International Economic Law and Policy Blog

Suing USTR

Public Citizen has filed a lawsuit, on behalf of journalist Ed Brayton, alleging that:

The Bush administration is illegally withholding the details of its offer accepted by the European Union to bind more sectors of the U.S. economy to World Trade Organization (WTO) jurisdiction as part of a settlement relating to a WTO ruling against the U.S. ban on Internet gambling, ...

They ask the court "to find that the USTR is illegally withholding the settlement agreement and to order the agency to provide Brayton a copy of the agreement."

Here's the complaint.

A Gambling "Appeal"?

This would be a novel development, although I must say I'm not sure exactly what Mr. Mendel has in mind:

Mark Mendel, Antigua and Barbuda’s attorney in the Internet gambling trade dispute with the United States, has indicated that the decision by a World Trade Organisation (WTO) arbitrator to limit Antigua and Barbuda’s claim against the US to US$21 million per year may not be final.

Speaking during a visit to Antigua last week, Mendel said there is a method through which the December arbitration decision could be reviewed. Though there is not an automatic appeals process for such decisions, Mendel indicated that the decision was thought to be such a bad one that Antigua and Barbuda might be in a position to take the matter before the General Council of the WTO. Antigua and Barbuda sought to claim US$3.4 billion per year in compensation from the US, but the arbitration panel limited that claim to losses related to bets on horse racing – a tiny portion of the gaming industry.

“Going to the General Council of the WTO (is) an action that has never been taken before. As I have mentioned, we seem to be groundbreakers over there in Geneva because a lot of what’s happened had never happened before. But we could do this and I’ve heard from other delegations in Geneva that there’s a lot of unhappiness with the financial end of the December decision. A lot of countries think, as I do, that it was not a very good decision so we could pursue that,” Mendel said.

The Latest on Gambling

From the Antigua Sun this past Monday:

The government may be prepared to make a statement on the current status of the Internet gambling dispute with the US as early as today, but early indications are that a proposal for the resolution of the trade dispute received from the US last week has not been met favourably by the government.

The Antigua Sun understands that the American settlement proposal was discussed in Cabinet last Wednesday and was not well received.

...

Antigua and Barbuda’s attorney in the matter, Mark Mendel, told the SUN that this process had automatically restarted at the WTO once the body was not informed at the end of March that the parties had agreed on a settlement.

And from a WSJ Europe editorial today:

A trans-Atlantic spat over online gambling may help rewrite the rules of the game for Internet commerce across borders. For a change, the Europeans stand on the side of free trade, while America dabbles in regulatory overreach.

The European Union last month launched an internal probe into whether the U.S. Justice Department selectively enforces its antigambling laws against European online firms that offer wagers on sports events. Brussels is making a narrow legal point that Washington discriminates against Europeans by simultaneously permitting U.S. Internet horse betting. That's against World Trade Organization rules, and the case may end up there.

...

By legalizing and regulating the business, however, Washington could more effectively battle such problems as underage gambling and addiction. It would also avoid unnecessary trade tiffs with its leading commercial partners. And it would exempt cyberspace from overaggressive regulators, in America or anywhere else.

About that Gambling Settlement ...

... doesn't look like it is going to happen:

The deadline for the US to put forward a proposal to settle its long running Internet gambling dispute passed yesterday with Antigua and Barbuda reportedly receiving no word from the US.

Up to late yesterday, neither Antigua and Barbuda’s attorney in the matter Mark Mendel nor the local Directorate of Gaming had received any communication on the matter from US officials. Minister of Finance and the Economy Dr. Errol Cort had led a delegation to Barbados for a Caricom meeting on flour and was not available for comment yesterday.

In a process that has seen many delays and missed deadlines, the apparent failure of the US to put forward a settlement proposal by the end of the month was met with an air of resignation in Antigua and Barbuda, with officials continuing to adopt a “wait and see” approach to the negotiations process.

Is a Gambling Settlement Finally Coming?

From the Antigua Sun:

A settlement proposal due by the end of the month could put an end to the five-year trade battle over Internet gaming between Antigua and Barbuda and the United States.

According to Mark Mendel, Antigua and Barbuda’s attorney in its World Trade Organisation (WTO) dispute, the US is scheduled to put forward a proposal for the settlement of both aspects of the trade dispute by next Monday.

Mendel indicated that Antigua and Barbuda is adopting a wait and see approach to the proposal.

“I am assuming that if they are going to be good to their word, that they will have a proposal. It will be either a proposal or no proposal by the end of the month,” Mendel told the Antigua Sun yesterday

Mendel revealed that despite the controversial US$21 million in sanctions against the US awarded by a WTO Dispute Settlement Body arbitrator last December, the pending proposal is expected to address aspects of the trade dispute which dealt with the United States’ failure to comply with the WTO’s ruling on access for Internet gaming operators.

It will also address the second aspect of the trade conflict, which stems from Antigua and Barbuda’s claim for compensation as the US seeks to withdraw from its commitment to provide market access to the sector under the WTO General Agreement on Trade in Services (GATS).

“Any settlement that we would do would be comprehensive. It would take in everything."

Is the Gambling Suspension Finally Coming?

Back in December, Antigua won the right to suspend concessions and other obligations against the U.S. in the amount of US$21 million in relation to U.S. restrictions on online gambling.  So far, though, Antigua has not taken any action to put the suspension into effect.  Antigua's lawyer is now hinting that they are about to start:

The government of Antigua is likely to abrogate intellectual property treaties with the U.S. by the end of March and authorize wholesale copying of American movies, music and other "soft targets" if the Bush administration fails to respond to proposals for settling a trade dispute between the two counties, according to the lawyer representing the Caribbean island nation.

