PokerPulse -- Highlights WTO December 2007

The sorrow and the pity, the Lone Ranger, the Look-out, a call for applause, a call to account and the Final Four-flusher Fantasy:
Highlights of the Cross-Border Supply of Gambling and Betting Services Decision by the Arbitrator

The call for applause:
U.S. bid to take the proceedings public - nixed


2.29 At the organizational meeting, the United States requested the Arbitrator to open to the public its meeting with the parties. The Arbitrator sought and received the views of Antigua on this request. In a written communication addressed to the parties on 21 August 2007, the Arbitrator addressed this request as follows:

"The Arbitrator has considered the US request to open its meeting with the parties to the public. The Arbitrator first notes the absence of a specific provision in the DSU addressing this issue in relation to arbitral proceedings under Article 22.6. The Arbitrator considers that it has a margin of discretion to deal, in accordance with due process, with specific situations, such as this one, that may arise in a particular case and that are not expressly regulated in the DSU. At the same time, it considers that it should, in exercising this discretion, take due account of the views of the parties. In this instance, Antigua opposes the opening of the meeting to the public. In light of this, and bearing in mind the object of the proceedings, the Arbitrator has decided not to allow for the opening of its meeting to the public." (p. 8)


The Look-out:
European Communities (EC) bid for Third Party status - also nixed


... In this instance, there is no agreement among the parties as to whether the EC request should be accepted, and this consideration should be given appropriate weight.

The Arbitrator also notes that in arbitral proceedings under Article 22.6 of the DSU to date, third party rights have only been granted once.32 This involved very specific circumstances, where the two Members being granted third-party status were both complainants and parties to arbitral proceedings under Article 22.6 in disputes concerning the same matter, and where the Arbitrator found, in the circumstances of that case, that the determination in one arbitral proceeding may be decisive for the determination in the other.33 In this case, the EC has argued that its substantial interest in these proceedings derives from the fact that this arbitration may, in its view, affect its WTO rights in the context of ongoing procedures under Article XXI:1(b) of the GATS relating to the modification of US commitments on 'Other recreational Services'.

... The Arbitrator sees no basis for assuming that its determination under Article 22.7 of the DSU in respect of Antigua and Barbuda's request to suspend concessions and other obligations would be such as to adversely affect the EC's rights in the context of the separate proceeding it is engaged in with other Members concerned under Article XXI:1(b) of the GATS for the modification of US concessions, which has both a distinct legal basis and a distinct object. For all the above reasons, the Arbitrator declines the EC request to be accorded third party status in these proceedings. (pgs. 9-10)


The Lone Ranger:
Say, who was that mysterious masked man?

One of the arbitrators is unable to agree with the analysis and conclusions reflected in paragraphs 3.41 to 3.61 above. In the view of this arbitrator, it was not unreasonable for Antigua to assume, in the circumstances of this case, a counterfactual scenario under which the United States would provide unrestricted access to its remote gambling and betting market. 3.63 In the view of this arbitrator, it is appropriate to refer, as a starting point, to the findings and conclusions of the panel and the Appellate Body in this case. Specifically, the Appellate Body has determined that, although the three federal laws at issue are measures "necessary to protect public morals or public order", the United States had not demonstrated that they were applied in accordance with the requirements of the chapeau of Article XIV of the GATS. 3.64 The Appellate Body made this determination "in light of" only one specific discrimination that it identified in the application of the measures. However, this does not necessarily imply, as the United States suggests, that the specific problem found with the US measure at issue was restricted to the "limited issue of the regulation of remote gambling on horse racing"88. Rather, *the overall conclusion of the Appellate Body was that the measures at issue (rather than simply the discriminatory treatment provided in respect of horseracing) were, as a result, not justified under Article XIV of the GATS.

