DEMARCHE ON WTO ARTICLE XXI PROCEDURE

UNCLAS STATE 060296

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD ECON WTRO
SUBJECT: DEMARCHE ON WTO ARTICLE XXI PROCEDURE

SENSITIVE BUT UNCLASSIFIED ENTIRE TEXT. PLEASE PROTECT
ACCORDINGLY.


1. This is an action request (see para 8 and 9).

Summary
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2. In a dispute originally filed by Antigua and Barbuda
(hereafter "Antigua") in 2003, the WTO found that the United
States had made a market access commitment covering Internet
gambling based outside of the United States. As a result of
this finding, the United States will notify the WTO on May 4,
2007, that it is invoking Article XXI of the General
Agreement on Trade in Services (GATS) to correct mistakes in
the drafting of the U.S. GATS schedule to make clear that its
GATS market access commitments do not cover gambling and
betting services, including Internet gambling. As discussed
below, Post should contact appropriate officials of the host
government to inform them of this action, encourage them to
consider the drawbacks of requesting a compensatory
adjustment in this situation, and ask them to discuss with us
in advance if they have any intention of requesting such
compensation.

Background
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3. In a dispute originally filed by Antigua in 2003, the WTO
found that the United States had made a market access
commitment covering Internet gambling based outside of the
United States. It further found that various federal criminal
laws which outlaw interstate and international gambling are
inconsistent with that commitment. A one-year compliance
period ended in April 2006. In March 2007, a WTO compliance
panel found that U.S. federal gambling laws remain out of
compliance with WTO rules. On May 22, 2007, the WTO will
adopt the report of the compliance panel. After adoption,
Antigua likely will proceed with the process of withdrawing
concessions made to the United States, reportedly including
concessions involving the protection of U.S. intellectual
property rights.


4. Antigua, the complaining party in the gambling dispute,
is the home of several Internet sites that offer poker and
sports betting services. Prior to the initiation of the WTO
dispute, the United States Department of Justice successfully
prosecuted an Antiguan operator for transmitting bets across
state lines in violation of federal criminal laws. In March
2003, Antigua initiated a WTO dispute against the United
States, complaining that U.S. prohibitions against Internet
gambling violated U.S. GATS commitments. Antigua based its
complaint on the following theories: (i) that the U.S. GATS
schedule, - and in particular the line for "Other
recreational services (except sporting)" - commits to
allowing market access to gambling operations in other WTO
Members; (ii) that various State and federal laws prohibit
cross-border gambling; and (iii) that these U.S. laws are
inconsistent with market access and national treatment
obligations assumed by the United States in its schedule
under the GATS.


5. Although the Unites States argued that it had not
intended to give up its longstanding restrictions on gambling
by way of a commitment for recreational services, the Panel
found that the United States, albeit unintentionally, had
committed to allowing market access for Internet gambling.
The Panel further found that the United States had failed to
rebut Antigua's argument that the U.S. criminal laws
governing gambling on horse racing discriminated against
foreign operators. The WTO Appellate Body upheld these
findings. As a result, the WTO Dispute Settlement Body
recommended that the United States bring its federal gambling
laws into conformity with its WTO obligations.


6. In the foreseeable future, it appears unlikely that the
United States Congress will relax restrictions on
cross-border Internet gambling. Indeed, in October 2006, it
enacted the Unlawful Internet Gambling Enforcement Act
(UIGEA),which reaffirmed the prohibition on cross-border
Internet gambling.


7. In light of the findings of the compliance panel and the
new, stricter UIGEA, and concern about other WTO Members
bringing similar complaints, the United States has decided to
invoke Article XXI of the GATS, which is the procedure used
to modify a WTO Member's schedule of commitments.
Specifically, the modification would correct the U.S. GATS
schedule in order to reflect our original intent - that is,
to exclude gambling from the scope of the U.S. commitment on
recreational services. By using this procedure, we will
resolve not only the complaint and possible retaliation by
Antigua, but also forestalling potential future disputes on
this issue. The GATS provides that when a Member modifies a
commitment, other Members who allege they will be affected by
this action may request a compensatory adjustment (i.e. new
services market access) to other areas of the GATS schedule.
While any WTO Member may ask for compensation, the U.S.
action is an unusual situation involving serious issues of
public morality, law enforcement, the protection of minors,
as well as a clearly inadvertent drafting error that grants a
concession that no WTO Member bargained for. In this
situation, the U.S. assumes trading partners will refrain
from seeking compensation for a concession the U.S. could not
have been thought to have made.

Action Request
--------------


8. No earlier than 12:00 PM EDT time on May 4, Post should
draw from the points below to contact host government trade
officials at appropriate levels and inform them of the GATS
Article XXI notice. Post should emphasize the uniqueness of
U.S. action due to the highly sensitive nature of the
domestic interest in protection of minors and public
morality, as well as law enforcement concerns raised in the
gambling case. Post should also indicate that the United
States believes that GATS Article XXI provides the
appropriate means to correct the situation, and to underscore
its continuing commitment to the WTO dispute settlement
process and the GATS.


9. Post should note that many WTO member countries prohibit
gambling and betting activities whether through the Internet
or other means. We believe these countries should appreciate
the importance of maintaining WTO members' flexibility to
regulate in this sensitive area of public morality. Post
should also emphasize that the United States would expect
that WTO members consider the drawbacks of requesting a
compensatory adjustment in this situation and would think
twice before pursuing an Article XXI claim of interest
involving an area of activity declared illegal under U.S. law
and the law of many other WTO member countries. In addition,
based on the negotiating history the United States firmly
believes a commitment in this area was never bargained for by
other WTO Members. The USG would ask host governments to
discuss with us in advance if they have any intention of
requesting such compensation.

Background Points
--------------

-- On May 4, 2007, the United States will notify the WTO
that it is invoking Article XXI of the General Agreement on
Trade in Services (GATS) to correct mistakes in the drafting
of the U.S. GATS schedule in order to ensure that the GATS
market access commitments do not cover gambling and betting
services, including Internet gambling;

-- The U.S. is taking this unusual action due to the fact
that in the course of dispute settlement proceedings, the
U.S. schedule was deemed to include a commitment on gambling,
an area which raises highly sensitive issues of protection of
minors and public morality, as well as law enforcement
concerns;

-- In considering any possible claim for a compensatory
adjustment under Article XXI, we hope the host government
will bear in mind that no Member asked the United States to
make a commitment for gambling and betting services during
the Uruguay Round, and as the dispute settlement panel
recognized, the United States never intended to offer a
market access commitment for gambling;

-- Further, in light of the United States' longstanding
restrictions on gambling for reasons of law enforcement,
public morals, and the protection of minors, no Member should
have held the expectation that the United States had offered
a market access commitment for gambling and betting services;

-- In view of this, the United States, in invoking Article
XXI of the GATS, is using an appropriate tool in order to
correct an unintentional drafting error in the schedule;

-- The U.S. assumes that trading partners will refrain from
attempting to gain a windfall by requesting a compensatory
adjustment in response to the efforts of the United States to
restore the situation which Members believed they had
negotiated during the Uruguay Round;

-- This is particularly true in light of the efforts of the
United States to ensure that its international commitments
are consistent with national priorities concerning public
morals and the protection of minors, as well as the law
enforcement concerns the United States shares with many other
WTO Members in this area;

-- If, despite these considerations, host government is
considering a request for compensation under Article XXI, the
USG would ask for advance notice so we can discuss this
matter further bilaterally.

End background points.
RICE