...

Mendel acknowledged his client would like such entities as the MPAA, the recording industry and Microsoft -- orgs that depend on IP protection -- to pressure the Bush administration into negotiating a "preferred" settlement, which would allow Internet gambling between Antigua and the U.S.

But he insisted the threat was neither idle nor empty. "Perhaps the U.S. doesn't think we're serious," Mendel said. "We are."

Another Gambling Settlement

As reported by a poker web site:

According to the Tico Time in Costa Rica, the United States and Costa Rica have come to a settlement agreement in regards to the United States pulling out of its World Trade Organization agreement involving online gambling.

As compensation for not allowing online gambling companies based in Costa Rica access to U.S. customers, the United States has offered Costa Rica greater access to other service markets, including research and development, storage, technical testing and analysis.

This is similar to the settlements the United States has reached with Canada, Japan and the European Union in the matter.

Costa Rica's settlement took place after the country had filed for arbitration before the World Trade Organization, when it didn't look like the United States and Costa Rica would be able to find agreeable terms.

"The agreement has been satisfactory for the country," said Foreign Trade Minister Marco Ruiz in a written statement.

I believe that leaves only Antigua negotiating with the U.S. on the GATS withdrawal of concessions.

The Next Gambling Dispute?

As was widely reported yesterday, the EU is launching an internal investigation on U.S. online gambling laws, to decide whether to bring a WTO complaint:

The European Union threatened to lodge a complaint at the World Trade Organization over U.S. laws that bar gambling Web sites, saying they may break global rules by discriminating against companies based in the bloc.

U.S. authorities have targeted European companies for operating gaming sites, said the European Commission, which today announced an investigation into the U.S. practice. The U.S. hasn't taken action against domestic companies that offer similar services, said the commission, the EU's executive arm.

Here's the EU press release.

But wait, didn't the EU already agree on compensation in this case related to the U.S. withdrawal of concessions?  Once a settlement is reached with Antigua and Costa Rica, the countries who haven't yet settled, isn't the case over?  Maybe not, as the EU is concerned with prosecution for past gambling activities that occurred prior to withdrawal of the concessions.  From an EU "fact sheet" for the case:

Foreign companies are prevented from offering Internet gambling services in the US. The US authorities are investigating EU companies for services that they have offered in the past in the US. EU companies that had been active in the US have left the market, but this has not stopped the US Department of Justice (DOJ) from continuing to act against EU companies. In addition, EU companies argue that the DOJ has not been targeting US companies that were offering equivalent services.

The Remote Gambling Association (RGA) argues that the legal situation in the US as regards Internet gambling was unclear in the past. Despite statements by the DOJ that Internet gambling was not allowed, many local companies were actively supplying this type of service. In addition, the US had in the Uruguay Round undertaken legally binding GATS commitments to allow non-discriminatory access to its gambling market.

...

The Federal laws targeted by this complaint had already been condemned in a WTO dispute settlement case (WT/DS 285) brought by Antigua and Barbuda against the United States. However, the US did not comply with the relevant rulings, but announced instead its intention to withdraw for the future its GATS commitments on gambling and betting services in accordance with the procedures provided for in Article XXI of the GATS. The US is still negotiating compensatory adjustments in other sectors with affected WTO Members in exchange of this withdrawal. The EU and the US reached a deal on the compensation due to the EU on 17 December 2007.

The RGA argues that applicable US obligations would not disappear even after the completion of the current process of withdrawal of the United States' GATS gambling commitments. The reason for this is that the withdrawal would not have retroactive effects, that is, would only remove US obligations for the future, but not in respect of past events. In this particular case, the DOJ is only targeting past events (the Internet gambling offered by EU companies in the past) when US GATS commitments were in place. (emphasis added)

In related news on the gambling dispute, blogger Ed Brayton continues his quest to find out what's in the U.S. gambling settlements, with the EU and others.

More of the WTO Gambling Dispute in Domestic Law

The Gambling dispute has been great for opportunities to raise WTO law in domestic law.  Here's another example, from the Imega vs. Gonzalez decision, issued this past week by the U.S. District Court for the District of New Jersey, which involved a complaint against the Unlawful Internet Gambling Enforcement Act of 2006:

C. WTO Claims (Counts IV, V)

The plaintiff alleges that UIGEA is void because it is ultra vires of, and otherwise inconsistent with, the foreign trade obligations of the United States. But prudential standing considerations bar judicial review here. Although some treaty obligations may create a private cause of action, see Sanchez-Llamas v. Oregon, 126 S.Ct. 2669, 2680 (2006) (assuming, but not deciding, truth of proposition), that is not the case as to the Uruguay Round Agreements at issue here.  Indeed, the statute pertaining to the Uruguay Round Agreements precludes private actions: only the United States "may challenge ... [an] action or inaction by [a] department, agency, or other instrumentality of the United States ... on the ground that such action or inaction is inconsistent with [the Uruguay Round Agreements.]" 19 U.S.C. § 3512(c)(1)(B). The economic rights of private individuals are thus not within the "zone of interests intended to be protected by" the Uruguay Round Agreements. Oxford Assoc., 271 F.3d at 146. The plaintiff, as it has no cause of action under the WTO, cannot satisfy prudential standing as to its WTO claims.

