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Think tank discusses WTO online gaming case

10 Oct 2007

BRUSSELS, Belgium -- (PRESS RELEASE) -- A groundbreaking WTO Internet gaming case that is threatening a major trade clash between the US and the European Union will be the subject of a forum Wednesday sponsored by the Centre for the New Europe, a leading Brussels-based public policy think tank with a special interest in free markets and open trade.

According to analysts, the US could be liable for up to $100 billion in trade concessions to European industries because of illegal trade restrictions placed by the US against European gaming operators. The amount of the dispute is the largest in the history of the WTO.

Those speaking at the forum will be:

-- Stephen Pollard, the President of the Centre for the New Europe;

-- Nao Matsukata, former director of policy at the office of the United States Trade Representative under the Bush Administration;

-- Lode Van Den Hende, trade specialist at Herbert Smith who represents European gaming interests;

-- Dr. Sallie James, trade policy specialist at the Cato Institute, a major think tank in Washington, D.C.

The possible trade concessions are the result of Antigua's victory earlier this year at the WTO, which 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. Instead of complying with the ruling, the Bush Administration withdrew the enormous gambling industry from its free trade commitments.

As a result of the Bush Administration withdrawal -- the first time a WTO member nation has withdrawn any of its WTO commitments -- all 151 WTO members are allowed to seek compensation for the withdrawal equal to the size of the entire US land-based and online gaming market, estimated at nearly $100 billion. The EU, along with India and five other countries, has filed notice that it intends to seek compensation.

"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 been the biggest previous WTO case, 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.

The EU has developed the world's leading Internet gaming businesses and is considered to have a strong lead over the US in this sector, with operations in the UK, Gibraltar, Malta, Austria, Bulgaria, Ireland, Estonia, and Sweden, employing an estimated 15,000 workers.

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.

The size of the entire US gaming market -- which includes both online and traditional "bricks and mortar" casino operators -- is in play because the US withdrawal applies to all of its gaming commitments globally. Some forms of gaming (casinos, lotteries, horse betting) in the US are legal in 48 out of the 50 states while the industry employs more than 350,000 people and generates billions of dollars of tax revenues.

The online gaming dispute also has broader implications for Internet Commerce. It is the first WTO case supporting a small country's right and ability to create a globally important business sector on the Internet, as Antigua claims it was doing with online gaming. The WTO will most likely deal with other Internet cases soon, as US search giant Google has suggested it will press a claim against China for violating the WTO by barring Chinese users from certain Internet sites using the Google search function.

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