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Antigua attorney speaks out on landmark WTO case

DOJ, USTR keep heads in sand

By Burke Hansen, 16 Jul 2007

House of Cards With the recent news that the Conference of the Caribbean Community (CARICOM) has joined the EU, Japan, and India in supporting tiny Antigua in its WTO case against the US regarding the cross-border provision of gambling services, we thought the time was right to finish our interview with Mark Mendel, lead counsel for Antigua in this landmark trade case, that we began back at GIGSE in Montreal.

Mark, you've been Antigua's counsel on this case for a while now, and I thought maybe you could give us a little history of the case for our readers who might not be familiar with it.

Antigua brought this case in 2003, primarily as a result of increasing efforts of the United States Department of Justice to prevent Antiguan companies from providing remote gambling and betting and services to consumers in the United States. We had evaluated the legal issues and determined that under the WTO's General Agreement on Trade in Services (the "GATS"), the United States had made an unrestricted commitment to allow the cross-border trade in gambling and betting services from other WTO members, such as Antigua. Thus, the actions by the DOJ to stop the industry amounted to a violation of an international treaty.

The real objective of the case was to bring the United States to the negotiating table for some fair and reasonable solution that would allow Antiguan operators to provide services to consumers in the United States on some agreeable middle ground. Although, frankly, under the GATS Antigua is entitled to have the United States repeal its offending legislation, that was never really our plan or expectation. We just wanted some fair and reasonable treatment.

Unfortunately, from the beginning of the case to the current date, the United States has shown no willingness to compromise at all. So, we have tested them at the WTO through its dispute resolution process and have won at every stage. There is enormous and very complicated history here, but basically as the United States would not compromise we had to prosecute our case, which we had assessed as very sound. Through the smoke and chaff, the WTO has consistently said the United States had agreed to allow these services and by prohibiting them, the United States was in violation of the GATS.

The WTO rejected a so-called "morals" defence pushed by the United States at the very last moment of what might be called the original "trial" of the dispute at the WTO on the basis that the United States - which had said it prohibits all remote gambling throughout the country - could not establish that it did indeed prohibit all domestic remote gambling as well as that from foreign countries.

In essence, if the United States was going to say that "remote" gambling was so bad that it was necessary to prohibit it across the board, then it indeed needed to be consistent about that, and not use the claim as a way to discriminate against foreign trade. Although the discussion of this issue in the earlier rulings is somewhat impenetrable to the non-WTO literate (and was even so to many of them as well), the most recent ruling that came out in March of this year made it crystal clear. The United States has a wide variety of legal, domestic-only remote gambling operating currently.

Further, something that so many people have not realised but this last panel finally got right, and that is that federal law doesn't prohibit remote gambling at all - just remote gambling that crosses a state or international border. By leaving states free to have as much intrastate remote gambling as they want, but prohibiting services that cross a border, the federal government cannot possibly say that it prohibits all remote gambling. And, of course, the crossing of a border is, by itself, not a logical basis for discriminating against services. At least not under international law.

And how about the procedures at the WTO - in a step-by-step kind of way, how do those work? Certainly the terminology is quite different, at least as far as the procedure goes. You don't go to court, since this is more like an arbitration proceeding than a typical court case, you convene a panel, for example. What does that consist of? Who's on it? It's not the most transparent process- what are the inner workings of the WTO like?

It is a very European process. The first "panel" - really, the initial or trial court - is selected from a large panel of international volunteers with good trade credentials. In our case, the panel consisted of a lawyer from England, a diplomat from Thailand, and a trade academic from India. You present your case substantially by written submission. There are no witnesses and no testimony. In the first process, you have two presentations before the panel, which are really oral presentations of written statements, followed by a question and answer session that can be good, bad, or useless, depending upon your panel.

A loss at the panel stage leads to a binding decision unless the loser quickly appeals, which the United States did in our case. An appeal goes to the WTO's "appellate body", which is a standing body of seven members from a number of countries, all of whom must be lawyers in their home countries. Your case is assigned to a random panel of three of the members, and it is much like an American appellate process - submission of briefs and counter briefs followed by an oral hearing where you make a presentation and then may or may not be subject to rigourous or not-so-rigourous questioning.

The appellate body is supposed to consider matters of law only and not make new findings of fact or survey new evidence. The one key power the appellate body lacks is the ability to "remand" a case - that is, send it back to the panel for reassessment based upon the proper legal standards and reasoning as adopted by the appellate body. All that it can do is approve or reverse a case, in whole or in part. I was very disappointed in the appellate body's treatment of our case. While we maintained our victory, the reasoning was so opaque and the review of many issues so shoddy or inconsistent, it was really very poor work. But there is no further appeal of a case after the appellate body has its go, so both sides are stuck with it.