Even if the Court were to consider the merits of the WTO claims, UIGEA "which was enacted in 2006" would trump any obligations arising under the 1994 Uruguay Round Agreements. See 19 U.S.C. § 3512(a)(1) ("[n]o provision of any of the Uruguay Round Agreements ... that is inconsistent with any law of the United States shall have effect"); see, e.g., Tag v. Rogers, 267 F.2d 664, 667 (D.C. Cir. 1959) ("has long been established that treaties and statutes are on the same level and, accordingly, that the latest action expresses the controlling law"). Also, WTO decisions are "not binding on the United States, much less this court." Corus Staal BV v. Dep't of Commerce, 395 F.3d 1343, 1348 (Fed. Cir. 2005) (quotes and cite omitted). The plaintiff's WTO claims would thus fail as a matter of law.

This decision doesn't seem to break any new ground, but rather just repeats various reasons why the court doesn't want to accept a defense based on WTO obligations.  Also, since this claim dealt with the UIEGA, it was more difficult to raise WTO obligations then some other cases, as the UIEGA was not part of the WTO claim.

Internet Gambling: Political Developments

Two things worth mentioning on the internet gambling issue.

First, here's a Congressional proposal to legalize, regulate and tax internet gambling:

US Congressman Jim McDermott has introduced web gambling legislation that would collect billions of dollars in new revenues.

A recent analysis by PricewaterhouseCoopers estimates the revenues at between $8.7bn and $42.8bn over 10 years.

The Internet Gambling Regulation and Tax Enforcement Act 2008 would ensure that taxes are collected on regulated internet gambling activities, strengthening the provisions of an earlier version of the bill introduced last year.

Second, Professor Nelson Rose speculates about which Presidential candidate would be most likely to permit internet gambling:

When the Democrats took control of the Senate, Harry Reid, senator from Nevada, became majority leader. So, land-based casinos, which want a study and law allowing them to operate internet casinos, can get those, if the President is a Democrat. If John McCain wins, Republicans will take over the Senate, so nothing will change. Insiders know that if Hillary Clinton is the nominee, Democrats will lose the Senate, even if she wins the presidency. There will then be four years of deadlock.

Assuming Barack Obama is nominated and wins, the Democrats will keep control of Congress and there will be a change in the federal law. It might come as early as 2009. More likely, it won't be until 2010, or even later. For political cover, there could be an objective, scientific study done first, that proves that internet gambling can be kept safe from hackers, protecting the "vulnerables" (children and compulsive gamblers), and that states that don't want to allow can be blocked.

Is that right that Obama would be most likely to legalize internet gambling?  I can see that there is an argument that a Clinton Presidency would mean a Republican Congress, as Professor Rose argues, but that seems far from definite.  I looked for explicit statements by the candidates on internet gambling, but couldn't find anything.

ADDED:  I found one thing in the Las Vegas Sun, setting out the candidates' views on internet gambling:

Clinton: Supports the industry’s position: to study Internet gambling to see whether it can be fairly regulated so that individuals can safely participate in it and American businesses can compete in the international market.

...

Obama: Worries that the Internet is “a Wild West of illegal activity”; supports a study of Internet gambling and supports regulation to address the worst abuses.

Update on the Gambling GATS XXI Arbitration

I had been hoping that the GATS Article XXI arbitration in the Gambling dispute would be as transparent as regular WTO disputes.  I'm not sure that will be the case, though, as the arbitration requests have not yet been made public on the WTO's web site (as far as I can tell, anyway).  So, the best I can do is follow the reports in the Antigua Sun:

[Antigua's attorney Mark] Mendel told the SUN that the new arbitration process is likely to take a month or two to get going and several additional months of briefings and hearings before a decision is reached.

So What Does the U.S.-EU Gambling Settlement Say?

Writer Ed Brayton tried to find out, to no avail:

I immediately filed a Freedom of Information Act request for a copy of the agreement and, predictably, the USTR is denying that request. And just in case you thought this administration had hit rock bottom on making dishonest and mendacious arguments to maintain the secrecy of their actions in contravention of Federal law, let me disabuse you of that notion by reprinting the letter I received today:

Dear Mr. Brayton:

This is USTR's response to your request for "a copy of the full text of the settlement between the USTR and the European Union regarding America's online gambling laws", under the Freedom of Information Act.

Please be advised that the document you seek is being withheld in full pursuant to 5 U.S.C. § 552(b)(1), which pertains to information that is properly classified in the interest of national security pursuant to Executive Order 12958.

Inasmuch as this constitutes a complete grant of your request, I am closing your file in this office. In the event you are dissatisfied with USTR's determination, you may appeal such a denial, within thirty (30) days, in writing...

Yes, they are actually claiming that this document, which has nothing even remotely do to with anything that could conceivably, in Dick Cheney's wildest imagination, have anything to do with national security, has been properly classified. Americans, according to this administration, have no right to know how many billions of our tax dollars they've spent with no legislative authorization whatsoever in order to buy the cooperation of other nations and allow them to continue to violate the rights of American adults by preventing them from gambling in the privacy of their own home.

Yes, I will be filing an appeal immediately, and I will be filing a lawsuit if that appeal fails to restore some sanity to the situation. They've got me pissed off now.

I've sometimes wondered what would happen if I filed a FOIA request to get information on certain trade issues.  My guess was that I wouldn't be very successful, so I never bothered.

The Gambling Dispute: Is Investment Arbitration An Option?

