WTO Ruling Pits Free Trade Against Moral Values
"This is a true David against Goliath story," says Duke associate law professor Joost Pauwelyn
On Wednesday, at the request of one of the smallest countries in the world, the World Trade Organization (WTO) officially condemned the United States for banning online gambling.
"This is a true David against Goliath story," said Joost Pauwelyn, associate professor of law at Duke University. "This dispute illustrates once more how deep WTO commitments penetrate the regulatory powers of its member countries."
The dispute was triggered in 2000 when a U.S. court sentenced Jay Cohen, a U.S. national and founder of the World Sports Exchange, to 21 months in jail for selling gambling services to U.S. citizens from the island of Antigua, in violation of the 1961 Wire Communications Act.
Antigua argued that this was a trade issue, that the U.S. ban on internet gambling amounted to a trade restriction on imports (gambling services) from Antigua and that the U.S. was violating one of its commitments to the WTO, Pauwelyn said.
"Under WTO rules, the U.S. agreed not to restrict the importation of certain 'recreational services,' which Antigua argued includes the free flow of cross-border 'gambling services.'
"The U.S. maintained that it never intended to bind itself in this sensitive sector, invoking the WTO's escape clause for trade restrictions necessary to protect 'public morals' or 'public order' from money laundering, organized crime and unrestricted access for minors to internet gambling."
Although the WTO panel sided with the U.S. on its morals clause argument, it stopped short of excusing the U.S. ban, finding fault with both the ban itself and its discriminatory enforcement by the U.S., Pauwelyn said.
"The panel made a statement that, in its view, the issue does not hinge on morality but on protectionism, an interesting outcome just one week after the U.S. presidential election was decided by 'moral values' voters," said Pauwelyn.
Pauwelyn said the U.S. can reverse the ruling by offering alternatives to the outright ban, although it is unlikely to do so given its tough stance against internet gambling in the U.S. But a more even-handed approach to enforcement would also help reverse the ruling, Pauwelyn said.
"As the WTO panel itself acknowledged, it is most likely that the U.S. simply made a mistake when scheduling its WTO commitments and genuinely did not intend to commit in the area of internet gambling. For such mistakes, the U.S. can always re-negotiate its commitments and withdraw the one on internet gambling, and either offer equivalent compensation to, or suffer reciprocal trade retaliation by, Antigua. Regardless, it is unlikely that Mr. Cohen will be able to restart his Antigua-based sports book any time soon."
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