United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services
Arbitration under Article 21.3(c)
of the Understanding on Rules and Procedures
Governing the Settlement of Disputes
Submission of Antigua and Barbuda
12 July 2005
I.INTRODUCTION
1.On 7 April 2005, the Appellate Body of the World Trade Organisation (the “WTO”) issued its Report (the “Report”) in United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services (WT/DS285) (the “Dispute”). On20 April 2005, the Dispute Settlement Body (the “DSB”) of the WTO adopted the Report and the Report of the Panel in the Dispute (the “Panel Report”), as modified by the Report. At that meeting, the United States of America (the “United States”) announced its intention to comply with the recommendations and rulings of the DSB in the Dispute in a manner consistent with its WTO obligations.
2.At the 19 May 2005 meeting of the DSB, the United States announced that it would require a reasonable period of time to comply with the recommendations and rulings of the DSB. Antigua and Barbuda (“Antigua”) and the United States were unable to agree on a reasonable period of time, and on 6 June 2005 Antigua transmitted a request to the Chairman of the DSB that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (the “DSU”).
3.Antigua and the United States were unable to agree on an arbitrator, and accordingly by letter dated 17 June 2005Antigua requested the Director-General of the WTO to appoint an arbitrator. The Arbitrator was appointed by the Director-General on 30 June 2005.
II.FUNDAMENTAL DISAGREEMENT BETWEEN THE PARTIES
4.This Arbitration is likely to be complicated by an apparent profound disagreement between the parties on the meaning of the Report and the action that will be required of the United States to bring itself into compliance with the DSB recommendations and rulings. Antigua believes a brief discussion of the Report is necessary to understand the differences between the parties and how those differences might impact the determination of an award in this Arbitration.
5.While the Report has engendered significant confusion in a number of respects, in the final paragraph of the Report the Appellate Body recommended
that the Dispute Settlement Body request the United States to bring its measures, found in this Report and in the Panel Report as modified by this Report to be inconsistent with the General Agreement on Trade in Services, into conformity with its obligations under that Agreement.[1]
In the Report the Appellate Body found that by maintaining three United States federal statutes, the “Wire Act,”[2] the “Travel Act”[3] and the “Illegal Gambling Business Act,”[4] the United States “acts inconsistently with its obligations under Article XVI:1 and subparagraphs (a) and (c) of Article XVI:2” of the WTO’s General Agreement on Trade in Services (the “GATS”).[5] The Appellate Body also concluded that the United States “has not established that [the Wire Act, the Travel Act and the Illegal Gambling Business Act] satisfy the requirements of the chapeau” of Article XIV of the GATS.[6]
6.It is well established that justify a measure under Article XIV of the GATS[7] a Member must satisfy both prongs of a two-tier analysis.[8] The failure of a party invoking the affirmative defence of Article XIV of the GATS to establish both prongs of the defence results in a failure of the defence.[9] While in making its determination that the United States had not met its burden with respect to the chapeau of Article XIV of the GATS the Appellate Body apparently relied on evidence and discussion adduced during the Dispute with respect to one federal statute,[10] there is no doubt that the Appellate Body found the United States had not met its burden with respect to the chapeau.[11] Accordingly, consistent with US – Gasoline[12] and US – Shrimp,[13] the United States’ defence under Article XIV of the GATS failed, and the United States is not entitled to rely upon it.
7.In the Report, the Appellate Body did not specify any particular method by which the United States should bring the Wire Act, the Travel Act and the Illegal Gambling Business Act (collectively, the “Federal Trio”) into compliance with its obligations under the GATS—rather, it simply recommended that the DSB request the United States to bring those measures into such compliance.[14] Antigua believes the fundamental basis for compliance is both obvious andsimple—provide Antigua with market access for the provision of gambling and betting services. And, as will be discussed below,[15] the means of compliance are relatively straightforward, requiring only an administrative change in policy and the repeal of or the adoption of amendments to the three federal statutes.
