U.S. ONLINE GAMBLING STANCE CRITICISED IN TRADE FORUM (Update)

19 October 2007

American foreign relations and trade credibility at stake


Expert panelists at a trade forum this week leveled harsh criticism at the US, focusing on a trade clash between the US and Europe over Internet gaming. The panel believes that the US could be liable for up to $US 100 billion in trade concessions to international industries as the issue heads toward a World Trade Organisation arbitration.

The disputed concessions arise from the Caribbean nation of Antigua's victory earlier this year when the WTO ruled that the US violated its treaty obligations by excluding online Antiguan gaming operators, while allowing domestic operators to offer various forms of online gaming (see previous InfoPowa reports).

Having failed in various stratagems to derail the Antiguan case or appeal against the findings, the US Trade Representative took the unprecedented step of withdrawing US obligations on gambling from its decade old free trade obligations. Consequently, interested fellow members in the 151 nation WTO community have the right to press for compensation for the withdrawal equal to the size of the entire US land-based and online gaming market, estimated at nearly US$100 billion.

The European Union, along with India and five other countries, has thus far filed notice that it intends to seek compensation.

"The US decision is a major threat to a rules-based international trading system," said Nao Matsukata, former director of policy planning for the Office of the US Trade Representative, speaking at the Brussels forum this week sponsored by the Centre for the New Europe, an important public policy think tank with a special interest in free markets and open trade.

"If more countries follow the US lead and do the same thing, the entire WTO system could implode and that would be extremely dangerous for US economic interests and for free trade generally.

"Part of what makes the US such a formidable opponent in international negotiations is its credibility. That credibility is now at stake for the US government not just in the trade area but in foreign relations generally."

Lode Van Den Hende, a trade lawyer at Herbert Smith in Brussels, criticised the US for prosecuting foreign online gaming companies while letting domestic online gaming interests operate with impunity.

"This is absolute discrimination against foreign operators that the WTO has found to be illegal," he said.

"It is exactly the kind of practice that the WTO was set up to eliminate, and now the US is violating this very basic principle that it fought hard to put in place at the inception of the organisation."

Others speaking at the forum included Stephen Pollard, the President of the Centre for the New Europe and Dr. Sallie James, trade policy specialist at the Cato Institute, a major think tank in Washington, D.C.

"This is by far the most significant WTO case ever and its implications for both the US and the EU are enormous," said Nao Matsukata, a former Bush Administration trade official. "This is also a watershed moment for the WTO because a major world power is thumbing its nose at the institution and disregarding its obligations," he added.

Already, several publicly listed online European gaming operators, such as PartyGaming and 888 Holdings, have lost billions of dollars in revenues and market value because of the US laws excluding overseas operators. Meanwhile, US giants such as Yahoo! and the Las Vegas-based Sands Corporation are beginning to market online gaming services in Europe.

The size of the dispute is astounding, experts say. The potential trade concessions are roughly twenty times larger than what had previously been the biggest WTO dispute, a $4.3 billion tax issue between Europe and the US that was resolved by the US adjusting its tax code. Most WTO claims involve far lower sums, such as Ecuador's $191 million claim against Europe over banana tariffs.

Thus far the US has questioned the value of the concessions demanded, whilst its own initial proposals have been dismissed. Negotiators have until the end of October when, unless the matter is settled, the size and nature of the trade concessions will be determined by WTO arbitration.

"One major question is how strong the EU will be in pushing the US for all of the concessions available to it," said Craig Pouncey, a Brussels-based trade lawyer with Herbert Smith.

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