After we won the appeal, the United States was supposed to change its laws to accommodate the decision. I could describe for hours the various delaying tactics and twists and turns that have gone on since then, but I can summarise by saying that the WTO gave the United States a period of time to bring itself into compliance. During this period, the United States did nothing, but at the end of the period announced to the WTO that they were indeed in compliance. So, once again we brought them before a panel to assess the status of their so-called "compliance".

It was here that we won clearly and decisively in the decision announced on 30 March of this year. After that ruling, it was really impossible for the United States to argue any more that it had "won", or that its prohibition had been "broadly upheld" or that it just needed to "clarify the Interstate Horseracing Act", as the United States had publicly been saying. I was and remain very happy about that ruling, and am extremely grateful for the excellent work done by the panel. That panel, by the way, had the original panelist from Thailand, a trade lawyer from Chile and was chaired by a distinguished businessman from Sweden.

So where are we at now? The US keeps losing, but nothing has happened yet. The Antiguans have formally requested to be allowed to suspend their obligations to the US, but when can we expect something concrete to come out of this? Clearly, the WTO in uncharted waters here.

We are no doubt headed to an arbitration to determine the trade concessions that Antigua can levy against the United States until it complies with the decision - or until we can finally negotiate a fair settlement. That process will start in September probably. The trade concessions process is provided for in the WTO's rules in order to make a hesitant dispute loser to speed up the compliance process. It has not been used very much, because generally losers either comply or they negotiate reasonable settlements. Here, the United States has done neither, so we really have no choice but to see what type of sanctions we can get and whether these sanctions can motivate the American government to act.

What you basically do with these trade sanctions is punish an "innocent" sector of the loser's economy to compensate for the damage done to the winner's economy on an annual basis by the failure of the loser to comply. Thus, the loser makes a completely unrelated sector of its economy suffer for its protectionism in another sector - here, to prop up its domestic gambling economy, the United States is in essence offering up other sectors for punishment. Not really a very smart political decision, usually, so most countries don't let it get to this stage.

And now, the United States has really upped the ante by trying to solve the dispute by withdrawing the commitment to gambling services that it had initially made some ten years ago or more. Although we had not planned on this being the case, our dispute has presented a virtual plethora of firsts in WTO litigation. It is incredible to me to think that in the dozens and dozens of disputes - some very, very big - the United States has had at the WTO, they are taking unprecedented actions in this simple case brought by tiny Antigua.

Although we of course were aware of all of the possibilities when we brought the case, we had surveyed the United States' actions in all of its dispute cases at the WTO, and found that it had always either complied or was on its way to compliance. But in the 25-plus cases it had expressly lost, it never once had refused to comply, much less try to withdraw its treaty obligations in the affected sector. So, particularly given the Antiguan government's willingness to compromise to some extent, we fully expected the United States to do the same here.

Given the massive prevalence of gambling in the United States, this "moral issue" thing is simply a red herring. It really is amazing that the United States is willing to risk the sanctity of the WTO's dispute resolution process on this case. But then again, when I was assembling this case back in 2002, we didn't yet know just how intransigent this administration could be in virtually everything it does. Maybe that is playing a role here, I just don't know.

And what about our other trading partners - the Europeans, the Japanese, and the Chinese? You mentioned at GIGSE that you were in contact with the Europeans on this. Have you talked to the Japanese representative, or the Chinese?

We have spent some time talking to a number of other countries who are either allies or with which we share some common interests. I led a group meeting of the European Union, Japan, Macao, Costa Rica, Canada and India this past week to discuss our joint interests in this case, and in particularly the threats to the system that the United States behaviour poses. For a wee tiny country, we have actually gotten quite a bit of important support in the WTO. While a number of members aren't so hot on the whole issue of gambling, very clearly this case poses a test of the fairness of the overall system, and virtually everyone is following it closely.

The US has really taken the nuclear option on this. I'm sure it's as hard for you to believe as it is for me - I mean, the US spent years negotiating GATS, and they were difficult negotiations. What is left of GATS if the US decides to redefine its own commitments? How far can other nations go in redefining their commitments? I really can't believe that the USTR would throw all that hard work away- there are probably some career guys in there that worked on those negotiations.

Yes, as I noted earlier, it really is unbelievable that the United States would risk the whole system over this case - again, particularly where some ground for compromise existed. A number of countries we have talked to are angry about the hypocrisy on display - in the current Doha round of treaty negotiations, the Americans are apparently really leaning on some smaller countries to liberalise their services commitments, but at the same time, the United States is wanting to limit their own services commitments because a small country has won a WTO case based upon those commitments! The absurdity does not go unnoticed.

What role does the DOJ play in this? The USTR represents the US at the WTO, but they still work with the DOJ on establishing the legal position of the US government, correct? The DOJ has taken a very hardline position on the internet gambling industry, and that seems to be reflected in this case.

