Online Gambling: China Appeals WTO Media Ruling

As first predicted by Gambling911.com last year, the United State's unwillingness to obey a WTO ruling related to online gambling is now having lasting implications and it all centers upon "public morals".   How can the WTO enforce its latest ruling on China when the United States has failed to abide by a ruling leveled against it by that same trade organization?

China on Tuesday invoked defense of its "public morals" in appealing a World Trade Organization ruling against restrictions on distribution of Hollywood movies and other Western media, according to a copy of the appeal reviewed by The Wall Street Journal.

The World Street Journal also points out that, in its last-minute appeal against against the WTO's Aug. 12 ruling on media distribution restrictions, China charged that the WTO panel "committed errors of law and legal interpretation in concluding that none of the measures are 'necessary' to protect public morals."

The WTO's 460-page August ruling said Beijing must stop forcing U.S. artists and production companies to go through state-controlled distributors.

In its appeal, China also challenged the decision on downloaded music, saying it had never promised to open markets in "electronic distribution of sound recordings in non-physical form."

From the Wall Street Journal:

The public morals argument has been used only once before, by the U.S. in 2005 to defend a ban on Internet gambling -- and it lost.

In that case, the WTO accepted the premise that morals "can vary in time and space, depending upon a range of factors, including prevailing social, cultural, ethical and religious values." However, the country using this argument, the WTO said, must prove that the trade restrictions are "necessary" to defend its morals. The WTO found that U.S. restrictions on web gambling were not essential to preserve morals, given that Americans can gamble freely by telephone and in casinos in Las Vegas and elsewhere.

Online Gambling and the WTO Decision

Below is an excerpt from Wikipedia describing the World Trade Organization dispute between Antigua and the United States as it relates to online gambling.  The WTO ruled in favor of Antigua.

Antigua is a recognized centre for online gambling companies. Antigua was one of the first nations to legalize, license and regulate online gaming. Some countries, most notably the United States, argue that because the gaming transaction is initiated in their jurisdictions that the act of online wagering is illegal. This argument has been repudiated by the World Trade Organization.

However in 2006 the United States Congress voted to approve the Unlawful Internet Gaming Enforcement Act which criminalizes the operations of offshore gaming operators which take wagers from American-based gamblers. This was a prima facie violation of the GATS treaty obligations enforced by the WTO, resulting in a series of rulings unfavourable to the US.

Lately an arbitration panel in a so-called Article 22 hearing ruled that the US failure to comply with WTO rules would attract a US$21 million sanction.

This is not the end of the issue, since further developments in US law and in trade patterns can trigger a new claim by Antigua, especially the Article 21 procedure being followed by the US to remove cross-border gambling from its GATS obligations.

The ruling was notable in two respects;

First, although technically a victory for Antigua, the $21 million was far less than the US$3.5 billion which had been (not unreasonably) sought; one of the three arbitrators was sufficiently bothered by the propriety of this that he issued a dissenting opinion - an unprecedented move.

Second, a rider to the arbitration ruling affirmed the right of Antigua to take retaliatory steps in view of the prior failure of the US to comply with GATS. These included the rare, but not unprecedented, right to disregard intellectual property obligations to the US.

This last is of very great importance. Antigua's obligations to the US in respect of patents, copyright, and trademarks are affected. In particular, Berne Convention copyright is in question, and also material NOT covered by the Berne convention, including TRIPS accord obligations to the US. Antiqua may thus disregard the WIPO treaty on intellectual property rights, and therefore the US implementation of that treaty (the DMCA Act).

Since there is no appeal to the WTO from an Arbitration panel of this kind, it represents the last legal word from the WTO on the matter. Antigua is therefore able to recoup some of the claimed loss of trade by hosting (and taxing) companies whose business model depends on immunity from TRIPS provisions.

Software company SlySoft is based in Antigua, allowing it to avoid nations with laws that are tough on anti-circumvention of technological copyright measures, in particular the DMCA in the United States.

Christopher Costigan, Gambling911.com Publisher