... 3.67 By contrast, it is not clear that the alternative counterfactual scenario envisaged by the United States, which involves a partial opening of a limited segment of the market, constitutes a more reasonable assumption in the circumstances of the case. In particular, assuming, for the sake of argument, that such a scenario would constitute compliance with the recommendations and rulings of the DSB in this case (something that is not within our mandate to determine), it is not clear how the United States proposes to reconcile the protection of public morals or public order with the opening of one segment of the market (horseracing).

... Indeed, it is quite conceivable that the United States could have found ways in which to address these concerns while protecting such interests. Other WTO Members have chosen to open their market to remote gambling, and it would not be reasonable to assume that such Members do not also have similar policy objectives.

... in a situation where different means of compliance might form the basis of a counterfactual in order to determine the level of nullification or impairment of benefits, the complaining party would not be prevented from selecting a counterfactual that may lead to a higher level of nullification or impairment than others, provided that such counterfactual is reasonable.

... 3.73 This arbitrator also wishes to highlight that, even if calculations had been pursued on the basis of Antigua's proposed counterfactual, ... due account would have had to be taken of the fact that, in a scenario under which the United States would open the entirety of its remote gambling market, Antigua would face competition not only from other foreign operators but also from domestic US operators that currently also have have no access to the market. (pgs. 23-25)


The counterfactuals
Scoping the GATS-breach pot size and the odds on a safe return:


... Antigua indicated that it made the following assumptions in relation to the counterfactual:

1. The United States adheres to its GATS commitments for remote gambling and betting services as established in the dispute;
2. The United States recognizes that Antiguan law governs Antiguan-based remote gaming operators serving customers located in the United States;
3. The United States does not interfere with the electronic transfer of funds between customers and Antiguan remote gaming operators;
4. The United States does not interfere with advertising by Antiguan remote gaming operators;
5. Antiguan remote gaming operators are not compelled to invest significant resources to counteract United States measures to restrict gaming operators from providing remote wagering services to United States consumers.36 (p. 11)


... The United States submits that the DSB recommendations and rulings are addressed to discriminatory treatment of gambling on *horseracing, so that the real question in the scenario where the United States achieves compliance by allowing market access for foreign suppliers is as follows: "what would be the economic effect if the United States were to adopt measures that allow Antiguan operators (and operators of all other WTO Members) to provide cross-border remote gambling services on horseracing?"


The call to account:
To shop or not to shop local operators?

U.S.: 'Give 'em up!'

3.110 The United States notes that that Antigua claims to have exempted operators licensed by Antigua from any form of official reporting requirements155, but then admits that financial statements for gambling companies with operations located in Antigua, which could give support or refute the GBGC data, are actually available to the government.156 The United States holds that Antigua should not be rewarded for failing to disclose such information, which could have been provided with redactions or in summary tables for privacy concerns or fears of prosecution. It notes that Antigua does not even explain whether it has reviewed such financial statements, or whether the data in those statements is in accord with the GBGC estimates. The United States draws the conclusion that the actual data does not support Antigua's claims pursuant to the GBGC data, or else it would have been used, and that adverse inferences may be drawn, when a party to a dispute declines to provide relevant information.157


Antigua: 'Tut-tut. Wouldn't be sporting.'

3.111 Antigua confirms that Antiguan remote gaming operators are subject to a number of reporting obligations. This includes the obligation to provide the Directorate of Gaming of Antigua, at least once per year, access to and examination of the books, accounts and financial statements of each licence holder.158 However, Antigua declines to disclose financial information from Antiguan operators, principally for the reason that the United States has used filings of public companies as a basis for criminal complaints in the past.159 It only cites gross profits of US$895.7 million in 2005 that five Antiguan remote gaming operators had confidentially reported to the Antiguan Directorate of Offshore Gaming (Division of Gaming, Financial Services Regulatory Commission). This information is contained in a letter by the Director of Gaming to Mr. Mark Mendel, dated 1 October 2007, written for the purposes of this proceeding.160

