Posted November 9, 2006
 Economic Development & Trade
The Unlawful Internet Gambling Enforcement Act and the Dispute Over
Internet Gambling at the World Trade Organization
The recently passed Unlawful Internet Gambling Enforcement Act of 2006 provides an enforcement mechanism for state laws prohibiting internet gambling. However, this law does not address the fundamental dispute in the World Trade Organization (WTO) between the United States and Antigua over gambling. In fact, the new law specifically avoids addressing the Interstate Horseracing Act (IHA), which lies at the heart of the dispute. In the WTO case, Antigua brought a complaint against the United States claiming that federal and state limitations on gambling violated WTO rules.
In the Antigua case, the WTO appellate body ruled that the Unite States was restricting access to gambling services; a violation of the Market Access rule established under the General Agreement on Trade in Services (GATS), which is part of the WTO. However, the WTO ruled that this violation was excused by the public morals exception which allows the United States to restrict gambling to protect its citizens. This exception is only allowed as long as U.S. laws are nondiscriminatory, and this is where the problem has arisen.
The U.S. may restrict gambling, but it must do so on a uniform basis that does not allow domestic producers (gambling internet sites, or even bricks and mortar sites) to operate while limiting foreign producers’ ability to operate. This is the standard of nondiscrimination.
Specifically, the WTO cited the IHA as violating the standard of non-discrimination because it allows the broadcast of horse races across state lines for the purpose of betting within designated facilities. The problem is that foreign firms are not permitted to participate in this system. While Antigua’s original complaint did not actually involve facts related to the IHA or horse racing, the WTO determined that the IHA violates the principle of nondiscrimination, thereby invalidating any prohibition on gambling that restricts the ability of foreign firms to serve the United States market.
Although the United States is permitted to invoke the morality exception as a means to place limits on gambling, those limits must be entirely uniform (i.e. by allowing gambling on horse races across state lines, but not by foreign firms, the United States has invalidated its ability to use the morality exception).
Therefore, the recent law passed by the United States Congress, the Unlawful Internet Gambling Enforcement Act of 2006, does not resolve the current dispute in the WTO over gaming because it does not address the Interstate Horseracing Act.
Another concern for the States, but one that was not addressed by the WTO or by the Unlawful Internet Gambling Enforcement Act of 2006, is whether current state laws violate the standard of nondiscrimination. The WTO avoided this question due to a technicality in the Antigua case, but this issue could arise in the future. The problem is as follows:
Existing laws on internet gambling at the state level are not uniform. For instance, Oregon allows internet gambling for horseracing within its borders. However, residents of other states are prohibited from using these services. Companies based in other states (or countries) are also prohibited from operating in Oregon. Would this allowance of intra-state operations violate the WTO’s principle of nondiscrimination and therefore invalidate the morality exception?
The Department of Justice argues that it would not. It says that all inter-state gambling is prohibited, and therefore the United States should be considered to be in compliance. The WTO has already rejected this argument, saying that the IHA does, in fact, allow inter-state gambling. However, even if the IHA did not exist, it is unclear whether the WTO would accept the prohibition on inter-state gambling as being sufficient.
Again, the Unlawful Internet Gambling Enforcement Act of 2006 does not address these issues and therefore will not resolve possible WTO disputes over gaming services in the United States. The new law does provide federal resources for the states to enforce their gambling laws, but it is not designed to resolve international trade disputes.
Prepared by:
Dan Barnes
State-Federal Relations
National Conference of State Legislatures
Washington, DC office
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