A law firm representing some gambling interests thinks it might be:

protections contained in the US IIAs, comprising 40 Bilateral Investment Treaties (BITs) and 11 Free Trade Agreements (FTA’s), may be relied upon by foreign investors seeking to establish a gaming business in the US under the “commercial presence” route.

...

in the event the US denies an investor permission to establish a gaming business, this may well amount to a breach of its treaty obligations. The putative investor could then choose to enforce its rights by recourse to the dispute resolution mechanism contained in the applicable IIA.

See pages 8-9 of the document.

(HT to Investment Treaty News)

Can Individuals Be Prosecuted Under WTO-Inconsistent Laws? You Can Bet on It

A large and sophisticated literature examines the normative desirability of granting "direct effect" to WTO law in domestic courts. However, much of this scholarship focuses on civil litigation. A related, but largely unexplored, question relates to the impact, if any, of WTO law on criminal prosecutions. In particular, can individuals be criminally prosecuted for violation of domestic laws found to be WTO-inconsistent?

A U.S. district court recently addressed this issue. The case involved a criminal prosecution for, inter alia, violations of the Wire Act. The defendants argued that the Wire Act charges should be dismissed "because (1) the Charming Betsy canon of construction and the principle of international comity dictate that the Court interpret the Wire Act . . . so as not to violate [WTO] violations; and (2) the WTO's Appellate Body decision in the Antigua gambling case is self-executing and therefore binding upon this Court."

In U.S. v. Lombardo, the federal district court for the District of Utah had little difficulty dismissing these arguments. First, the court held that the Charming Betsy argument was unavailing because this canon of construction comes into play only when federal statutes are ambiguous. However, the court held that the unambiguous terms of the Wire Act clearly apply to online gambling. The court then held that defendants could not rely upon the AB report in the Gambling dispute because U.S. courtrs are not bound by AB reports, and because the implementing legislation expressly forecloses "any cause of action or defense under any of the Uruguay Round Agreements" to parties other than the federal government.

As Simon has noted, a similar motion to dismiss on the basis of the Gambling report is pending in the criminal prosecution of Gary Kaplan and Betonsports in the Eastern District of Missouri. The Lombardo decision is broadly consistent with other federal court decisions refusing to give effect to panel or AB reports in civil litigation. See, e.g., Corus Staal v. U.S.

Are others aware of any other jurisdictions that have considered the "direct effect" question in the criminal context? Are there legal or policy reasons to have a different rule on "direct effect" when it comes to criminal prosecutions?

Jeff Dunoff

P.S. Thanks to Simon Lester for tracking down a copy of the Lombardo decision, which can be accessed here.

Phyllis Schlafly on the Gambling Ruling and the WTO

Yes, that's right, I said Phyllis Schlafly. She has read a bit and even quotes from the Gambling decision and also Article XVI:4 of the WTO Agreement. Her main point seems to be that it's outrageous for the WTO to have authorized Antigua to "pirate" U.S. intellectual property.  I'm not sure she's aware the rules explicitly provide for this.  Thus, it's not clear if she's upset by the Arbitrator's decision or the rules themselves.

There was also this:

How is a foreign tribunal in Geneva able to put the United States in such a box? It's because the internationalist free-trade lobby cooked up a sleazy deal to force the World Trade Organization on Americans in 1994 during the week after Thanksgiving, when Americans were preoccupied with Christmas shopping and festivities.

Americans sure are easily distracted!

Her more general point about the WTO is the following:

The World Trade Organization is a direct attack on U.S. sovereignty because it claims it can force any nation to change its laws to comply with World Trade Organization rulings. Article XVI, paragraph 4, states: "Each Member shall ensure the conformity of its laws, regulations, and administrative procedures with its obligations." The World Trade Organization has the final say about whether U.S. laws meet World Trade Organization requirements.

In this presidential season, the World Trade Organization should make easy target practice for any candidate to speak up and defend U.S. sovereignty against globalists who, under the mantra of "free trade," willingly allow the World Trade Organization to say which laws the U.S. may or may not adopt.

While the majority of trade skeptics are on the left, this is a good illustration of trade skepticism from the right.

I can't figure out what her position on "free trade" is, though. She says: "The World Trade Organization is not 'free trade' at all, but is a supra-national body in Geneva that sets, manages and enforces World Trade Organization-made rules to govern global trade." But would she support "free trade" outside the context of trade agreements, like Ron Paul would? I don't see an answer in this piece.

The Gambling Arbitration: US$21 Million Per Year

From the Award:

6.1 For the reasons set out above, the Arbitrator determines that the annual level of nullification or impairment of benefits accuing to Antigua in this case is US$21 million and that Antigua has followed the principles and procedures of Article 22.3 of the DSU in determining that it is not practicable or effective to suspend concessions or other obligations under the GATS and that the circumstances were serious enough. Accordingly, the Arbitrator determines that Antigua may request authorization from the DSB, to suspend the obligations under the TRIPS Agreement mentioned in paragraph 5.6 above, at a level not exceeding US$21 million annually.

The U.S. must be pretty happy with that amount.  I haven't looked through the reasoning yet, but I did notice there was a separate opinion on one of the interpretive issues.

ADDED:

-- From USTR's press release:

In the arbitration, Antigua claimed that its level of impairment of WTO benefits resulting from U.S. noncompliance amounted to $3.4 billion per year – a figure more than three times the size of Antigua’s entire economy.  During the arbitration, the United States explained to the Arbitrator that Antigua's claim was patently excessive.  The United States is pleased that the figure arrived at by the Arbitrator is over 100 times lower than Antigua’s claim.

