US online gaming debate heats up

"When a member of the W.T.O. defaults on its commitments, compensation is due," said Peter Mandelson, European Union Trade Commissioner in an interview with Reuters. "That's the case of online gambling."

Mandelson's comments came in the context of an increasingly contentious trade dispute over online gaming resulting from Antigua's World Trade Organization victory over the U.S. earlier this year. After the W.T.O. ruled that the U.S. had violated trade rules in barring Antiguan online gaming operators from the U.S. market, the U.S. withdrew its W.T.O. obligations with regard to free trade in the gaming area.

The U.S. withdrawal - something that never before had happened in the 12-year history of the W.T.O. - allows Europe and other countries to demand trade concessions up the size of the entire sector on an annual basis. Because the U.S. gaming industry is worth $100 billion, the E.U. theoretically could seek that amount in trade concessions. Already, the two parties have agreed to extend settlement discussions twice because they could not agree on the size of the concessions.

If the parties cannot settle the matter between themselves, the E.U. could demand a binding arbitration before a W.T.O. panel. Separately, Antigua is involved in an arbitration with the U.S. to determine the size of the compensation due it. Other countries seeking compensation include India, Costa Rica, and Canada.

Legislation introduced by Representative Barney Frank (D-MA), the Internet Gambling Regulation and Enforcement Act, would regulate Internet gambling and possibly bring the U.S. into compliance with W.T.O. rules by creating a level playing field among domestic and international operators.

"I think (Frank) takes a fair-minded, common sense approach to this and we look forward to that being effective legislation," said Mandelson.

Mandelson made his comments during a visit to Washington, D.C. this week for meetings on "Transatlantic Economic Cooperation." During the visit, he met with U.S. Trade Representative Susan Schwab over compensation owed to the E.U. and other countries following the U.S. withdrawal of services trade concessions in the W.T.O. related to gaming. Mandelson also met with Representative Frank to discuss possible legislative solutions to the trade dispute.

Trade experts applauded E.U. Trade Commissioner Peter Mandelson's comments and visit. "Mandelson's visit signals a new chapter in the resolution of the W.T.O case," said Nao Matsukata, formerly Director of Policy Planning for USTR Robert Zoellick and now a Senior Advisor for Alston and Bird LLP. "His willingness to meet with Chairman Frank suggests that Mandelson is open to finding a legislative solution to the problem. The meeting today initiated a mutually supportive effort to resolve the unfortunate decisions of the United States to withdraw from its GATS commitments, and should help create positive momentum for the Frank legislation on Capitol Hill. Next steps should include closer consultations between congressional staff and Mandelson and his staff."

"The U.S. Congress is seeking to regulate online gambling in a competitive and fairly taxed environment that encourages the participation of responsible companies," said Lode Van Den Hende, a trade expert in Brussels who works closely on cases involving the E.U. "It is possible for U.S. legislation to create strong consumer protections, facilitate consumer choice, and provide durable tax revenues for the future. Since the U.S. Trade Representative's sole interest seems to be to continue to violate U.S. treaty obligations under the WTO, it is incumbent upon the E.U. to work directly with the U.S. Congress to develop a responsible solution."

The W.T.O. ruling that U.S. laws discriminated against foreign operators has financial ramifications far beyond the gaming industry itself. It wiped out billions of dollars from the balance sheets of European institutional investors, pension funds, and financial services companies as well as affecting the many supplier industry sectors to the gaming industry.

Several key W.T.O. partners of the U.S. have already expressed concern over the broader impact of USTR's decisions on global trade. "At a minimum, Washington's actions call into question the United States' credibility in current W.T.O. negotiations for greater trade liberalization," Matsukata said. "It will be readily apparent to significant economies such as China, India, and Brazil, that the United States seeks to create one standard for its trading partners, and another for itself. This risks setting a precedent in the W.T.O. that would ultimately prove harmful not only to the global, rules-based trading system, but also to the long term ability of the U.S. to remain competitive."