International Trade in Gambling Services

Parth Chandra1and Sajid Sheikh2.

In World Trade Organisation (WTO) jurisprudence, ‘gambling & betting services’ includes any activity involving the placing of bet or wager, that is, instances in which a person risks something of value (generally money) on the outcome of an uncertain event3. In this view, a bet or a wager can be made with respect to casino- type games, lotteries & sporting events, irrespective of how these services are supplied. Thus, gambling services should be considered to cover any service which involves wagering a stake with monetary value in uncertain events driven at least partially by chance, including lotteries, casino and betting transactions.  This definition thus covers, without limitation, online and offline market sectors, both charitable & commercial –run lotteries, betting services (including horse & dog racing, event betting & pool competitions); casino games, including table games, slot machines, bingo games, etc; services related to gambling machines that can be placed in locations other than licensed casinos and media gambling services. In this research paper the focus would be specific to online gaming industry in International Trade law. Gambling through Internet is the largest sector in games of chance. Some gambling internet sites require the downloading of a computer programme on the hard disk in order to play. Others use JAVA applets to run through the World Wide Browser, while others use all HTML and do not require any downloading.  It is estimated that in 2009 more than 33% of online gaming concerned Internet Casinos, while 25% concerned poker rooms and 14% gambling sites4.  As to physical locations of servers used for online gambling, it seems that Gibraltar, the Kahnawake Mohawk Territory in Canada, Malta, the United Kingdom, and Alderney represent today top 5 jurisdictions for Internet gambling. With gambling services national regulation of cross-border gambling services has also to be analysed to check the legality of gambling services in different jurisdictions of the World. Although this research paper focuses primarily on the international perspective of gambling services, it is not without importance to assess the national legal framework attached in different jurisdictions to cross border gambling transactions which are now facilitated by technology GATS has been playing a major role in promoting trade in service industry. Even gambling services has been regulated by GATS in market access and schedule of specific commitments.

National Regulation of Cross-Border Gambling Services

In most jurisdictions, gambling is considered problematic activity, which bears special societal concerns. Thus many legislators have strived to control & limit the ‘traditional games of chance as much as possible and prevent them from going online. That is the case in Saudi Arabia, for instance, where the government has chosen to prohibit gambling internet services and users blocking programmes to enforce prohibition. In United States, too, gambling online is restrictive inter alia by a federal act of 2006. Such jurisdictions were called ‘totally prohibitive’5.

Indian Perspective: Legality in Gaming & Gambling Services

Till now India does not have its own dedicated online gaming and gambling laws. This has created an atmosphere of uncertainty and fear among the online gaming entrepreneurs in India. This is also of the reason why very few players have entered into online gaming area. For instance online forex trading sites like hotforex.com & iforex.com were neither banned nor allowed by Indian laws until a circular was issued by RBI on 17th September 20136. In India online poker gaming services is still a grey area and there are no specific laws to state whether they are legal or illegal. However the scenario is fast changing in a limited dimension after few judgements of High Courts of India protecting “Games of Skills” from criminal actions. Very recently on 7th January 2014 the Karnataka High Court in one of its rulings held that playing “Rummy” online is not a criminal offence as it involved “Application of Skills”.7In fact another related matter is pending before Supreme Court and thus that ruling will decide the faith of online gaming industry in India. However one thing is quite certain and clear that unlike India’s counter parts India has not allowed cross border gaming or gambling services and accordingly it has placed its restrictions in its Schedule of Commitments under WTO.

Legality in Canada & USA: Gambling Services

Part VII of the Canadian Criminal Code makes all activities relating to operating or acting in support of a commercial betting enterprise is an offence, unless it is an enterprise licensed by a provincial government (Sec 207 (1) (a) of the code.) A criminal prosecution based on provisions of section 202 of the code was initiated in 2001 against an Antiguan based online operator that was offering bets to Canadian residents8.

In United States, gambling transactions are subject to highly restrictive regulations both at state and federal laws. The situation of online gambling was clarified in 2006 when the Unlawful Gambling Enforcement Act was adopted. While the Act does not expressly prohibit Internet Gambling it focuses on payment methods used to fund internet gambling to fulfil its goal since it prohibits the acceptance of any payment instrument for unlawful internet gambling.

In other jurisdictions gambling is allowed through licensing & other regulatory methods such as Australia, Switzerland & some European nations have adopted regulatory policy rather than keeping a blanket ban on online gambling.

GATS: Supply of Gambling Services  

Under GATS supply of services are pursuant to Article I: 2. they are as follows:

(A)       Cross Border Trade – MODE 1

(B)       Consumption Abroad – MODE 2

(C)       Commercial Presence – MODE 3

(D)       Presence of Natural Persons – MODE 4

In this paper the main stress is on Cross Border Supply as the research paper primarily focuses on online gambling industry.

