Reproduced with permission from Daily Report for Executives, No. 216 (Nov. 8, 2007) pp. A-28 - A-29. Copyright 2007 by The Bureau of National Affairs, Inc.

Bill Legalizing Internet Gambling Could Be Solution to WTO Problem, Panelist Says

By Amy Tsui

A bill (H.R. 2046) introduced by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, to legalize Internet gambling is a rather elegant solution to resolve the United State's stance on its World Trade Organization commitments, Brian Pomper of Parven, Pomper, Schuyler Inc. said Nov. 7. After several negative rulings in the past few years by WTO dispute settlement panels, the United States this year decided to alter its WTO services schedule in order to exclude market access commitments on Internet gambling (32 DER A-14, 02/16/07). However, the move has provoked criticism for setting a precedent that other WTO members could use to rescind negotiated commitments.

The Frank bill would allow individual states to determine the extent of gambling permitted; allow Internet gambling to occur on the same basis as domestic gambling, removing arguments that U.S. laws are discriminatory; put into place appropriate protections instead of driving Internet gambling into illegal channels; and raise monies that could fund Capitol Hill priorities, Pomper said (81 DER A-29, 04/27/07). Pomper was formerly chief international trade counsel for the Democratic staff at the Senate Finance Committee, but said that the opinions expressed at a meeting of the Global Business Dialogue were his own.

As part of port security legislation passed last year, the Congress also passed the Unlawful Internet Gambling Enforcement Act, 31 U.S.C. §§5361-5367. The measure was challenged by Antigua and Barbuda as establishing discriminatory status for gambling in violation of U.S. WTO commitments, and the United States is currently in negotiations with various countries on compensation for electing to withdraw from the gaming commitments.

The United States and European Union, India, Canada, Australia, Costa Rica, Macao, and Antigua have elected to extend settlement negotiations until Dec. 14 (204 DER A-7, 10/23/07). The United States settled claims with Japan in September.

The requests for compensation were prompted by the May 4 announcement from the Office of the U.S. Trade Representative that the United States would modify its services schedule to correct what it described as a drafting "oversight" by specifically ruling out any market access commitments on gambling services.

Bad Policy Choice, Pomper Says

Pomper questioned the USTR's decision to take the step of invoking Article XXI rather than seeking a legislative resolution to the issue, called the decision to invoke Article XXI an "awful precedent."

Under Article XXI, a WTO member proposing to modify its schedule of services commitments must enter into negotiations with any WTO member affected by the hanges "with a view to reaching agreement on any necessary compensatory adjustment" in market access for services. If no agreement can be reached, the affected members may call for WTO arbitration to determine the appropriate level of compensation.

"The biggest player in the world trading system, we [the United States] have taken our marbles and gone home," Pomper said. He raised the prospect that other countries could take the same step, and said it was conceivable that a country like China could elect to make the same choice and withdraw from its obligations under the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement.

"Sure, they'd have to pay concessions. They'd have to pay compensation to us, but, my goodness, wouldn't that be a negative?" Pomper said, describing it as the most trade-restrictive way possible of solving the problem of WTO compliance.

Naotaka Matsukata, a senior policy adviser at Alston & Bird LLP and former USTR official, said it was likely that the gambling issue would be a topic of conversation at meetings taking place the week of Nov. 5 in Washington between European Trade Commissioner Peter Mandelson and USTR Susan Schwab.

"The question really remains, will the USTR remain intransigent in their position, or will Mr. Mandelson look to the Hill for possible legislative fixes to the problem," Matsukata said. He said the Frank bill would be an interesting vehicle to resolve the problem.