-- More from an AP story.

-- From Reuters.

-- What Antigua's legal team thought of the decision:

Mark Mendel, the lawyer who has been spearheading this case for the Antiguan government since it began back in 2003 observed “I am pleased that the panel approved our ability to cross-retaliate by suspension of intellectual property rights of United States business interests. That has only been done once before and is, I believe, a very potent weapon.”

Mr Mendel expressed less satisfaction with the amount of damages assessed. “I find it astonishing that two of the three panelists would in essence grant the United States the benefit of a hypothetical method of compliance most favorable to the American side in assessing Antigua’s level of trade impairment. What appears to have been done here is assuming a form of compliance that has not happened and probably will not happen without giving Antigua the ability to contest the method under the WTO’s normal procedures,” he added. Unlike other WTO rulings, awards of arbitrators are not subject to review by the Appellate Body of the WTO.

While questioning the low number, Mr Mendel remains positive about the dispute going forward. “US $21 million a year in intellectual property rights suspension going forward indefinitely is not such a bad asset to have. I hope that the United States government will now see the wisdom in reaching some accommodation with Antigua over this dispute and look forward to seeing efforts in this regard.”

-- From Sallie James at Cato.

-- From the NY Times, with a quote from Brendan McGivern:

Still, implementation will prove difficult, the lawyers say.

“Even if Antigua goes ahead with an act of piracy or the refusal to allow the registration of a trademark, the question still remains of how much that act is worth,” said Brendan McGivern, a trade lawyer with White & Case in Geneva. “The Antiguans could say that’s worth $50,000, and then the U.S. might say that’s worth $5 million — and I can tell you that the U.S. is going to dog them on every step of the way.”

No doubt he's right about that.

Here's my question.  How much relevance does the amount of nullification or impairment decided in this arbitration decision have for any GATS Article XXI arbitration that occurs on the matter?  The terms of reference for such arbitrations say:

13. The arbitration body shall have the following terms of reference unless the parties to the arbitration agree otherwise within ten days from the request for arbitration:

"To examine the compensatory adjustments offered by (name of modifying Member) or requested by (affected Member requesting the arbitration) and to find a resulting balance of rights and obligations which maintains a general level of mutually advantageous commitments not less favourable to trade than that provided for in Schedules of specific commitments prior to the negotiations. In such examination, the Arbitration body shall take into account any agreement reached, in negotiations under paragraph 4. above, between the modifying Member and any affected Member".

Seems like the $21 million figure could play some role there.

-- And here is the Antiguan legal team's press release.

-- Various quotes on the decision collected in the National Journal.

-- My favorite headline of the day: "WTO OKs Antigua as pirate of Caribbean"

-- More from Antigua's lawyer Mark Mendel.

The US-EU Gambling Settlement Is Not So Settled

So the EU is now out of the picture in the gambling dispute because they settled on compensation ... Wait, hold on a minute:

European online gaming firms are filing a formal complaint against the United States for discrimination after their controversial exit from the US market.

The companies say that the US Department of Justice has violated international trade law by kicking them out of the market and taking legal action while allowing domestic online gaming operators to continue trading.

...

The group has asked the EU to investigate the situation, arguing that although the US has repeatedly stated that all forms of online gambling are illegal, it has enforced this view only with non-US businesses.

More details at Reason Magazine's blog.

ADDED:  It is being suggested that the Arbitrator's Article 22.6 decision is coming out tomorrow.  I'll believe it when I see it.

The Gambling Ban Hits Microsoft

No doubt Microsoft is concerned about the prospect of Antigua getting authorization to sell pirated copies of its products, but we're not quite there yet.  However, it is already feeling some pain from the U.S. online gambling ban:

Internet giants Google, Microsoft and Yahoo agreed to pay a total of $31.5 million to settle with the United States Attorney's office in St. Louis for taking ads from internet gambling websites.

"This is a very profitable business that had a lot of money to spend on marketing," stated U.S. Attorney Catherine Hanaway.  "I do think it will have a major impact. Obviously these are three of the largest online organizations in the world."

As part of the agreement, Google, Microsoft and Yahoo agreed to stop accepting ads for sports wagering and other online gambling.  The three internet giants already stopped taking such ads approximately 4 years ago.  The settlement reached today was finalized after a year and a half of negotiations between the tech companies and federal prosecutors.

What the Horse-Racing Folks Think of the Recent Gambling Settlement

Not surprisingly, given that the status quo is very good for them, they are quite happy with it:

“The U.S. withdrawal of its WTO commitments in gambling services was the only approach that could meet U.S. treaty obligations, remove the gambling issue from the WTO agenda and restore stability to the domestic regulatory environment,” said Alex Waldrop, President and CEO of the National Thoroughbred Racing Association. “The NTRA has long advocated the withdrawal of U.S. gaming commitments. This agreement is a major step toward the conclusion of the WTO dispute involving the U.S. regulation of remote gambling services.”

I suppose it is a major step, but there are some big hurdles left.

Some Gambling Updates: Compensation and Arbitration

In the Gambling compensation negotiations, the U.S. and EU have apparently reached a deal:

The United States agreed on Monday to widen access to some of its services in compensation to the European Union for preventing betting businesses from offering on-line gambling in the US, the EU said here.

The compensatory measures will increase opportunities for EU companies in the fields of postal and courier services, storaging and warehousing, and in research and development.

More from the BBC:

The concessions, which relate to mail and storage services among others, will affect how Germany's DHL competes with US-based firms Fedex and UPS.

