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P 032322Z MAY 07
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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 
------- 
 
¶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 
---------- 
 
¶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