World Trade Organization

WT/DS285/R

10 November 2004

united States – measures affecting the

cross-border supply of gambling

and betting services

Report of the Panel

[Edited]

Introduction.

In a communication dated 13 March 2003, Antigua and Barbuda (hereinafter also "Antigua") requested consultations with the United States, pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Article XXIII of the General Agreement on Trade in Services (GATS) regarding measures applied by central, regional and local authorities in the United States of America that affected the cross-border supply of gambling and betting services. Antigua attached to its communication an Annex listing US Federal and State measures whose cumulative impact resulted, according to Antigua, in making unlawful the supply of gambling and betting services on a cross-border basis. In a communication dated 1 April 2003, Antigua issued a communication containing a corrected Annex aiming at clarifying "some of the references to the US legislation" which were contained in the original Annex.

Conclusions requested by the parties.

Antigua and Barbuda requests the Panel to find that the United States' prohibition on the cross-border supply of gambling and betting services and its measures restricting international money transfers and payments relating to gambling and betting services are inconsistent with:

(a) the United States' Schedule of specific commitments under the GATS; and

(b) Articles XVI:1, XVI:2, XVII:1, XVII:2, XVII:3, VI:1, VI:3 and XI:1 of the GATS.

Since 1999 state-sanctioned gambling in the United States has continued its expansion at an unprecedented rate, being available in 48 states and covering activities including bingo, horse race betting and other sports gambling, commercial casinos and state-operated lotteries. The omnipresence of fully lawful, state-sanctioned gambling makes the United States the largest national gambling market in the world. The US $630 billion in total amount wagered reported by the NGISC in 1998 and 1999 excludes the most widespread and popular form of gambling in the United States: non-sanctioned or "illegal" sports betting. The NGISC estimated that as much as US $380 billion in illegal wagers are placed annually by American gamblers on professional and amateur sporting events. Despite the enormous growth of this non-sanctioned gambling, the United States' efforts to crack down on illegal bookmakers in the United States have dwindled over the last 40 years. In the NGISC Final Report, the NGISC concluded that illegal sports betting in the United States is "easy to participate in, widely accepted, very popular, and, at present, not likely to be prosecuted."

The United States replies that the recent growth in the remote supply of gambling raises serious regulatory concerns for the Government of the United States. New technologies, including high-speed telecommunications and the Internet, have facilitated explosive growth in remote supply of gambling over the past decade. This dramatic increase, whatever its origin, has raised serious regulatory and law enforcement concerns in the United States, where authorities throughout US history have consistently imposed tight regulation on gambling and the remote supply of gambling. Gambling has been one of the staple activities of organized crime syndicates. Law enforcement authorities in North America have seen evidence that organized crime plays a growing part in remote supply of gambling, including Internet gambling. In 1999, the Racketeering Records Analysis Unit of the Federal Bureau of Investigation provided an analysis to the Senate Committee on the Judiciary confirming that "organized crime groups are 'heavily involved' in offshore gambling." On April 29, 2003, Deputy Assistant Attorney General John Malcolm testified at a Congressional hearing that the "Department of Justice is concerned about the potential involvement of organized crime in Internet gambling. ... We have now seen evidence that organized crime is moving into Internet gambling." The Canadian Criminal Intelligence Service has confirmed the involvement of organized crime in Internet gambling, and expects that it will further develop the criminal opportunities associated with Internet gambling.

Legal arguments.

Applicability of the GATS.

Antigua submits that, in Canada – Autos, the Appellate Body found that a threshold question for the application of the GATS is whether the measure at issue is a measure "affecting trade in services." In this dispute it is clear that this is the case. First, there can be no real dispute that the offerings of the gaming industry of Antigua to consumers in the United States and elsewhere constitute "services". Second, it has been firmly established in WTO law that what constitutes "measures (…) affecting trade in services" is to be very broadly construed. As stated by the Appellate Body in EC – Bananas III:

"In our view, the use of the term 'affecting' reflects the intent of the drafters to give a broad reach to the GATS. The ordinary meaning of the word 'affecting' implies a measure that has 'an effect on', which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous panels that the term 'affecting' in the context of Article III of the GATT is wider in scope than such terms as 'regulating' or 'governing'. (…) We also note that Article I:3(b) of the GATS provides that 'services' includes any service in any sector except services supplied in the exercise of governmental authority' (emphasis added), and that Article XXVIII(b) of the GATS provides that the "'supply of a service' includes the production, distribution, marketing, sale and delivery of a service". There is nothing at all in these provisions to suggest a limited scope of application for the GATS."

As to whether the United States has undertaken a specific commitment on gambling and betting services.

