing into compliance with
obligations under the General Agreement on Trade in Services (GATS).  As a
result of the Arbitrator’s award, Antigua – upon a subsequent request to the WTO
Dispute Settlement Body – would be entitled to suspend Antigua’s WTO obligations
to the United States so as to
affect trade between the United
States and Antigua in an
amount up to $21 million per year.   The Arbitrator also found that
Antigua is entitled to suspend WTO benefits not
only with respect to services, but also with respect to intellectual property
rights.  Contrary to some reports, the WTO does not impose fines or
monetary penalties.

In the arbitration, Antigua claimed that its level of
impairment of WTO benefits resulting from U.S. noncompliance amounted to $3.4 billion per
year – a figure more than three times the size of Antigua’s entire economy.  During the arbitration,
the United States explained
to the Arbitrator that Antigua's claim was
patently excessive.  The United States is pleased that the figure arrived
at by the Arbitrator is over 100 times lower than Antigua’s claim.

The United
States is concerned, however, that the Arbitrator agreed
with Antigua’s request to suspend WTO
concessions not just with respect to services, but also with respect to
intellectual property rights (IPR).  Any authorization pursuant to the
award would be strictly limited to Antigua;
every other WTO Member remains obliged to protect U.S. IPR under WTO rules,
including enforcement against any IPR-infringing goods.  Moreover, even
with respect to Antigua, it would establish a
harmful precedent for a WTO Member to affirmatively authorize what would
otherwise be considered acts of piracy, counterfeiting, or other forms of IPR
infringement.  Furthermore, to do so would undermine Antigua’s claimed intentions of becoming a leader in
legitimate electronic commerce, and would severely discourage foreign investment
in the Antiguan economy.


GATS Article XXI Process:

In May of this year, USTR announced that it was invoking
procedures under Article XXI of the GATS in order to clarify its commitment
involving “recreational services,” which was interpreted in the course of WTO
dispute settlement as including a U.S. commitment to allow internet
gambling services.  The Article XXI procedure involves negotiations with
any WTO Member that claims to be affected together with compensatory adjustments
in other areas of the U.S. schedule of services
commitments.  Once the Article XXI process is complete,  the
U.S. schedule of services
commitments will reflect the original U.S. intent of excluding gambling from the scope
of U.S. commitments, and the
States will no longer be out of compliance with
the earlier WTO ruling.

On December 17, USTR confirmed that the United States had reached agreement in the GATS
Article XXI process with Canada, the EU and Japan.  The agreement involves
U.S. commitments to maintain
liberalized markets for warehousing services (excluding services supplied at
ports and airports), private technical testing services, private research and
development services, and postal services relating to outbound international
letters.  These commitments meet the WTO obligations of the United
States under GATS Article XXI to make a
compensatory adjustment in WTO services commitments.  December 17 starts a
45-day period during which the remaining claimants, including Antigua, have a
right to request arbitration on the adequacy of the U.S.
compensatory adjustments.  The United
States strongly believes that arbitration, if requested,
would show that the U.S. has met its Article XXI
obligations.  Nonetheless, the U.S. hopes to be able to resolve this
matter with the remaining claimants.  

Bilateral WTO Dispute with Antigua on Gambling Services:

The WTO dispute was originally filed by Antigua and
Barbuda in 2003.  In the course of the
dispute, the WTO found that the U.S. GATS schedule included a market access
commitment covering internet gambling based outside of the United
States.  This finding was the unintended
consequence of imprecision in the drafting of the 1994 U.S. GATS schedule. 
In fact, as the WTO panel recognized, gambling or betting services are generally
prohibited or highly restricted in the United States for reasons of public
morality, law enforcement and protection of minors and other vulnerable groups,
and the United States never intended to make a GATS commitment covering

Despite the unexpected finding that the United States GATS
schedule extended to cross-border gambling, the United States had other defenses to the claims
raised by Antigua.   In particular,
the United
States believed that although its gambling laws
predated the WTO, these laws were both consistent with GATS obligations, and
would qualify for a GATS exception for laws necessary to protect public morals
or to maintain public order. 

In a report issued in April 2005, the Appellate Body agreed
with the United States that
the U.S. federal statutes at issue in the
dispute are necessary to protect public morals or to maintain public order,
within the meaning of an exception to GATS market access obligations. 
However, the Appellate Body found that, with respect to one narrow aspect
involving horse racing, U.S. federal gambling laws could not
qualify for the GATS exception.  In particular, the United
States could not show that federal gambling
prohibitions applied equally to foreign and domestic suppliers of remote betting
services for horse racing.  The Appellate Body report did not find
WTO-inconsistencies in any State laws. 

Antigua subsequently
requested a WTO compliance panel.  In a report issued in March 2007, the
compliance Panel found that the United States did not bring its
federal gambling laws into compliance with the rulings in the Appellate Body
report.  In June 2007, Antigua filed its
request for authorization to suspend trade concessions.  The matter was
referred to the WTO Arbitrator in July 2007. 

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