In the hours I have spent thinking about this case and the intransigence of the United States I have been searching for a key to why they have chosen this case to be the one where they risk everything they have invested in the WTO's dispute resolution process. And believe me, the process has been very much a "net-winner" to American economic interests. Why risk scuppering something that has worked so well for you and, in fact, is rightly viewed as the most successful International judicial body ever, over this issue?

Again, it really isn't a moral issue. Although you hear a bunch of that nonsense from the halls of Congress, all you need to do is look at gambling in America to know that the morality thing, if it ever was an issue, has long been thrown out the window.

In some ways it is a federalist issue, as the United States is almost unique among nations today in the powers it gives to its member states. On the other hand, the WTO agreements are member-to-member only and countries like Antigua are entitled to look to the central government for redress. That being said, it drawing its commitments schedule to the GATS, the United States could have addressed the gambling issue on a state-by-state basis, as it did in other areas such as financial services and legal services. But here, it did not do that, so whatever a state says about gambling is, from a completely legal perspective, irrelevant to Antigua and its rights under the GATS.

Although I could very easily be wrong, what I have finally concluded is that this case is almost 100 per cent about the DOJ. One or more DOJ members have been present at almost every meeting we have held with the United States over the past four years, at almost every WTO session - their footprint is big in this case. This may sound odd, but I think that this issue - remote gambling - has been hijacked of sorts by a kind of dated old crowd in the DOJ who are still lost in the days of Bugsy Malone and smoky backrooms, when gambling was run by the mob.

Seriously, the one DOJ guy who has been a lingering presence in this case from the beginning even looks and talks like he stepped off a movie set about 50s-era gambling. I think this crowd has gotten the ear of senior DOJ officials, and are not going to budge one bit. And nobody else in the administration has had the courage, fortitude, or perhaps just the interest to take them on over this.

This is particularly more interesting given that until 1998, the official DOJ position was completely different. The official DOJ spokesman said on many occasions in the mid- to late-1990s that United States laws did not cover this kind of gambling service offered from and under the sanction of government in foreign countries. In fact, as we told the WTO as late as 1997, the United States government was affirmatively working with the Antiguan government on ways to ensure the fairness of gaming services and protection of American consumers. For some reason, that all changed in 1998 and this gambling crowd at DOJ has been very successful at establishing the myth of America having "had strong laws against this activity" since forever. As regards licenced, regulated services from foreign countries, the current United States policy is less than ten years old.

The DOJ seems to view this case - which centers primarily on cross border remote wagering on horse racing - as a kind of trojan horse for the broader internet gambling industry. How true is that? Why not just concede on that narrowly defined issue and move on?

Because it is not "that narrowly defined issue". As I mentioned earlier, the United States tried to spin its loss in this case as being only about horse racing, but that was simply not the case. Now they are having to face the reality of the case for the first time, and it is making things much more difficult for them. It is indeed about "the broader internet gambling industry" and by refusing to engage with Antigua over the issue in a timely manner, they may have opened the Pandora's box that can never again be shut.

In particular, they have now gotten the European Union seeking massive economic concessions, and if they thought that we were a problem, the EU is going to be a much more difficult monster for the United States to wrestle. While Antigua is going to have to work hard and be creative to find ways to effectively retaliate against the United States, the EU won't have any trouble at all. The United States is literally facing multi-billions of trade retaliation from the EU in all sorts of trade completely unrelated to gambling.

All of a sudden, for example, American exporters of auto parts, electric guitars or cotton sweaters to the EU are going to be shut or priced out of the market. All of those sectors stand to be sacrificed or at least severely compromised by the United States in this case, all so the United States can protect its domestic gambling industry. Or, perhaps even worse, to satisfy some dated little constituency in the DOJ. Simply boggles the mind.

You have intimate knowledge of this case - just where do you think it really goes from here?

To paraphrase The Dude, Antigua abides! We are going to press on here. Everything we are facing currently is unchartered territory, and the good thing about that is that you are free to make whatever claims you feel you can justify and take whatever trail you think you can convince the WTO to follow. Our thinking in this case has never been square-headed and it is not about to get to be at this point. What we really hope for here is that the United States will gain some reason and look to compromise, finally.

Antigua didn't bring this case so it can sell cheap Microsoft products or DVDs. This case was brought on behalf of a regulated, fair domestic gambling and betting industry. Antigua wants to be able to provide these services to American consumers, who very clearly want them. While there is still large ground for compromise, at the end of the day Antigua wants and deserves to be able to offer these services on some agreed and rational basis. Let's hope that wisdom prevails here, and this whole dispute becomes just a footnote to WTO history rather than a defining moment. ®

Burke Hansen, attorney at large, heads a San Francisco law office

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