Antigua argues that the GATS itself is a relatively brief document. The full nature and extent of each Member's obligations under the GATS can only be determined by reference to their respective "schedules of specific commitments" that are mandated by GATS Article XX:1. Once developed, the schedules of specific commitments of the Members "shall be annexed to [the GATS] and shall form an integral part thereof." Antigua submits that, in its Schedule of commitments under the GATS, the United States has made a full commitment for the cross-border supply of services classified under sub‑sector 10.D "Other recreational services (except sporting)." In drafting its Schedule, the United States made use of the Services Sectoral Classification List prepared by the GATT Secretariat during the Uruguay Round multilateral trade negotiations. Sub‑sector 10.D of W/120 is headed"Sporting and other recreational services" and lists "964" as the corresponding CPC number. Its heading 964 "Sporting and other recreational services" is broken down as follows:

"964 Sporting and other recreational services

9641 Sporting services

96411 Sports event promotion services

96412 Sports event organization services

96413 Sports facility operation services

96419 Other sporting services

9649 Other recreational services

96491 Recreation park and beach services

96492 Gambling and betting services

96499 Other recreational services n.e.c."

Sub‑sector 10.D of the US Schedule is headed "Other recreational services (except sporting)". Thus the United States has clearly excluded CPC category "9641 Sporting services" from the commitments it has made in sub‑sector 10.D of its Schedule. By the same token sub‑sector 10.D of the US Schedule clearly includes CPC category "9649 Other recreational services" which encompasses CPC category "96492 Gambling and betting services". During consultations with the United States, Antigua fully disclosed its interpretation of the US Schedule and the legal basis for that interpretation to the United States, both orally and in writing. In reply the United States simply denied that it has made commitments for gambling and betting services. Despite being asked to do so by Antigua the United States has not explained: (i) why Antigua's interpretation of the Schedule is legally incorrect; (ii) what alternative approaches should be followed to interpret the US Schedule; or (iii) what type of activities are, in the view of the United States, covered by sub‑sector 10.D "Other recreational services (except sporting)" in its Schedule.

Antigua submits that, because the US Schedule is made an integral part of the GATS by Article XX:3 of the GATS, it must be interpreted on the basis of the general rules of interpretation provided for in Article 31 of the Vienna Convention. Antigua's interpretation of the US Schedule follows from: (i) the ordinary meaning of the words "Other recreational services" (Article 31:1 of the Vienna Convention); (ii) agreements and instruments connected to the conclusion of the GATS that are part of its context (Article 31:2 of the Vienna Convention); and (iii) practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation (Article 31:3 of the Vienna Convention). None of the interpretation methods permitted by the Vienna Convention contradicts Antigua's interpretation of the US Schedule.

The United States notes that both parties disagree as to whether the United States has made a commitment, but appear to agree that the US commitments are part of the text of the GATS, and thus the issue is one of treaty interpretation. As a matter of ordinary meaning, Antigua has argued that gambling services are both "other recreational services" and "entertainment services."

The United States argues that rather than providing an analysis of specific US laws as they relate to gambling, Antigua is asking this Panel to accept a mere assertion as to the effect of such laws – that they represent a "total prohibition" on cross-border gambling – as proof that the United States is in violation of its WTO obligations.

Antigua argues that, in its Schedule, the United States has made a full commitment to the cross-border supply of gambling and betting services. Simultaneously, the United States totally impedes cross-border market access by prohibiting all cross-border supply of gambling and betting services. This constitutes a manifest violation of Article XVI:1 of the GATS.

Antigua argues that, in its Schedule, the United States has made a full commitment to the cross-border supply of gambling and betting services. Simultaneously, the United States totally impedes cross-border market access by prohibiting all cross-border supply of gambling and betting services. This constitutes a manifest violation of Article XVI:1 of the GATS.

Antigua argues that services and service suppliers of Antigua are "like" those of the United States. The types of games offered from Antigua are the same as those offered in the United States and all involve the winning or losing of money. The only differences are the origin of the services and the suppliers and the mode of supply (cross-border as opposed to commercial presence). These differences, however, are not relevant in the context of a commitment to national treatment of cross-border supply under the GATS.

Antigua notes that third major prong of the United States' defence against the claims of Antigua and Barbuda is its attempt to categorise the gambling and betting services offered by Antiguan providers as not "like" the gambling and betting services provided by United States domestic suppliers.

Has the united states undertaken specific commitments on gambling and betting Services?

As a preliminary issue in this dispute, the Panel will have to decide whether the US Schedule includes specific commitments on gambling and betting services notwithstanding the fact that the words "gambling and betting services" do not appear in the US Schedule.

This jurisprudence is relevant, mutatis mutandis, in respect of the GATS Schedules. Therefore, the content of the US Schedule should be considered as treaty language and, pursuant to Article 3.2 of the DSU, should be interpreted in light of the general rules of treaty interpretation set out in the Vienna Convention, in particular Articles 31, 32 and 33.

Pursuant to Article 31 of the Vienna Convention, the US Schedule must be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the Schedule when read in their context and in light of the object and purpose of the GATS and the WTO Agreement. Of particular relevance in the present dispute is the principle of "effective treaty interpretation", which derives from the requirement that treaties be interpreted in good faith, and whereby all terms of a treaty (including in the present dispute the terms of the US Schedule) should be given a meaning.

