Measures Affecting the Cross-Border Supply of Gambling and Betting | My Assignment Tutor


WorldTradeLaw.net Dispute Settlement Commentary (DSC)
© 2005 WorldTradeLaw.net LLC, All rights reserved
Appellate Body Report
United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services
(WT/DS285/AB/R)

Participants
Appellant/Appellee: U.S.
Appellant/Appellee: Antigua and Barbuda
Third Participants: Canada, Chinese Taipei,
EC, Japan, Mexico
Timeline of Dispute
Panel Request: June 12, 2003
Panel Established: July 21, 2003
Panel Composed: August 25, 2003
Interim Report Issued: March 24, 2004

Appellate Body Division
Sacerdoti (Presiding Member),
Abi-Saab, Lockhart
Final Report Issued: April 30, 2004
Final Report Circulated: November 10, 2004
Notice of Appeal: January 7, 2005
Notice of Other Appeal: January 19, 2005
AB Report Circulated: April 7, 2005
Adoption: April 20, 2005
Table of Contents
BACKGROUND………………………………………………………………………………………………………………………………………..2
SUMMARY OF APPELLATE BODY’S FINDINGS ……………………………………………………………………………………..2
PROCEDURAL AND SYSTEMIC ISSUES ………………………………………………………………………………………………………….2
Measures at Issue – The “Total Prohibition”…………………………………………………………………………………………….2
“Practice” as a Measure ………………………………………………………………………………………………………………………..3
GATS Article XVI/DSU Article 11 – Prima Facie Case…………………………………………………………………………….4
GATS Article XIV/DSU Article 11 – Burden of Proof/Late Submission of Defence …………………………………….5
SUBSTANTIVE ISSUES ……………………………………………………………………………………………………………………………….6
U.S. GATS Commitments – Interpretation of Schedule …………………………………………………………………………….6
GATS Article XVI:2(a) and (c) – Market Access……………………………………………………………………………………11
GATS Article XIV – General……………………………………………………………………………………………………………….13
GATS Article XIV(a) – Measures Necessary to Protect Public Morals or Maintain Public Order………………….14
GATS Article XIV(a)/DSU Article 11 – Objective Assessment of “Necessary” Element……………………………..17
GATS Article XIV(c) – Measures Necessary to Secure Compliance …………………………………………………………17
GATS Article XIV Chapeau/DSU Article 11…………………………………………………………………………………………18
COMMENTARY ……………………………………………………………………………………………………………………………………..20
Subsequent Developments…………………………………………………………………………………………………………………..21
GATS Article XVI – Market Access……………………………………………………………………………………………………..21
GATS Article XIV(a) – “Necessary” Standard ……………………………………………………………………………………….22
GATS Article XIV Chapeau – Meaning of Discrimination ………………………………………………………………………22
GATS Article XIV Chapeau – Implementation Issues……………………………………………………………………………..23
Challenges to a Government “Practice”…………………………………………………………………………………………………24

Key Findings

• Upheld, under modified reasoning, Panel’s finding that “the United States’ Schedule under the GATS
includes specific commitments on gambling and betting services under subsector 10.D.”
• Upheld Panel’s finding that “by maintaining the Wire Act, the Travel Act, and the Illegal Gambling
Business Act [‘IGBA’],” the United States violated GATS Articles XVI:1 and XVI:2(a) and (c); by
contrast, concluded that Antigua did not make its prima facie case under these provisions with regard to
the state laws at issue, and therefore reversed the Panel’s finding of violation for these laws.
• Found that “the Wire Act, the Travel Act, and the IGBA are ‘measures … necessary to protect public
morals or to maintain public order’” under GATS Article XIV(a); reversed Panel’s finding to contrary.
• Reversed Panel’s finding that the measures at issue are not “necessary” under GATS Article XIV(c);
however, for reasons of judicial economy, did not complete the analysis to determine whether the
measures are, in fact, “necessary” under this provision.
• Found that “the United States has not demonstrated that—in the light of the existence of the [Interstate
Horseracing Act]—the Wire Act, the Travel Act, and the IGBA are applied consistently with the
requirements of the [GATS Article XIV] chapeau.”

WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 2
BACKGROUND
This dispute concerns various U.S. measures relating to gambling and betting services. Antigua’s
panel request listed as the challenged “measures” various federal and state laws, as well as court
decisions, state Attorneys’ General statements, websites and agreements between U.S. enforcement
agencies and credit card companies. The federal laws at issue were: Section 1084 of Title 18 of the
United States Code (the “Wire Act”); (ii) Section 1952 of Title 18 of the United States Code (the “Travel
Act”); and (iii) Section 1955 of Title 18 of the United States Code (the “Illegal Gambling Business Act,”
or “IGBA”). In its submissions, Antigua argued that all of these “measures” constitute a “total
prohibition” on the cross-border supply of gambling and betting services.
As background, the Panel explained that “gambling and betting services” include “any activity
involving the placing of a bet or wager, that is, instances where a person risks something of value
(generally money) on the outcome of an uncertain event.” A bet or a wager, it said, “can be made with
respect to casino-type games, lotteries and sporting events, irrespective of how these services are
supplied.”
In this case, the Antiguan gambling and betting services at issue were supplied through the socalled “cross-border supply” mode, which is defined in GATS Article I:2(a) and involves a service
“delivered within the territory of the Member, from the territory of another Member.” The Panel noted
that “cross-border” supply must be distinguished from “remote” supply, a term that was used by the
parties in this dispute. The Panel said it would use the latter term to refer to “any situation where the
supplier, whether domestic or foreign, and the consumer of gambling and betting services are not
physically together.” In other words, it continued, “in situations of remote supply, the consumer of a
service does not have to go to any type of outlet where the supply is supervised, be it a retail facility, a
casino, a vending machine, etc,” but rather, “the remote supplier offers the service directly to the
consumer through some means of distance communication.”
(Panel report, paras. 6.28-32, 6.139)
Before the Panel, Antigua claimed that the measures at issue are inconsistent with the U.S.
Schedule of specific commitments under the GATS, along with GATS Articles XVI:1, XVI:2, XVII:1,
XVII:2, XVII:3, VI:1, VI:3 and XI:1. (The Panel exercised judicial economy for the claims under
Articles XI and XVII.) The Panel found violations of Articles XVI:1 and XVI:2. On appeal, the United
States claimed that the Panel erred in finding violations of these provisions, and also argued that the Panel
erred in rejecting its defense under GATS Article XIV. In addition, Antigua filed a notice of other appeal
in which it claimed that the Panel had made various interpretive errors under GATS Articles XVI and
XIV, and also erred in its consideration of the measures at issue.
SUMMARY OF APPELLATE BODY’S FINDINGS
PROCEDURAL AND SYSTEMIC ISSUES
Measures at Issue – The “Total Prohibition”
In its panel request and throughout the Panel proceeding, Antigua referred to the “effect” of
various U.S. federal and state laws as a “total prohibition” on the cross-border supply of gambling and
betting services. In addition, in response to the Panel’s first set of questions, and in its second written
submission, Antigua “asserted that it was challenging the ‘total prohibition’ as a ‘measure in and of itself.’”
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 3
The Panel, however, found that “‘in the circumstances of this case,’ a ‘total prohibition’ could not
constitute a ‘measure’ per se,” basing its conclusion on three factors: (1) the “total prohibition” did not
constitute an “instrument containing rules or norms”; (2) Antigua did not sufficiently identify the “total
prohibition” in its panel request; and (3) it was unclear how the United States could be requested to
implement a recommendation to bring a “prohibition” into compliance “when an imprecisely defined
‘puzzle’ of laws forms the basis of the ‘total prohibition.’” (Paras. 116-118) Antigua appealed the Panel’s
finding, arguing that the GATS defines a “measure” broadly, as does Appellate Body precedent, and also
pointing to alleged “concessions” by the United States in this regard. (Para. 119)
The Appellate Body rejected Antigua’s appeal. It first defined the question at issue as “whether
an alleged ‘total prohibition’ on the cross-border supply of gambling and betting services constitutes a
measure that may be challenged under the GATS.” Then, observing that DSU Article 3.3 provides for the
“‘prompt settlement’ of situations where Members consider that their benefits under the covered
agreements ‘are being impaired by measures taken by another Member,” the Appellate Body referred to
two relevant “elements” pertaining to “measures” that may be the subject of dispute settlement: (1) citing
paragraph 81 of its report in U.S. – Corrosion-Resistant Steel Sunset Review, it explained that “a ‘nexus’
must exist between the responding Member and the ‘measure,’ such that the ‘measure’ — whether an act or
omission – must be ‘attributable’ to that Member”; and (2) “the ‘measure’ must be the source of the alleged
impairment, which is in turn the effect resulting from the existence or operation of the ‘measure.’” Thus, it
said, “[t]o the extent that a Member’s complaint centres on the effects of an action taken by another
Member, that complaint must nevertheless be brought as a challenge to the measure that is the source of
the alleged effects.” (Paras. 120-123)
Turning to the situation here, the Appellate Body stated that the “‘total prohibition’ described by
Antigua does not, in itself, constitute a ‘measure.’” Rather, the “total prohibition” is the “effect of the
underlying laws.” In this regard, it stated, “without demonstrating the source of the prohibition, a
complaining party may not challenge a ‘total prohibition’ as a ‘measure,’ per se, in dispute settlement
proceedings under the GATS.” As a result, the Appellate Body upheld the Panel’s finding that “the
alleged ‘total prohibition’ on the cross-border supply of gambling and betting services describes the
alleged effect of an imprecisely defined list of legislative provisions and other instruments and
cannot constitute a single and autonomous ‘measure’ that can be challenged in and of itself.”
