WTO troubles could bring the US to its senses

27.09.2007

With World Trade Organisation members likely to be submitting compensation claims in the billions to the United States over its stance on Internet gambling, the international mainstream media is now taking serious notice of a dispute which hitherto appeared to involve only the tiny island nation of Antigua and Barbuda.

The plucky Caribbean nation has been fighting a lone battle against its massive neighbour for over three years now, conclusively beating the United States at every stage in its claims that the discriminatory nature of US online gambling law was in contravention of its World Trade Organisation treaty obligations (see previous InfoPowa reports)

But the latest American strategy - to take the unprecedented step of withdrawing its online gambling obligations, is what set the US on a collision course with at least seven other WTO member countires, including the European Union bloc which encompasses most of Europe's leading nations.

EU officials have already indicated that the initial and tentative US compensatory offers are a long way off fair and reasonable compensation for the billions in corporate losses which the US policy on online gambling has caused around the world.

Most leading news magazines and papers are now covering the debacle in depth, analysing possible solutions which could be deployed to let the United States off the hook. Increasingly, the adoption of legislation such as Congressman Frank's Internet Regulation and Enforcement Act (IGREA) is seen as a way out for an increasingly beleaguered America.

IGREA seeks to regulate and license online gambling in the United States and would not only solve the discriminatory problem caused by the USA's ambivalent policies allowing horserace, lotteries and fantasy sports online betting, but could make redundant the Unlawful Internet Gambling Enforcement Act which bans financial transactions with online gambling companies.

The UK newspaper The Guardian commented on the possibility in an article this week, opining that the ban could be overturned as negotiations between Washington and Brussels on compensation have apparently stalled.

The newspaper commented that lawyers for the EU are seeking compensation for the severe losses suffered by the British and European companies banned from operating in their biggest market last year, after the Bush administration signed off on UIGEA.

However the gambling companies, which saw billions wiped off their share prices after the ban, would not receive any cash if US proposals for better trade concessions on warehousing were accepted, and instead Brussels wants Washington to open up other areas of its services industry to European firms, such as insurance or reinsurance.

But such a deal could cost the US billions of dollars and it might therefore opt to allow overseas gambling operators back into its market under licence.

The Guardian was told by an EU trade official: "The UK operators and others who have lost out would get nothing. But the Frank bill would go a long way to meeting our demands."

Experts at a Brussels press conference this week, including Naotaka Matsukata, former director of policy planning for the US trade Representative and Craig Pouncey, Brussels-based trade lawyer with Herbert Smith, said that the US and Europe were heading for a major clash over the dispute.

"The US$3.4 billion claim by Antigua and the much larger claim of over US$100 billion by the seven other economies seeking compensation are some of the largest penalties in the history of the WTO," said Matsukata. "This is by far the most significant WTO case ever and its implications for both the US and the EU are enormous. Given the size of the US gaming market, both the potential benefit for European industry and the corresponding potential damage to US companies is unprecedented."

The EU, Macau, India and Australia are among the countries seeking compensation over the US' actions.

European and US lawyers warned this week that the dispute posed a "systemic risk" to the credibility of the World Trade Organisation after it ruled earlier this year that America acted in an illegal and discriminatory manner by excluding online gaming operators from the tiny Caribbean island of Antigua.

At the same time, the White House allowed domestic operators to offer gambling over the internet and withdrew its entire $100 billion gambling industry from its free trade commitments.

The EU online gaming industry, mainly based in the UK, employs 15 000 but faces a growing challenge from US operators such as Yahoo!, Google and Sands.

Jonathan Cohen, a New York-based public affairs consultant acting for EU operators, said the US legal regime was "wildly inconsistent" as it allowed online fantasy sports leagues, lotteries and racecourse betting but specifically banned other services provided by European firms.

Clive Hawkswood, chief executive of the Remote Gambling Association, said the European industry suffered from outrightly protectionist measures from the US. "It is using unjustified trade barriers to stop EU operators and a proper licensing system would attract many EU operators," he said.