Trade Barriers Regulation report on US Internet gambling laws - briefing

11 June 2009
by eub2 -- last modified 11 June 2009

The European Commission published on 10 June a report on US laws on remote gambling and their enforcement against EU companies. This report is the outcome of an investigation into United States measures affecting foreign suppliers of Internet gambling services. The report concludes that the US measures constitute an obstacle to trade that is inconsistent with WTO rules. As a result, WTO proceedings would be justified. At the same time, the report suggests that the issue should be addressed with the US Administration, with a view to finding a negotiated solution.

What are the next steps?

The report concludes that WTO action would be justified. However, this is not an automatic consequence. The report does not include any recommendation for action and also suggests that the issue should be addressed with the US Administration, with a view to finding an amicable solution.

What are the main findings of the report?

The report finds that US laws on remote gambling and their enforcement against EU companies constitute a barrier to market access which have adverse effects on EU economic interests. Furthermore, EU companies are discriminated against: US companies are allowed to freely operate online gambling on horse racing in the US, while European companies and individuals cannot offer any type of online gambling and even face legal action. This is incompatible with US WTO commitments on trade in services, and specifically with GATS Articles XVI (on market access) and XVII (on national treatment).

The report concludes that there are serious adverse effects for the EU. They include revenue and stock market value lost by affected companies as a result of their absence from the US market, and also the threat of serious sanctions hanging over them that affect their normal operation outside the US. Moreover, the report also addresses concerns relating to services supplied to the gambling industry, such as financial services (e.g. those associated with payments for online gambling) or professional services.

The TBR report also addresses the question whether a possible withdrawal by the US of its WTO-GATS commitments on gambling and betting services would have an impact on a potential WTO case. The conclusion is that a case would still be possible despite a withdrawal. The reason is that the withdrawal would only remove the relevant US obligations for the future, but not in respect of past trade. In the present case, legal proceedings against EU companies are based on Internet gambling that they supplied in the past, under the cover of US WTO-GATS commitments. If the US continues to act against EC companies with respect to their past activities, a WTO case will remain feasible even after the withdrawal of commitments.

What is the basis for this dispute?

EU companies thought that it was legally possible to supply Internet gambling services in the US, given the lack of clarity of the domestic legal framework combined with the WTO-GATS commitment undertaken by the United States in the Uruguay Round to allow non-discriminatory access to its gambling market. As a result, until 2006 a number of European companies offered this type of service to US consumers.

Following changes of the US regulatory framework, European companies withdrew from the US market in 2006. However, US authorities launched legal proceedings against them based on the gambling and betting services they had offered until 2006.

What is the TBR?

The Trade Barriers Regulation (TBR) is a trade policy tool that allows EU companies to formally request the Commission to start an investigation into trade barriers in third countries. The Commission has to examine whether there is a trade obstacle that is incompatible with the WTO obligations of the relevant third country, whether it has a negative economic impact on European companies and whether action against these barriers would be in the interest of the EU.

Source: European Commission