(Paras. 124-126)
“Practice” as a Measure
The Panel considered that “certain acts identified by Antigua could constitute ‘practices,’” and,
relying on previous Appellate Body decisions, it also stated that “‘practice’ can be considered as an
autonomous measure that can be challenged in and of itself.’” Nonetheless, based on a clarification made
by Antigua during the proceeding, the Panel concluded that Antigua was “not challenging [any] practice[]
‘as such.’” The United States appealed the Panel’s conclusion that “‘practice’ may be challenged, in and of
itself.” (Paras. 129-130)
Examining the Panel report, the Appellate Body said that it “disagree[d] with the participants’
characterization of the Panel’s statement on ‘practice’ … as a ‘finding’ of the Panel.” Rather, given that the
Panel acknowledged that Antigua was not challenging a practice, as such, the Appellate Body considered
the Panel’s statement to be “mere obiter dictum,” such that “[the Appellate Body] need not rule on it.”
Nonetheless, the Appellate Body took the opportunity to express its “disagreement with the Panel’s
understanding of previous Appellate Body decisions,” asserting that, to date, “[t]he Appellate Body has
not … pronounced upon the issue of whether ‘practice’ may be challenged, as such, as a ‘measure’ in WTO
dispute settlement.” (Paras. 131-132)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 4
GATS Article XVI/DSU Article 11 – Prima Facie Case
On appeal, the United States argued that Antigua failed to establish a prima facie case of
inconsistency with GATS Article XVI in respect of the three federal and eight state laws that the Panel
determined were the measures that it should examine. In particular, the United States asserted that
Antigua failed to argue before the Panel how these laws constituted a “total prohibition” on the crossborder supply of gambling services. That is, because Antigua focused on the existence of and allegations
concerning the alleged “total prohibition,” Antigua failed to allege that any of the individual measures is
inconsistent with GATS Article XVI. (Paras. 133, 137)
At the outset, the Appellate Body noted that it is for the complaining party to establish a prima
facie case, and that a Panel errs when it rules on a claim for which a prima facie case has not been made.
As to the nature of a prima facie case, citing previous decisions, the Appellate Body explained that it must
be based on “‘evidence and legal argument’ put forward by the complaining party in relation to each of the
elements of the claim.” It continued, “[a] complaining party may not simply submit evidence and expect
the panel to divine from it a claim of WTO-inconsistency,” nor “may a complaining party simply allege
facts without relating them to its legal arguments.” Referring to the requirements of DSU Article 6.2, the
Appellate Body explained that a prima facie case “demands no less of the complaining party,” such that it
“must be sufficient to identify the challenged measure and its basic import, identify the relevant WTO
provision and obligation contained therein, and explain the basis for the claimed inconsistency of the
measure with that provision.” (Paras. 138-141)
Turning to the situation in this case, the Appellate Body observed that Antigua’s claims were
under GATS Article XVI:2, such that, in order to make its prima facie case, Antigua was required to
argue first that “the United States had undertaken a market access commitment in its GATS Schedule,”
and, second, “identify[], with supporting evidence, how the challenged laws constitute impermissible
‘limitations’ falling within Article XVI:2(a) or XVI:2(c).” Moreover, the Appellate Body recalled that
Antigua was required to make its prima facie case “with respect to specific federal and state laws
identified in its panel request.” (Paras. 142-143)
As for the first requirement, the Appellate Body noted Antigua’s assertion in its written
submissions that “the United States had ‘made a full commitment [in its GATS Schedule] to the crossborder supply of gambling and betting services’ along with references to the relevant sector of that
Schedule.” The Appellate Body found this assertion by Antigua to “satisf[y] the first requirement of
Antigua’s prima facie case under Article XVI:2.” (Para. 145)
As for the second requirement — identifying, with supporting evidence, how the challenged laws
constitute impermissible limitations under Article XVI — the Appellate Body first noted that Antigua’s
claims regarding the individual laws were set out in its second written submission. In respect of the three
federal laws at issue, the Appellate Body observed that Antigua submitted the texts of these statutes and
explained its understanding of them. Moreover, in support of its argument that the three statutes prohibit
certain kinds of cross-border supply of gambling services, Antigua submitted a report on internet
gambling by a U.S. government agency, as well as a letter from a U.S. Deputy Assistant General
informing an industry association that internet gambling violates the three federal statutes. While
recognizing that Antigua never expressly mentioned the three federal statutes by name when alleging
inconsistency with Article XVI, the Appellate Body considered that in light of subsequent questioning by
the Panel, it was clear that general references to “federal laws” covered the three federal statutes at issue.