8.Despite two requests from Antigua for the United States to communicate precisely what it intends to do in order to come into compliance with the DSB recommendations and rulings, the United States has refused to tell Antigua what its proposed actions will be. However, from its public statements it appears that the United States has a much different perspective on the Report and the recommendations and rulings of the DSB than does Antigua. In a press releasedated 7 April 2005 (the “USTR Release”), the Office of the United States Trade Representative (the “USTR”) stated
The Appellate Body found that the concerns addressed by the three U.S. federal gambling laws at issue in this dispute “fall within the scope of ‘public morals’ and/or ‘public order’” under an exception to WTO rules for trade in services. It merely found that, for this exception to apply, the United States needs to clarify one narrow issue concerning internet gambling on horse racing. USTR will be exploring possible avenues for addressing this finding. USTR will not ask Congress to weaken U.S. restrictions on internet gambling.[16]
9.Nowhere in the Report did the Appellate Body “find” that the United States “needs to clarify one narrow issue” regarding horse racing or any other issue. Antiguaobserves that in at least one prior instance (US – Shrimp) the United States took action to bring itself into compliance with adverse DSB recommendations and rulings by addressing its failures under the chapeau of Article XX of GATT 1994. In this regard Antigua notes that the claim of the United States under the chapeau in the Dispute was that it did not discriminate at all between domestic and foreign suppliers of remote gambling services.[17] While there are a number of material differences between the facts and findings involved in US – Shrimp and those in the Dispute, Antigua concedes that it may be theoretically possible for the United States to come into compliance with the recommendations and rulings of the DSB based upon the Report by prohibiting all forms of domestic remote gambling.[18] As noted above, the United States has not told Antigua how it intends to come into compliance with the DSB recommendations and rulings, but based upon the statements made in the USTR Release, it appears that the United States is neither going to take action to give market access to Antiguan service providers nor is it going to prohibit all domestic remote gambling.
III.COMPLIANCE RECOMMENDATIONS
1.Introduction
10.Antigua realises that, in general, it is up to the Member with the obligation to bring its measures into compliance with DSB recommendations and rulings to determine how exactly that should be accomplished.[19] However, at this point in the Arbitration not only is Antigua forced to speculate as to how the United States intends to comply but it also suspects that whatever action the United States ultimately takes will be insufficient to bring it into compliance with the DSB recommendations and rulings. As a result, for purposes of this Submission Antigua will be advancing its position with respect to the reasonable period of time based upon its own opinion on how the United States might comply with the DSB recommendations and rulings.
11.Antigua submits that it is possible for the United States to comply with the DSB recommendations and rulings (i) immediately via presidential executive order with respect to the provision of non-sports related and horse racing gambling and betting services and (ii) with respect to the provision of other sports gambling and betting services, within six months of the adoption of the Report and the Panel Report by the DSB via either an amendment to each of the Wire Act, the Travel Act and the Illegal Gambling Business Act or the passage of new legislation that would either repeal or supersede the Federal Trio with respect to the provision of these services from Antiguan operators.
2.Non-Sports Related and Horse Race Betting Services
12.Despite its recent assertions to the contrary, there is significant doubt that any of the Federal Trio apply to the provision of non-sports gambling and betting services to United States consumers from a foreign country in which such services are legal (for purposes of this discussion, “non-sports betting services”).[20] In the first instance, over 35 years ago when these three federal statutes were enacted, the playing of casino-type games such as poker, roulette and others by remote means was not only technically impossible but probably not even within contemplation. It is clear from the Congressional debate surrounding the adoption of these laws that they were intended to curb participation of organised crime syndicates in illegal domestic bookmaking and related criminal activities.[21]
13.To date, no United States court has held any of these laws applicable to non-sports betting services supplied by remote means. In the one reported instance in which a United States federal court squarely considered the issue of the applicability of the Wire Act to non-sports betting services, the United States Court of Appeals for the Fifth Circuit expressly held to the contrary.[22] In another United States federal court case, the court concluded that the Illegal Gambling Business Act did not apply to gambling and betting services offered to consumers in the United States from a foreign jurisdiction in which such services are lawful.[23] Further, no federal court has held the Travel Act to be applicable to the provision of gambling and betting services provided to United States consumers from a foreign jurisdiction in which those services are lawful. Opinions among United States gambling experts on the applicability of the Wire Act, the Travel Act and the Illegal Gambling Act to these cross-border services (other than the applicability of the Wire Act to sports betting services)[24]are decidedly equivocal.[25]
14.It is clear that current United States policy towards the applicability of federal law to the provision of remote gambling and betting from foreign countries to consumers in the United States shifted dramatically some time in 1998. As Antigua brought to the attention of the Panel in the Dispute,[26] as late as September 1997 senior officials with the United States government clearly did not believe that the provision of these services from Antigua were illegal, as these officials engaged with Antiguan officials in suggestions to improve the regulation of gaming companies in order to better protect consumers.[27]
15.Prior to March 1998 the United States Department of Justice (the “DOJ”), the agency of the United States government charged with the enforcement of criminal laws such as the Wire Act, the Travel Act and the Illegal Gambling Business Act, had publicly maintained that the provision of gambling and betting services into the United States from foreign jurisdictions was not subject to federal prosecution. In1997 DOJ spokesman John Russell was quoted as “unequivocally” stating with respect to Internet gambling operators outside the United States “[w]e can’t touch them.”[28] Mr Russell was even more direct in a quote attributed to him in an article in the prominent American newspaper The New York Times, stating “[w]e have no jurisdiction . . . the offence has not been made on U.S. soil.”[29] Similarly, in January 1998 Mr Russell was quoted in another publication as saying “[i]nternational Internet gambling? We can’t do anything about it. That’s the bottom line.”[30] The United States government position clearly changed, however, by May 1998 when a number of operators of cross-border gambling and betting services, including some resident in Antigua, were indicted for providing these services to consumers in the United States.[31]
16.Antigua has not been able to determine why this policy shift occurred, nor has it been able to determine how it was effected under the United States legal system. Clearly however, if the policy could be shifted once, it can be shifted back again. While presumptively this policy shift could be effected on an informal basis within the DOJ and other agencies of the United States government, it could be definitively accomplished through what is known as the presidential “executive order.”