... 3.131 Concerning other factors causing the decline in Antigua's exports of remote gambling services to the United States, Antigua dismisses the United States arguments. While it admits that it was inevitable that it lost some market share globally as the result of the growth of poker on the internet and the growth of remote gaming in other parts of the world, Antigua is primarily a United States facing, sports betting jurisdiction and therefore more severely affected by the US measures than operators in other locations.210 Antigua claims that the three highest profile prosecutions of foreign remote gaming brought by United States authorities in the past few years have been brought against operators with Antiguan licensed subsidiaries and substantial Antiguan operations, whereas to date the United States has not prosecuted any remote gaming operators licensed and located in European jurisdictions, such as Gibraltar, Malta and Guernsey, nor has it prosecuted any operators licensed by the Khanawake Mohawk Tribe of Canada. It goes on to state that the 2001-2003 time frame saw a large number of operators move from Antigua to European jurisdictions that were perceived as being less likely targets of United States efforts than Antigua.211


The arbitrator: 'Uncle Sam's a true democrat. All Internet gambling operations that take U.S. bets are equally at risk of U.S. prosecution'.

3.117 We think that the provision of information from Antigua's remote gambling operators directly, in particular financial statements, would certainly have been helpful. However, it is notentirely clear whether the financial reporting requirements by Antiguan remote gambling operators allow for this information to be retained within the government. Antigua only states that these companies have "to provide the Directorate, at least once per year, access to and examination of the books, accounts and financial statements" (emphasis added).177 We consider that we are not in a position to pass judgement on the use of that sort of information in criminal proceedings in the United States in the past, nor do we need to. Nevertheless, we reckon that it should be possible to produce some kind of summary information even from a limited or informal information base on those companies that also takes account of the sensitivities involved in relation to company-specific data.

While Antigua has not provided this type of information, we recognize that it has made efforts to substantiate the order of magnitude of the GBGC data in other ways. In particular, we appreciate the collection of data on revenues per employment from publicly listed companies and the provision of historical employment data in the Antiguan remote gambling sector directly from Antigua's Directorate of Gaming. We note quite some variation in the data between companies and years. Although this information may only allow for a rough estimation of average revenues, it provides at least for another reality check of the GBGC data. We also note that the United States considers the employment data by Antigua to be "less unrealistic" than the GBGC revenue data and "more useful" in assessing the level of nullification and impairment.178

... enforcement actions involving the prohibition for credit card companies and systems such as PayPal to make payments to overseas gambling operators, are capable of affecting all providers, and not only those from a particular country of origin. As far as the risk of criminal proceedings is concerned, all remote gambling operators a priori seem to be an equally likely target, even though a number of Antiguan operations may have been subject to prosecution in the past. (pgs. 35-42)


The Final Four-part, Four-flusher Fantasy
Putting the arbitrary in arbitration:

... We feel unable to rely on the approach used by Antigua, as laid out in its methodology paper, in calculating the requested amount of countermeasures. At the same time, the approach put forward by the United States does not represent a convincing alternative either. 3.173 We, therefore, have no choice but to adopt our own approach. In so doing, we feel we are on shaky grounds solidly laid by the parties. The data is surrounded by a degree of uncertainty. For most variables, the data consists of proxies for what needs to be measured, and observations are too few to allow for a proper econometric analysis. Certain data that we have requested and that, to some extent, could have remedied this situation has not been provided. On methodological questions, parties, in a number of respects, have retained their extreme positions and have failed to propose alternative solutions that would have taken into account the exchange of arguments.

3.174 Hence, we are left with preciously little information and guidance. Nevertheless, we will attempt to stay as closely to the approaches proposed by parties as possible and to make a maximum use of the limited information base we were given, in particular to carry out some sensitivity analysis in support of our main approach. We will broadly follow the spirit of Antigua's original approach, while making the necessary adjustments in light of our analysis above. We will proceed in four steps.