Thus, the Appellate Body concluded, “Antigua’s arguments and evidence were sufficient to identify the
Wire Act, the Travel Act, and the IGBA, and to make a prima facie case of their inconsistency with subparagraphs (a) and (c) of Article XVI:2.” (Paras. 146-148)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 5
As for the state laws, the Appellate Body first noted that Antigua made no mention of them in the
course of its argument that the United States acts inconsistently with GATS Article XVI. Moreover, in its
submissions, Antigua never explained to the Panel how these state laws operate so as to violate GATS
Article XVI. As a result, the Appellate Body stated, “we see no basis on which we can conclude that
Antigua sufficiently connected the eight state laws with Article XVI and thereby established a prima facie
case of inconsistency with that provision.” Thus, the Appellate Body concluded, “without providing a
stronger link between the particular state law being challenged and the obligation alleged to have been
infringed, Antigua failed to make a prima facie case with respect to any of these eight state laws.” (Paras.
149-152)
It therefore found that Antigua “established its prima facie case of inconsistency with Article
XVI, only as to the Wire Act, the Travel Act, and the IGBA”; with respect to the state laws, “Antigua
failed to identify how these laws operated and how they were relevant to its claim of inconsistency with
Article XVI:2.” (Para. 153) On this basis, the Appellate Body found that “the Panel did not err in
examining whether three federal laws — the Wire Act, the Travel Act, and the IGBA — are
consistent with the United States’ obligations under Article XVI of the GATS.” In contrast, it
found that “the Panel erred in examining whether the … eight state laws are consistent with the
United States’ obligations under Article XVI of the GATS.” Given that the Panel erred in ruling on
claims related to the state laws, the Appellate Body therefore reversed the Panel’s finding that
certain state laws of Louisiana, Massachusetts, South Dakota and Utah are inconsistent with GATS
Articles XVI:1, XVI:2(a) and XVI:2(c). (Paras. 154-155)
Finally, the United States challenged “the Panel’s assessment of Antigua’s prima facie case” under
DSU Article 11, based on what it described as “the egregious nature of the departure by this Panel from
its assigned role of objective arbitrator.” The Appellate Body recalled that it had “already found error in
the Panel’s examination of the aforementioned state laws on the basis that Antigua had not made a prima
facie case of inconsistency with Article XVI:2.” Thus, it concluded, “we need not determine whether, in
assessing Antigua’s prima facie case, the Panel also failed to satisfy its obligations under Article 11 of the
DSU.” (Para. 156)
GATS Article XIV/DSU Article 11 – Burden of Proof/Late Submission of Defence
Appeal claims were made by both participants in relation to certain aspects of the Panel’s
reasoning under Article XIV, in particular the Panel’s response to the alleged “late invocation” of the
Article XIV defense by the United States, as well as the Panel’s treatment of the burden of proof.