17.Executive orders are orders or decrees given by the president of the United States to agencies of the federal government such as the DOJ. Although there is no express constitutional or statutory provision authorising executive orders, it is undisputed that they arise from the general executive powers of the president under Article II of the United Statesconstitution.[32]
18.In more definite terms, a presidential executive order is “a directive[] issued by the president to officers of the executive branch, requiring them to take an action, stop a certain type of action, alter policy, change management practises, or accept a delegation of authority under which they will henceforth be responsible for the implementation of law.”[33] Executive orders have been used by every president since the inception of the United States[34] on a virtually endless series of topics from seizing the assets of persons suspected by the president or certain members of the executive branch of government of being “weapons of mass destruction proliferators and their supporters”[35] to excluding a specific individual from compulsory age retirement.[36]
19.A congressional study has defined executive orders as “directives or actions by the President” that have the “force and effect of law” when “founded on the authority of the President derived from the Constitution or a statute.”[37] It is useful to think of executive orders as a form of “presidential legislation” or “executive lawmaking,” in the sense that an executive order provides the president with the ability to make general policy with broad applicability akin to public law.[38] The only limitations upon executive orders are that they cannot be illegal or contrary to the constitution.[39]
20.While an executive order constitutes perhaps the most widely discussed form in which a presidential directive may be issued, it is not the only type of presidential order. Presidents may also issue proclamations, presidential signing statements, presidential memoranda or national security presidential directives, among other types of presidential directives.[40] In general, however, the difference is typically one of form, not substance.[41]
21. The process and time period it takes to issue an executive order is relatively simple and expedient
In contemporary practice, executive orders typically either originate from the advisory structures within the Executive Office of the President or percolate up from executive agencies desirous of presidential action. . . Simple executive orders navigate this process in a few weeks . . .[42]
Executive orders were given a form of statutory recognition by the Congress in 1935 with the passage of the Federal Register Act of 1935, which provides that once signed by the president, an executive order becomes law of the United Statesupon publication in the Federal Register, the official publication of the United States government.[43]
22.Because the provision of non-sports betting services to consumers in the United States from Antigua isneither contrary to United States law nor the constitution, it is well within the power of the president to issue an executive order to the agencies of the United States government to the effect that (i) these services may be lawfully offered by Antiguan operators to consumers in the United States and (ii) all enforcement and related action to the contrary, including (A) asset forfeitures, (B) restrictions on money transfers and use of financial instruments, (C) threats of federal prosecution by the DOJ against service providers to these industries, including advertisers, banks and credit card companies and processors, and (D) current pending prosecutions against persons operating these businesses, should in each instance immediately cease and desist.[44]
3.Sports Betting Services
23.Notwithstanding the previous position of the DOJ to the contrary, as a result of the successful prosecution of an Antiguan sports betting service provider in the Cohen case[45] it is generally accepted that the Wire Act applies to the provision of cross-border sports betting services, even if those services are provided from a sovereign foreign jurisdiction in which those services are expressly lawful.[46] Accordingly, Antigua believes that legislative action by the United States Congress will be necessary in order for the United States to comply with the recommendations and rulings of the DSB inasmuch as they pertain to sports related gambling and betting services.