In Cross Border Trade a user in member state receives services from another member state through its telecommunications or portal infrastructure.  Under cross border trade market access and national treatment which is covered in GATS is unconditional in nature. A member state under schedule of specific commitment has allowed another member state unrestricted entry in a particular sector. Then the member state is bound by the principles of national treatment and market access. The member states can only resort to inconsistent measures if there are no alternative measures available in exceptions under Article XIV under the head of public morality. The most famous case on Gambling services which cannot be ignored while talking about Gambling services is US-GAMBLING which will be dealt in this paper in detail and exceptions to it will also be dealt.

MARKET ACCESS

The market access provisions laid down in Article XVI, covers six types of restrictions that must be maintained in absence of limitations. The restrictions relate to:-

  • The number of service suppliers
  • The value of service transactions or assets
  • The number of operations or quantity of output
  • The number of natural persons supplying a service
  • The type of legal entity or joint venture
  • The participation of foreign capital

National Treatment (Article XVII)

It implies that the absence of all discriminatory measures that may modify the conditions of competition to the detriment of foreign services or service suppliers. The national treatment obligation applies regardless of whether or not foreign services & supplies are treated in a formally identical way to their national counterpart. This article is concerned that there are equal opportunities to compete.

US-GAMBLING CASE: A DETAILED ANALYSIS

The United States started  cracking  down  on foreign-based internet  betting parlours  in 1998, when  federal  prosecutors charged  21 U.S. citizens connected   to  offshore   internet   gambling   with  violations   of  the  Wire  Act (Hansen  2006). Among them was Jay Cohen, an American citizen and former stock trader who had been  operating  the Antigua-based  World Sports Exchange   (which   had   10,000  customers   that   year)   (Kanigher   2003). Twenty  of  the  indicted   persons   entered   guilty  pleas,   had   their  cases dropped, or remained  outside  the United States as fugitives, but Cohen re- turned  to the United States to contest  his case in court (Brunker  2001). He lost in 2000 and  was sentenced to 21 months  in prison  and  fined $5,000, becoming  the first person  convicted  in the  United  States for operating  an offshore internet gambling website (Hansen  2006). He outlined  his case  in a memo  sent  to the  government of Antigua, and  Antigua’s prime minister  hired  Mendel  to  file suit  against  the  United  States  at  the  WTO. In March 2003, Antigua initiated the dispute  resolution  process  of the WTO to challenge  the  United  States’ prohibition on  the  cross-border  supply  of online gambling services.   A Dispute  Panel (“Panel”), formed in June 2003, determined that the United States had made a commitment  to free trade in online  gambling  services  in GATS Section 10.D, “Other  Recreational  Services, Excluding Sporting.”    The Panel found  that three  U.S. federal  laws, including  the Wire Act, contravened this commitment  (the other  two were the  Travel Act, 18 U.S.C. §  1952, and  the  Illegal Gambling  Business  Act (IGBA), 18 U.S.C. §  1955).   State laws in Louisiana,  Massachusetts,  South Dakota, and Utah were also found to obstruct free trade in online gambling services.    The  Panel  determined that  the  cumulative  effect of these  laws was  inconsistent  with  the  United  States’ commitments  under  GATS, and made  a confidential  ruling in favour of Antigua in March 2004.  The Panel’s report was released publicly in November 2004 after unsuccessful negotiations between the parties.

In January 2005, the United States appealed this ruling to the WTO’s Appellate Body   (“Body”). Antigua filed a cross-appeal shortly thereafter, and both countries made oral arguments  before  the  Body.   In April 2005, the Body issued a report that generally upheld the Panel’s findings.  It affirmed that the United States had committed  to free trade in online  gambling  services  and  ruled  that  the  three  federal  laws  violated  these  commitments (although  it did not refer to other  state and  federal  laws that Antigua had sought  to include).

In January 2005, the United States appealed this ruling to the WTO’s Appellate Body (“Body”). Antigua filed a cross-appeal shortly thereafter, and both countries made oral arguments before the Body.   In April 2005, the Body issued a report that generally upheld the Panel’s findings.  It affirmed that the United States had committed  to free trade in online  gambling  services  and  ruled  that  the  three  federal  laws  violated  these  commitments (although  it did not refer to other  state and  federal  laws that Antigua had sought  to include).  “chapeau”  condition  that  regulations  not  discriminate  between countries, noting  that  some  U.S. companies are  allowed  to offer internet  gambling services by accepting  online wagers on horseracing. In May 2007, the  United  States responded by invoking  procedures under GATS Article XXI to modify its schedule  of commitments,  specifically excluding  online  gambling  from its recreational  services commitments.