The proposed deal also includes new US market opportunities for European firms offering testing and analysis services, as well as in research and development.

As to the Article 22.6 arbitration, not surprisingly the ruling has been delayed.

ADDED:  Here's a Bloomberg article from today on the dispute, with quotes from a few prominent trade lawyers.

MORE:  Apparently the settlement was not just with the EU, but also Japan and Canada:

A spokeswoman for the US Trade Representative's office (USTR) confirmed an earlier report from a European official, and noted that Japan and Canada were also included in the agreement settling the World Trade Organization complaint.

"The agreement involves commitments to maintain our liberalized markets for warehousing services, technical testing services, research and development services and postal services relating to outbound international letters," said Gretchen Hamel, the USTR spokeswoman, in a statement.

"These commitments meet our WTO obligation ... to make a compensatory adjustment in our WTO services commitments."

Hamel said the deal allows for a 45-day period "in which the remaining claimants have a right to request arbitration. We will continue to discuss this matter with the other claimants to explain how our proposal is consistent with our WTO obligations."

That leaves Australia, Costa Rica, India, Macau (although this report says Australia settled, too), and, of course, Antigua, still to reach a deal.

AND: Global Trade Watch points out that Congress must OK all of this.

They also state:  "After the gambling case showed how the WTO places major constraints on non-trade domestic policy space, ..."  I'm not sure I agree with that.  The key constraint in this case was not to discriminate against foreigners.  That's not much of a constraint on domestic policy space, in my view.

SO WHAT do FedEx and UPS think of being the subject of the compensation:

A FedEx spokeswoman said it was unclear what the deal would mean to the Memphis-based courier. "We're looking into this now," said spokeswoman Sandra Munos. A call to Atlanta-based UPS was not immediately returned.

AND HOW much was the compensation worth?  No one's talking:

In any case, the overall trade valuation of the package will fall far short of the US$100 billion that European online gaming sites had claimed the United States owed. EU officials could not immediately say how much the deal was worth.

"This compensation cannot be quantified up to the euro," the EU mission to the WTO said in an e-mailed statement. "Nonetheless, it is clear that new trade opportunities are created for EU service suppliers in important sectors in the U.S."

GLOBAL TRADE WATCH's Eyes on Trade blog is not happy about it:

What this could mean in practice is that there would be additional pressures to privatize and deregulate not only our postal service, but also our safety policy around dangerous LNG terminals. Oh, yeah, and this is just for the right to maintain a gambling policy that corporations don't like - a policy that treats foreign and domestic gambling firms THE SAME.

The pressure to privatize and deregulate the postal service, etc. sounds unlikely, but I don't know for sure what they have in mind; I do think they have their facts wrong about the "treating foreign and domestic gambling firms the same", though.

A BIT more from Reuters.

AND HERE is USTR's press release on the deal.

TO wrap things up for the day, two articles from the FT: here and here.

The Gambling Arbitration Ruling: Coming Soon (Maybe)

I feel like I am repeating myself here, but this is what is being reported:

"We feel pretty confident about our case, to be honest. We really feel like we have the upper hand here," Mark Mendel, a private attorney representing Antigua, told Reuters ahead of an expected ruling by a WTO arbitration panel on Friday.

I'm not sure if this means the confidential version given to the parties or the version circulated to the public.  I would guess the former.

More Gambling 22.6 Arbitration Documents

The Antigua legal team's gambling dispute web site has a few recently added documents related to the Article 22.6 arbitration.  I don't have time to go through them right now -- I'm still trying to sort through the recent AB reports -- to see if there's anything noteworthy in there, but I thought I would point them out to others who may be interested:

Antigua's Methodology Paper	31 August 2007
Antigua's Exhibits to its Methodology Paper	31 August 2007
Antigua's Answers to the Article 22.6 Arbitration Panel's Questions	2 November 2007
United States' Answers to the Article 22.6 Arbitration Panel's Questions	2 November 2007
Figures Attached to United States Answers	2 November 2007
Antigua's Comments to the United States's Answers	13 November 2007
United States' Comments to Antigua's Answers	13 November 2007

What Happens in Vegas ... Doesn't Happen in Massachusetts

While Nevada contemplates legalizing intra-state online gambling for its residents, Massachusetts contemplates banning online gambling entirely for its residents:

Even as Governor Deval Patrick seeks to license three resort casinos in Massachusetts, he hopes to clamp down on the explosion in Internet gambling by making it illegal for state residents to place a bet on line. He has proposed jail terms of up to two years and $25,000 fines for violators.

Antigua will not be happy with either of these approaches.

What Happens in Vegas ...

We may see another WTO complaint by Antigua if this comes to pass:

... while a seemingly endless debate rages on in Congress over whether to legalize Internet gambling nationwide, some gaming interests are pursuing a different tack by appealing to Nevada regulators with the power to allow and oversee online betting for Nevada residents within the state's borders.

Some Gambling Case Irony

From a gambling news web site:

Gary Loveman, CEO of Harrah's Entertainment, announced at the Global Gaming Expo in Las Vegas that the World Series of Poker may soon branch into online formats in Europe.

...

The irony of the move by Harrah's, and part of the reason the WTO ruled against the US over their Internet gambling laws, is that they are a US company that is allowed to make money from online gambling sites dedicated to European players, while foreign companies are not allowed to offer online gambling services to US citizens.