First, we will seek to establish a workable assumption about Antigua's revenues from remote gambling services exports to the United States. Second, we will adjust this time series for the apparent impact of competing suppliers. Third, we will determine a plausible share of betting services on *horseracing in Antigua's total revenues from remote gambling. Finally, we will take account of developments in US demand for gambling services on *horseracing. (pgs. 51-52)

*Note: This is, alas, once again a reference to the old 'tweak the International Horseracing Act (IHA)' wheeze the U.S. has pressed ever since the report of the Appellate Body was released in 2005, a piece of work which unhelpfully muddied an otherwise clear second win for Antigua.


Thus, to get from Antigua's original claim of $3.4 billion to a trim $21 million was, as the great British humorist P.G. Wodehouse might have put it, the work of an instant. Merilly the arbitrators slashed from pgs. 52-55.

The sorrow and pity:

4.87 Antigua has first stressed the fact that, as a small economy with limited natural resources, it is heavily dependant on imports of goods and services, including from the United States, so that the imposition of additional duties on products imported from the United States or on the provision of services from the United States would have "a disproportionate adverse impact on Antigua and Barbuda by making these products and services materially more expensive to the citizens of the country".321 Antigua also notes that with respect to most services other than "Sector 10.D", covered by Antigua's GATS schedule, suspension of concessions in the form of higher duties, tariff, fees or other restrictions would have a disproportionate impact on the economy of Antigua and virtually no impact of the United States.

... obligations in telecommunication services, but that, upon more detailed review of the import and use of telecommunications services in Antigua, it had determined not only that the volume of the trade was low (US$5.03 million) but that disruptions in changing services and suppliers and increased cost to Antiguan consumers would result in a heavier burden on Antiguan citizens as the result of suspending concessions in this area while having no perceptible impact on the United States.324

4.94 Antigua has also explained that the arguments it made in respect of Sector 10 ("Entertainment services") also hold true for other sectors of the GATS in which Antigua has made specific commitments in its Schedule. Antigua explains that, of the total value of services imports to Antigua in 2005, the main services imported were transportation (US$ 70.7 million), travel (US$ 40.1 million) and insurance services (US$35.5 million). Antigua argues that if it were to suspend concessions with respect to these services, given the low level of these imports, it is clear that the suspension would have virtually no impact upon the United States, while having to replace these services from other service providers, if reasonably practicable at all, would most likely prove to be more expensive to Antiguan consumers.325

... 4.110 Antigua also highlights that it has extremely limited natural resources and very limited arable land, such that it cannot produce sufficient agricultural products to satisfy domestic needs, let alone for export. Antigua further notes that its economy has become highly dependent on tourism and associated services, including hotels and restaurants, retail trade, construction, real estate and housing and transportation.331 Antigua also highlights the vulnerability of the tourism sector to external factors (such as weather conditions, security threats or economic downturn in source markets) and the fact that it tends to employ unskilled workers and generate low-paying jobs.

4.111 Third, Antigua highlights the need to diversify its economy, and that in order to do this it has tried to develop trade in services, including trade in remote gambling, with the active involvement of the Antiguan Government. Antigua suggests that prior to 1998, the United States Government even supported Antigua in its efforts to develop and supervise the remote gaming industry.332 (pgs. 70-74)


A song to close from the world's smallest violin:

... The United States also alleges that even where Antigua has information from the gambling companies that is relevant to the outcome of the arbitration, it refuses to provide such information in order to shield those companies from prosecution under the criminal laws of another WTO Member. The United States expresses its concern that, in these circumstances, any suspension of TRIPS concessions could lead to or encourage the piracy of intellectual property rights by internet operators in Antigua. Without strict supervision by the Government of Antigua, there would be no basis to calculate the level of suspension, or to determine whether the operators were abusing the authorization to suspend TRIPS concessions by offering pirated intellectual property in jurisdictions outside Antigua... (p. 76)


NOTE: All page references above are for the 97-page pdf, Recourse to Arbitration by the United States under Article 22.6 of the DSU, Decision by the Arbitrator, released Dec. 21/07.

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