Consequences of Such Act: Retaliation

The WTO generally grants aggrieved countries  the right to suspend concessions and other obligations  when  partners  violate their trade commitments, but  these  remedies  are  usually  narrow,  specific  adjustments   to  bilateral trade,  aimed  at prohibiting  an amount  of offending-country exports  equal in value to the damage  caused  by the offense (often through  the imposition of ad valorem tariffs) (Chang 2004). In Article 22.3 of its Dispute Settlement Understanding, the WTO states that suspensions should be confined to the same sector where the violation occurred if possible (WTO n.d.). However, when  no same-sector  retaliation options  would  provide  adequate compensation,  the  WTO has  been  willing to authorize  cross-retaliation. Antigua successfully argued that raising duties on U.S. services imports would harm its economy without significantly affecting the United States.  About 49 per- cent  of Antigua’s total goods  and  services  imports  come  from the  United States,  but  this  amounts  to  less  than  0.02  percent   of  total  U.S. exports. No country has actually suspended IP rights in accordance with a WTO ruling, so the online gambling dispute is in uncharted territory.  Antigua could ignore U.S. copyrights on software, movies, and music owned by U.S. companies, and sell up to $21 million worth of these media annually in domes- tic markets. Antigua could also grant compulsory   licenses and produce U.S.-patented products such as pharmaceuticals.  However,  while it is inexpensive  to  reproduce most  copyrighted materials,  many  patented goods need  to be  manufactured, and  Antigua’s potential  gains  from patent  suspension  are limited by its lack of capacity  to produce goods  such as pharmaceuticals.   And getting rid of trademarks,  which identify the producer of a product  and  inform  consumers where  to  seek  recourse  if the  product fails, could  erode  the  quality  and  safety  of  consumer   goods.

Conclusion

The Antigua-United States online  gambling  dispute  resulted  from a combination  of U.S. legislative processes  that struggled  to balance  competing  interests  and  U.S. services  trade  commitments  made  in a sector  that  developed  unexpectedly.  As the online gambling industry grew, U.S. laws governing online gambling were stuck in a state of ambiguity, and in the eyes of the WTO the United States failed to resolve this ambiguity in a way that complied with its trade commitments. But suspending IP rights is a thorny means of retaliation.  Antigua set a precedent that provides  small countries  with useful leverage in trade disputes;  but the difficulties of implementation and  the  harm  done  to Antigua’s reputation might overwhelm  and outlast the economic  benefits. The spirit of the GATS would be defeated if the member nations refuse to act on its market commitments. Under WTO GATS a member nation in has to act in less inconsistent manner possible to trade when the other member nation refuses to act on its market access commitments. If there is no less inconsistent measure available then the member nation can resort to inconsistent measure or retaliatory measure. Similarly in US-Gambling after USA failed to comply even with the panel’s report Antigua was left was no choice other than to adopt retaliatory measures which it did by suspending the IP rights in relation to USA which could not be suspended due to TRIPS obligation. US-Gambling case is a landmark ruling by the panel as it has cleared the way for many such gambling trade services across the world.

References

  1. NEIL MUNIN, LEGAL GUIDE TO GATS, 140 (Kluwer Law International , 2010).
  2. Appellate body report, US-Gambling, United States – Measures Affecting The Cross-Border Supply Of Gambling And Betting Services, WT/DS285/AB/R, 10 November 2004
  3. KRAJEWSKI & ENGELKE, WTO-TRADE IN SERVICES, 412 (Martinus Nijhoff Publisher, Vol 6, 2008).
  4. Williams Robert & Robert Wood, University of Lethbridge, Alberta, at the Alberta Gaming Research Institute Annual Conference held on 27th Mar. 2009, available at <http//.gaming.uleth.ca/agri_downloads/4455/Williams_AGRI_Conference_2009.ppt
  5. Black’s Law Dictionary, (West Group Publishers 7th ed, 2002).
  6. Concise Oxford English Dictionary, (Oxford University Press, 10th ed, 1999).

 WEBSITES:

  1. www.westlawindia.com
  2. www.manupatra.com
  3. www.wto.org

  1. Hidayatullah National Law University, Raipur []
  2. National Law University, Jodhpur []
  3. US Gambling, panel report, para. 445 []
  4. See a presentation by Williams Robert & Robert Wood, University of Lethbridge, Alberta, at the Alberta Gaming Research Institute Annual Conference held on 27th Mar. 2009, available at <http//.gaming.uleth.ca/agri_downloads/4455/Williams_AGRI_Conference_2009.ppt> []
  5. See Eva Schriever, ‘Conflict & Coordination between Diverse Regulatory Environments’ in Cross-Border Gambling on the Internet: Challenging National & International Law, research conducted by the Swiss Institute of Comparative Law , Schutless, 200 []
  6. RBI/2013-14/265 A.P (DIR Series) Circular No. 46 []
  7. http://perry4law.org/onlinegamingandgambling/wp-content/uploads/2014/01/Kirana-S-v.-State-of-Karnataka-Criminal-Petition-No.-76482013.pdf []
  8. R vs. Starnet Communications International Inc., 17 Aug 2001, Vancouver 125795 []

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