US To �€�Stonewall�€� EU�€�s Remote Gambling Trade Barriers Push

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US To ‘Stonewall’ EU’s Remote Gambling Trade Barriers Push

3 Apr, 2009 / GamblingCompliance Ltd. / James Kilsby
The European Commission’s threat to launch a case at the WTO over the United States' possible prosecution of EU-based remote gambling firms is unlikely to worry trade officials in Washington DC, according to a leading trade policy expert.
European Trade Commissioner Catherine Ashton announced last week that the EU believes it would be justified in launching an infringement case at the World Trade Organization against the United States’ threatened application of its non-WTO compliant remote gambling laws against European-based companies such as 888 and PartyGaming.

Commissioner Ashton was speaking as the EU’s trade directorate confirmed that it had completed an extensive study into the compliance of American restrictions on internet gambling with the US’ commitments to the WTO’s General Agreement on Trade in Services (GATS) treaty.

A full EU report on the US market restrictions, which industry sources say extends well beyond 100 pages, is likely to be published in two to three weeks time. But the EU said last week that the findings will show that the US regime effectively flouts global trade rules.

The Commission said last week: “The report finds that US laws on remote gambling and their enforcement against EU companies constitute a barrier to market access which has adverse effects on EU economic interests. Furthermore, EU companies are discriminated against: US companies are allowed to freely operate online gambling on horse racing in the US, while European companies and individuals cannot and even face legal action.”

The European Commission has been looking into a formal complaint filed under the EU’s Trade Barriers Regulation (TBR) in March 2008 by the Remote Gambling Association, the industry trade group representing operators including 888 and Party. The TBR is a mechanism which allows private companies based in the EU to call on the Commission to take formal actions against allegedly discriminatory trade rules via the appropriate bilateral or multilateral channels such as the WTO.

But although past WTO rulings on a case brought against the US’ remote gambling laws by the government of Antigua&Barbuda mean the US would likely lose such a case before a WTO dispute panel, the threat of EU action via the TBR is unlikely to cause Washington DC to jolt into relaxing its regime, said Dr. Stephen Woolcock, a lecturer in international trade policy at the London School of Economics.

The EU typically takes up just a handful of TBR complaints every year, but has not generally looked to pursue those complaints aggressively against its trade partners, Woolcock said. “The Trade Barriers Regulation is not a very sharp instrument to get the US’ attention,” Dr. Woolcock told GamblingCompliance following Commissioner Ashton’s announcement. “The EU has never really used it very aggressively.”

Commissioner Ashton said last week that the EU would seek to pursue a “swift, negotiated solution” with the US over the remote gambling issue, playing down the prospect of a formal WTO case.

The EU has previously entered into negotiations with the US over gambling services after the US, in the wake of a final ruling in the Antigua case, stated its intention to remove gambling from the list of services subject to GATS rules.

But following last week’s announcement, the European Commission has now seemingly upheld the RGA’s complaint that the US amendment to withdraw gambling from its GATS schedule does not apply retroactively. The Commission last week noted that potential prosecutions threatening companies including 888 and PartyGaming come as a result of their business activities in the US in the run-up to October 2006, a time during which the US was formally bound to abide by GATS rules in applying market restrictions for remote gambling.

The EU said: “The TBR report also addresses the question whether a possible withdrawal by the US of its commitments on gambling and betting services would have an impact on a potential WTO case. The conclusion is that a case would still be possible despite a withdrawal. The reason is that the withdrawal would only remove the relevant US obligations for the future, but not in respect of past trade.

“In the present case, legal proceedings against EU companies are based on Internet gambling that they supplied in the past, under the cover of US WTO-GATS commitments. If the US continues to act against EC companies with respect to their past activities, it will remain possible for the EC to make a case [at the WTO].”

The Commission added: “EU companies thought that it was legally possible to supply Internet gambling services in the US, based on an unclear domestic legal framework combined with a WTO-GATS commitment undertaken by the United States in the Uruguay Round to allow nondiscriminatory access to its gambling market. As a result, until 2006 a number of European companies offered this type of service to US consumers.

“Following changes of the regulatory framework in the US, European companies withdrew from the US market. However, US authorities started legal proceedings against European companies based on the gambling and betting services they had offered until 2006.”

Last year, the EU agreed to concessions in other trade sectors in return for the removal of gambling from the US’ WTO services commitments. This time, however, the specific TBR complaint means redress can only be found via US concessions offered specifically in the gambling area, according to Woolcock.

“What the EU will probably do now is engage in bilateral discussions with the US to try to resolve this issue, but they can’t widen this out to seek more general trade compensation under the GATS,” Woolcock said.

According to the RGA’s chief executive Clive Hawkswood, the remote gambling industry is not pushing the US to amend its laws and to regulate online gambling. Instead, Hawkswood said, the trade group is simply hoping to secure “some formal assurance that the US will no longer threaten formal enforcement action against European online gambling companies for actions that took place while the US was in violation of WTO laws.”

Lawyers close to the case note that the US has previously yielded to a similar non-prosecution agreement with the EU over trade with Cuba when the EU threatened to challenge the validity of the US’ controversial 1996 Helms-Burton Act at the WTO.

The Helms-Burton Act threatened to prosecute the executives of foreign-based companies conducting trade with Castro’s Cuba but, rather than risk seeing the law overturned at the WTO, the US has neglected to apply it to the Cuban trade activities of European firms.

That precedent is potentially a significant one for remote gambling firms seeking similar guarantees from the US, said Dr. Woolcock. However, the LSE professor cautioned that the circumstances surrounding Helms-Burton evoked unique national security concerns in the US, adding the US could be more willing to risk a WTO challenge from the EU over its remote gambling regime than it was to risk closer multilateral scrutiny of its Cuban trade policy.

“The EU can’t take any retaliatory action against the US without first bringing another case under the WTO,” Dr. Woolcock said. “Although it would look as if the US would be likely to lose at the WTO on this, a case would take years to go through. So, if the US decides that this is a problematic situation they could just stonewall it.”