From the House Gambling Hearing

I decided I wasn't up for live blogging the House hearing on internet gambling, but here is a brief review of some points that were made.  (You can view the webcast here -- it's still ongoing, but they have taken a break). [UPDATE - here is a link to the webcast, now completed: http://judiciary.house.gov/oversight.aspx?ID=396]

Rep. Shelley Berkley of Nevada (Las Vegas) criticizes existing gambling laws for their "selective enforcement" and for the "hypocritical carve out for horse-racing."  She notes that the WTO has ruled against us and the Bush Administration has tried to withdraw our commitments, which, she says, is the "trade equivalent of taking our ball and going home."

Rep. Bob Goodlatte of Virginia says that "gambling is not a victimless activity" and says the current laws are reducing underage gambling.

U.S. Attorney Catherine Hanaway offers the views of the DOJ.  She says that all forms of internet gambling are illegal under federal law and should remain illegal, based on the unacceptable risk due to gambling by minors, compulsive gambling, fraud, money laundering and organized crime.

Now to the trade law parts, with Professor Weiler.  His testimony starts about 45 minutes into the hearing and lasts about 7 minutes.

First, Prof. Weiler noted that he expresses no views on gambling or internet gambling.  On the trade law issues, he says that the U.S. reaction to the WTO ruling has been "curious," in two respects: (1) despite a clear ruling that there is a WTO violation, the U.S. continues to prosecute people for internet gambling activities; (2) the U.S. has announced it will withdraw its commitments.  These two reactions, he says, are "damaging" to the U.S.  He notes that the U.S. is a world leader in trade matters and leads by example.  This, however, is not a good example to set.  He points out that the U.S. reaction in this case could be detrimental if other Members follow this example in the future.

His written testimony is here:  http://judiciary.house.gov/media/pdfs/Weiler071114.pdf  In it, along the lines of the Gary Kaplan WTO defense mentioned here, he says:

This Committee is not a court of law so I will spare it a lengthy legal analysis concerning the question whether or not individuals may rely in their defense against the indictments brought against them on the fact that the Acts on which such indictments have been brought have been found to be in violation of the US legal obligations when applied to individuals supplying remote betting services from other WTO Members.  Some language in the Uruguay Round Agreement Act notwithstanding I think there are weighty legal arguments that individuals should not be denied, in defending themselves, the ability to argue that Congress did not intend in approving US participation in the WTO, that prosecutorial discretion should be exercised in a manner which would bring the United States into violation of its international legal obligations.  There is, however, one crucial point which should be of interest to this Committee. In many of its utterances the Executive Branch has taken the position that it is defending the “sovereignty” of the United States as a whole, and that in its conduct in this matter it is executing the will of Congress. I respectfully and vigorously dispute both these propositions. When  a country solemnly adopts an international legal obligation and then honors that obligation it does not compromise its sovereignty – it manifests its sovereignty. For generations the United States has taken the view that all Congressional Acts should, if at all possible, be interpreted and applied in such a way as to respect international obligations solemnly undertaken by this Country. This is called the Charming Betsy doctrine. We expect the same from all other countries. It is possible to interpret both the Uruguay Round Agreement Act (taking the US into the WTO) and the Statutes under which the Executive Branch is seeking to ban remote betting from service suppliers located in our WTO partners, in a manner which would respect American international legal obligation and commitment to the rule of law. The Executive Branch is doing no service to the US by violating these obligations, and laying the responsibility at the feet of Congress. Congress should not allow such.

After a few more witnesses testified, the Chairperson then asked the witnesses for any general views they wanted to offer.  Prof. Weiler's response is around one hour and 22 minutes into the hearing.  Prof. Weiler says he was struck by the absence of mention in the DOJ statement anything about the prosecution issue.  He wonders what the DOJ position would be if China were to prosecute a U.S. citizen in violation of international legal obligations owed to the U.S.?

In response, Ms. Hanaway said it would be unwise for her to address a hypothetical situation that does not exist.  She notes that the DOJ is currently prosecuting some of the BetonSports executives, and that motions have been made in that case that the prosecution violates the WTO treaties.  She points out that (1) Congress made clear that WTO treaties do not overturn existing U.S. laws and (2) the defendants are private citizens and thus don't have a right to make challenges under the WTO treaties.

The Chairperson then asks Prof. Weiler whether he is "mildly satisfied" by that answer?  He responds that it is an unfortunate position for the U.S. in terms of the rule of law.

ADDED: At around 2 hours 54 minutes of the hearing, Rep. Goodlatte discussed the WTO issues, and asked Prof. Weiler some additional questions.  There was talk of situations involving cocaine or shoulder-fired weapons.  At around 3 hours into it, Prof. Weiler responded that this is not national security; this is not cocaine; and there is no vital national interest.

House Judiciary Committee Hearing on Internet Gambling

Tomorrow, the House Judiciary Committee will hold a hearing on "Establishing Consistent Enforcement Policies in the Context of Online Wagers."  The Committee's press release says: "Famed poker player Annie Duke will testify at the hearing."  But from a trade lawyer's perspective, the most famous person testifying will be Professor Joseph Weiler of NYU Law School.  If the hearing is televised or broadcast on the internet, I might try my first "live blog," or at least give a short summary of what was said.

Coming Soon: The Gambling Arbitration Ruling

One of Antigua's lawyers says the Arbitrator's ruling in the Gambling case will be out on November 30.  I will be very impressed if they can reach a decision by then -- they have a lot to sort through.