The Panel considers that an interpretation of the US Schedule relying mainly on the ordinary meaning of the words as defined in dictionaries does not provide sufficient clarity as to the scope of the sector/sub‑sector concerned and leaves many interpretive questions open. This problem is particularly acute in respect of sector 10, where words such as "recreational" and "entertainment" could cover virtually the same types of services activities. In other words, the ordinary meaning of "entertainment" and "recreational" does not ensure the mutual exclusiveness of the sub-sectoral headings, which is a prerequisite for a classification system.

Claims of violation of the united states' national treatment commitment under Article xvii of the gats.

Claims and main arguments of the parties.

Antigua submits that federal and state laws, applications thereof and related practices specifically prohibit or prevent the cross-border supply of gambling and betting services by Antigua to the United States whereas the domestic supply of such services, whether by remote means or otherwise, within US states by authorized domestic suppliers is permitted. Antigua submits that this results in less favourable treatment of Antiguan gambling and betting services and suppliers of such services in the United States in violation of Article XVII of the GATS.

Claims of violation under Article vi of the gats.

Claims and main arguments of the parties.

Antigua argues that the United States has violated Article VI:1 of the GATS by failing to ensure that "all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner."

Claims of violation under Article vi of the gats

Claims and main arguments of the parties.

(i) Antigua argues that the United States has violated Article VI:1 of the GATS by failing to ensure that "all measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner." Louisiana: § 14:90.3 of the La. Rev. Stat. Ann.;

(ii) Massachusetts: § 17A of chapter 271 of Mass. Ann. Laws;

(iii) Minnesota: §§ 609.75, Subdivisions 2 – 3 and 609.755(1) of Minn. Stat. Ann;

(iv) New Jersey: paragraph 2 of N.J. Const. Art. 4, Sec. VII and § 2A:40-1 of the N.J. Code;

(v) New York: § 9 of Art. I of N.Y. Const. and § 5-401 of the N.Y. Gen. Oblig. L.;

(vi) South Dakota: §§ 22-25A-1 - 22-25A-15 of the S.D. Codified Laws; and

(vii) Utah: § 76-10-1102 of the Utah Code Ann.

For the reasons set out in this Report, the Panel concludes as follows:

(c) the United States' Schedule under the GATS includes specific commitments on gambling and betting services under sub‑sector 10.D;

(d) by maintaining the following measures, which, on their face, prohibit one, several or all means of delivery included in mode 1, contrary to its specific market access commitments for gambling and betting services for mode 1, the United States fails to accord services and service suppliers of Antigua treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule, contrary to Article XVI:1 and Article XVI:2 of the GATS:

(i) Federal laws

(1) the Wire Act;

(2) the Travel Act (when read together with the relevant state laws); and

(3) the Illegal Gambling Business Act (when read together with the relevant state laws).

(ii) State laws:

(1) Louisiana: § 14:90.3 of the La. Rev. Stat. Ann.;

(2) Massachusetts: § 17A of chapter 271 of Mass. Ann. Laws;

(3) South Dakota: § 22-25A-8 of the S.D. Codified Laws; and

(4) Utah: § 76-10-1102(b) of the Utah Code.

(e) Antigua has failed to demonstrate that the measures at issue are inconsistent with Articles VI:1 and VI:3 of the GATS;

(f) The United States has not been able to demonstrate that the Wire Act, the Travel Act (when read together with the relevant state laws) and the Illegal Gambling Business Act (when read together with the relevant state laws):

(i) are provisionally justified under Articles XIV(a) and XIV(c) of the GATS; and

(ii) are consistent with the requirements of the chapeau of Article XIV of the GATS;

(g) The Panel decided to exercise judicial economy with respect to Antigua's claims under Articles XI and XVII of the GATS.

concluding remarks by the panel.

The Panel wishes to note that it is well aware of the sensitivities associated with the subject-matter of this dispute, namely gambling and betting services. Our conclusions are directly linked to the particular circumstances of this dispute. We note in this regard that the United States may well have inadvertently undertaken specific commitments on gambling and betting services. However, it is not for the Panel to second-guess the intentions of the United States at the time the commitment was scheduled. Rather, our role is to interpret and apply the GATS in light of the facts and evidence before us.

We also wish to emphasize what we have not decided in this case. We have not decided that WTO Members do not have a right to regulate, including a right to prohibit, gambling and betting activities. In this case, we came to the conclusion that the US measures at issue prohibit the cross-border supply of gambling and betting services in the United States in a manner inconsistent with the GATS. We so decided, not because the GATS denies Members such a right but, rather, because we found, inter alia, that, in the particular circumstances of this case, the measures at issue were inconsistent with the United States' scheduled commitments and the relevant provisions of the GATS.

Recommendations.

1.2 The Panel recommends that the Dispute Settlement Body requests the United States to bring the measures identified in paragraph 1.1(d) above into conformity with its obligations under the GATS.

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