During his trial and subsequent appeals, Cohen’s arrest and conviction became something of a cause celebre in the online gaming world. Shortly after arriving at the Federal Penitentiary in Nellis, Nevada, Cohen received an anonymous letter arguing that American gambling laws were not in compliance with the WTO’s General Agreement on Trade in Services, which had come into effect three years earlier. The United States, which had been the driving force behind the GATS trade talks in the first place, suddenly and awkwardly seemed to be out of compliance with the very trade agreement it had fought so hard to enact. Faced with the indictment of twenty or so leading businessmen, Antigua’s legal team took action.
Pull out your GATS
The first GATS case based entirely on trade in services to go before the WTO for arbitration would prove strange indeed.
The WTO panel convened by Antigua back in 2003 concerned itself with a variety of Federal and State legislation covering gambling and the use of various means of electronic media to place wagers, most notably the same Wire Act that provided the Feds cover to go after Jay Cohen and the WSE in the first place. Antigua claimed in its initial filing that the US was in noncompliance with the requirements for trade reciprocity set out in the GATS since it allowed gambling within its borders while prohibiting foreign providers from accessing the enormous American market.
The Panel Report that followed ruled that the US had in fact agreed to be bound by the cross-border provision of gambling services, that it was in violation of those agreements, and that noncompliance could not be justified by recourse to Article XIV of the GATS, which allows a country to opt out of trade that would violate local morals or taboos, or endanger public health or safety. This same exception allows Muslim countries to ban the import of alcohol.
Whether such an argument has any merit is debatable - according to a recent report in the LA Times, only 4 per cent of Americans wagered online last year, compared with 25 per cent who visited a “brick and mortar” casino. Such statistics would seem to belie any argument that the online character of the gaming services offered by countries like Antigua offers a particularly pernicious threat to public morals.
Nevertheless, the US appealed under Article XIV, and the Appellate Body with some degree of modification upheld the rulings of the original panel, although it did note that were the US to make all remote or interstate gambling illegal, it would be able to fall back on Article XIV as an affirmative defense and prohibit foreign suppliers from offering gambling services. It’s all about reciprocity, you see.
Then the stalling began. The US insisted that new legislation would need to be drafted, and that it would need 15 months to come into compliance, even though prior to the prosecution of Jay Cohen in 1998 it was the official opinion of the DOJ that internet gaming was not covered by the Wire Act. Over Antigua’s objections, the US was given until April 3, 2006 to comply with the ruling.
April 3, 2006 came and went.
We are the Deciders
As only the United States can, it simply ignored the ruling and then redefined the meaning of compliance. The Recourse to Article 21.5 of the DSU by Antigua and Barbuda, submitted recently by aforementioned Antiguan counsel Mendel, notes that this was the first time in WTO history “that an implementing party (WTO lingo for the losing party in a dispute) has announced itself in compliance with the recommendations and rulings of the Dispute Settlement Body of the WTO (the “DSB”) without having done anything at all.” (Emphasis theirs)
Then came the final indignity - legislation pushed through under cover of night that not only ignored completely the WTO ruling regarding reciprocity for trade in services, but eviscerated the financial guts of the entire industry.