He also said that any IP sanctions might not come right away in the event of a ruling in Antigua's favor:

He noted that the government of Antigua and Barbuda has made it clear that it is prepared to impose sanctions once permission is granted, but he told the SUN that this will not be immediate. “We haven’t fully and completely flushed out precisely what we’re going to do or how we’re going to do it. There is no rush to do it. I think once we get it, it’ll be a pretty big weapon in our hands and we can take our time in deciding how to apply it,” Mendel said.

More From The Gambling 22.6 Arbitration

In earlier posts on the Gambling arbitration, I focused on the figures involved, but there is an underlying interpretive issue that is very interesting which, as far as I know, has not been addressed before.  Antigua argues that the amount of nullification or impairment should be based on the failure of the U.S. to provide market access for gambling and betting services, pursuant to GATS Article XVI and the U.S. commitments.  In response, the U.S. says that the nullification or impairment should not be based solely on the Article XVI violation, but rather should take into account the U.S. defense under GATS Article XIV.  Because this defense failed only on the basis of discrimination relating to betting on horseracing, the U.S. contends, it is only this horseracing discrimination that should be taken into account.  (See paras. 13-26 of the U.S. oral statement to the Arbitrator, the most recent document to be posted).

So, the question is, should nullification or impairment be determined based on the violation or on the failed defense?

More on the Gary Kaplan Prosecution and his WTO Defense

Following-up on my earlier post, first, as of a couple weeks ago Gary Kaplan was still in jail, with bail having been denied.

Second, how long before they make a Law and Order episode about this case?

Third, here is a brief overview of some of the arguments he makes related to the WTO Gambling ruling:

• Under Charming Betsy, if possible, federal laws, including criminal statutes, must be read so as not to conflict with the international obligation, and the Wire Act can be so construed.  First, the Wire Act may be read so as not to have an extraterritorial application.  In this regard, there is a strong presumption that statutes, including criminal statutes, do not operate extraterritorially.  Second, under Charming Betsy, the Wire Act may and must be construed so as not to apply to internet gambling: "The internet did not even exist in the early 1960s when the Wire Act was enacted; it surely was not what Congress intended to address."
• The Charming Betsy doctrine may be thought of as an expression of a broader principle of international comity, which itself mandates dismissal of the Wire Act charges. Under that principle: "U.S. courts should strive to the fullest extent possible in the application of domestic law to show due respect for the fundamental interests of other nations in matters of legitimate concern to them.45 By virtue of international comity, U.S. courts avoid interpretations or applications of domestic law that do unnecessary violence to foreign countries’ important interests. ... International comity strongly counsels a showing of respect by U.S. courts for rulings of the WTO Appellate Body when construing national legislation, particularly where that legislation has been clearly and authoritatively condemned, at least as applied to situations governed by WTO law. Such is precisely our case."
• "[G]iven the completion of the dispute resolution proceedings, the WTO Dispute Settlement rulings in the gambling case are self-executing, and Kaplan may rely upon them. ... The principal reason why the substantive provisions of the WTO Agreement are not self-executing and do not give a direct cause of action to individuals before domestic courts is the existence of the elaborate WTO Dispute Settlement procedures. When a State is alleged to have violated its international legal obligations under the WTO is made, that State may contest both the facts and the interpretation and application of WTO law. It may take its case before a Panel. It may appeal an adverse position of the Panel to the Appellate Body. It may seek to persuade other members of the Dispute Settlement Body not to adopt the ruling of the Panel and Appellate Body. It may be given time to implement the adverse ruling. It may contest any challenge to its attempted implementation before a Compliance Panel and appeal any decision of such Panel to the Appellate Body. It would be wrong for a domestic court to apply directly a substantive provision of the Agreement if in doing so such court would short-circuit the dispute settlement procedures with all the protections they give a member of the WTO. But here those procedures have been completed and all those protections have been enjoyed"

The conclusion:

"The government’s attempted use of these statutes to prosecute Kaplan – and to send a signal to others engaged in the provision of internet gambling services from nations that are members of the WTO – represents a violation of obligations the United States has assumed under WTO/GATS. The prosecution violates U.S. treaty obligations, international principles of comity, and domestic law. The indictment in its entirety must be dismissed."

A WTO Decision as a Defense in a Domestic Criminal Proceeding

Now this is interesting.  I haven't had a chance to digest it fully, but I thought it worth noting for everyone now.  I may come back to it once I've had a chance to think about it more.

A few months ago, the FBI arrested BETonSPORTS.com founder Gary Kaplan on charges of racketeering, conspiracy and fraud, in relation to the company's web site gambling operations.  Kaplan now argues that the WTO panel/AB rulings in the Gambling case should get him off:

Defendant Gary Stephen Kaplan moves, pursuant to Rule 12(b) of the Federal Rules of Criminal Procedure,1 to dismiss the charges against him based upon treaty obligations and related principles of domestic and international law. The treaty obligations are those the United States has assumed under the General Agreement on Trade in Services (“GATS”) and the Dispute Settlement Understanding (“DSU”) which applies to the GATS. These obligations, recognized by both the authoritative dispute resolution bodies of the World Trade Organization (“WTO”) and by U.S. law, foreclose this prosecution, requiring dismissal not only of the Wire Act charges, but of every count that seeks to penalize Kaplan for activities related to the provision of cross-border remote gambling services, that is to say, all of the charges in the Superceding Indictment.

There is talk about Chaming Betsy, international comity, and the self-executing nature of WTO rulings, among other things.

The Gambling Case: Both Tracks Moving Forward

Both tracks of the Gambling case continue to move ahead, with the parties still trying to reach agreement (and not getting that close, it seems).