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The US-Antigua Gambling Decision

The WTO panel decision in the gambling dispute (November 2004) upheld most of Antigua's GATS claims against the United States regarding U.S. failure to provide 'market access' to Antigua for purposes of remote gambling services. This initial decision in Measures Affecting Cross-Border Supply of Gambling and Betting Services  appeared to have negative impacts on the authority of subfederal governments, including the four state laws that Antigua had briefed in its case. 

But the WTO Appellate Body reserved much of the lower panel ruling in the spring of 2005.  The Appellate Body justified most federal restrictions on Internet gambling by the "public morals" exception of the GATS.  The important exception was in federal legislation on horse-racing (discussed below).

In its original complaint in 2003, Antigua challenged nine federal laws and 84 state laws (in all 50 states). Among the Appellate Body’s major rulings:

  • Antigua succeeded in establishing that the United States made a commitment to follow Market Access and National Treatment rules on gambling services.
  • Three federal laws that prohibit Internet gambling violate Market Access rules because they amount to a “zero quota,” which “totally prevents the use of ... one, several or all means of delivery” of cross-border gambling services. The federal laws include the Wire Act, the Travel Act and the Illegal Gambling Business Act.
  • The violations of Market Access rules are excused (except for laws that permit remote betting on horse races through domestic services only) because the federal measures are “necessary to protect public morals.” The “public morals” exception does not apply to the federal law on remote betting on horse races because the law discriminated against foreign gambling companies.
  • Because Antigua failed to explain why the challenged state laws violate GATS rules, those claims were dismissed. This is not a definitive ruling so much as an acknowledgment that Antigua did not fully brief the issues.  

The WTO Appellate Body agreed with Antigua’s arguments concerning discriminatory provisions in the Interstate Horseracing Act. Antigua relied on the text of the IHA, which provides that "[a]n interstate off-track wager may be accepted by an off-track betting system" where consent is obtained from certain organizations. Antigua referred the Panel to the definition given in the statute of an "interstate off-track wager":

[T]he term ... 'interstate off-track wager' means a legal wager placed or accepted in one State with respect to the outcome of a horserace taking place in another State and includes pari-mutuel wagers, where lawful in each State involved, placed or transmitted by an individual in one State via telephone or other electronic media and accepted by an off-track betting system in the same or another State, as well as the combination of any pari-mutuel wagering pools. (emphasis added)

Thus, according to Antigua, the IHA, on its face, authorizes domestic service suppliers, but not foreign service suppliers, to offer remote betting services in relation to certain horse races.

The WTO gambling decision is only the second major interpretation of GATS and the first interpretation of the public morals exception. This decision is a positive development in the WTO’s approach to interpreting exceptions to trade agreements, yet it raises several questions of interest to state and local officials.

1. Future threat to state gambling laws – Does the WTO decision reveal any future threat to state regulation of gambling?

The WTO’s Appellate Body overturned the lower panel’s decision against both state and federal laws except for the federal law that limits remote betting on horse races to U.S. service providers. However, the decision on state laws was not on the merits; it reflected Antigua’s complete failure to make a specific legal argument regarding the state laws.

In rejecting the claim against most federal laws that prohibit Internet gambling, the Appellate Body agreed with the United States that its ban on Internet gambling is permissible under an exception for measures that are “necessary to protect public morals.” The WTO accepted the U.S. argument that certain concerns about public morals are greater with Internet gambling than they are with casino gambling. These include money laundering, fraud, gambling addiction and underage gambling. While accepting the U.S. argument, the WTO explained that Antigua failed to propose a “reasonably available alternative measure,” which implies that such a claim could be presented in the future.

Despite the Appellate Body’s decision on the public morals exception, the WTO ruled on two points that could have an adverse impact on state regulation of gambling:

  • Gambling commitment. First, the WTO ruled that the United States made a commitment on gambling services, which includes not only cross-border gambling, but also gambling operations with a “commercial presence” in the United States. This commitment covers state monopolies, tribal gaming operations and state regulation of casinos, racing, slots and all other forms of gambling.
  • Market Access rules. Second, The WTO ruled that a prohibition on Internet gambling violates the GATS rules on Market Access, which prohibit limits on the number of service providers or operations in the form of a monopoly or a quota. Specifically, the WTO ruled that a prohibition is a “zero quota.” Unlike Internet gambling, state and tribal monopolies or limits on the number of casinos, race tracks or slots do not appear to benefit from a “public morals” defense that is limited to concerns about remote gambling through Internet technology.

2. Public morals and federalism – Will the “public morals” exception to trade rules respect a principle of federalism, which is that state governments make their own choices on matters of public morality?

The scope of the “public morals” defense regarding remote gambling through Internet technology did not include the broader moral concerns of states like Utah and Hawaii that ban gambling completely. This suggests that the public morals exception will not be available in future challenges if some states permit activity that other states ban or regulate more heavily. The fact that states make different choices about what to regulate, based on their unique political and cultural traditions, can itself be used against them in a trade dispute.

The United States decides to withdraw its GATS commitment => 

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