On the first issue, Antigua argued that “the Panel erred in its decision to consider the United
States’ defence in this proceeding at all,” and thereby acted in violation of DSU Article 11, because the
United States “did not raise its defence under Article XIV of the GATS until its second written
submission to the Panel … .” After discussing the relevance to this issue of principles such as “good
faith” and “due process,” the Appellate Body noted that Antigua had, in its first written submission to the
Panel, referred to the possibility that the United States might invoke Article XIV. In addition, “[a]t the
hearing in this appeal, Antigua acknowledged that it ‘had the opportunity to respond’ to the United States’
defence, and had ‘responded sufficiently,’ during its opening statement at the second substantive panel
meeting.” Furthermore, Antigua had not informed the Panel of any prejudice resulting from the United
States’ “allegedly late invocation of the defence.” On this basis, the Appellate Body concluded, “the Panel
did not err in deciding to assess whether the United States’ measures are justified under Article XIV” and
“the Panel did not ‘deprive’ Antigua of a ‘full and fair opportunity to respond to the defence.’” The
Appellate Body found, therefore, that the Panel “did not fail to satisfy its obligations under Article
11 of the DSU by entering into the merits of the United States’ defence under Article XIV.” (Paras.
268-276)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 6
As to the burden of proof, Antigua argued that the Panel acted inconsistently with DSU Article 11
because it “constructed the GATS Article XIV defence on behalf of the United States.” In particular, with
respect to Article XIV(a), Antigua claimed that the United States identified only two interests relating to
“public morals” or “public order,” and that the Panel then “identified an additional three concerns on its
own initiative.” (Para. 278) On this issue, the Appellate Body noted that “four of the five interests
mentioned by the Panel were plainly discussed or referred to by the United States as part of its defence
under Article XIV(a),” and “[t]he fifth interest— relating to public health—was prominently identified by
the United States in a previous discussion of the protected interests relating to the remote supply of
gambling services and, therefore, was not an invention of the Panel.” On this basis, the Appellate Body
rejected Antigua’s appeal. (Paras. 283-284)
Furthermore, Antigua contended that the Panel “erred in its analysis of the United States’ defence
under the chapeau of Article XIV because the United States’ arguments assessed by the Panel were not
taken from the United States’ submissions relating to Article XIV, but rather, from the United States’
response to Antigua’s national treatment claim under Article XVII of the GATS.” (Para. 278) Examining
the U.S. arguments under Article XIV, the Appellate Body quoted a particular U.S. statement to the Panel
that, the Appellate Body noted, “reflects an intention to incorporate into its Article XIV defence its
previous arguments relating to non-discrimination in general, which were made in response to Antigua’s
national treatment claim.” On this basis, the Appellate Body considered that “the Panel did not err in
referring to these arguments—originally made in the context of Article XVII—in its Article XIV
analysis.” (Para. 287)
Also related to the burden of proof under the Article XIV chapeau, the United States submitted
that “it established its case that the Wire Act, the Travel Act, and the IGBA are justified under Article
XIV, but that the Panel improperly constructed a rebuttal under the chapeau to that provision when
Antigua itself had failed to do so … by recycling evidence and argumentation that Antigua had used to
allege a national treatment violation under Article XVII as if those arguments had been made in the
context of the Article XIV chapeau.” (Para. 279) Quoting a statement made by Antigua to the Panel, the
Appellate Body concluded that “Antigua effectively formulated an allegation of discrimination” under
Article XIV, and therefore “the Panel did not err in evaluating, as part of its analysis under the chapeau to
Article XIV, the extent to which Antigua’s arguments under Article XVII rebutted the defence advanced
by the United States.” (Para. 288)
On this basis, the Appellate Body found that “the Panel did not improperly assume the
burden of constructing the defence under Article XIV(a) for the United States,” and also that “the
Panel did not improperly assume the burden of making a rebuttal to the United States’ defence on
behalf of Antigua.” (Para. 289)
SUBSTANTIVE ISSUES
U.S. GATS Commitments – Interpretation of Schedule
The Panel concluded that subsector 10.D of the U.S. GATS Schedule “includes specific
commitments on gambling and betting services.” The United States appealed this finding, arguing that it
had excluded gambling and betting services from the scope of its specific commitments under subsector
10.D by indicating the phrase “except sporting” in its Schedule for that subsector. Moreover, the United
States argued that the Panel erred in its “identification and analysis of the context in which the terms of
subsector 10.D must be interpreted.” Finally, in the alternative, the United States argued that the Panel
should have found that gambling and betting services fall under subsector 10.E, titled “Other,” where the
United States made no specific commitments. (Para. 158)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 7
The Appellate Body rejected the U.S. appeal. At the outset, the Appellate Body made some
observations regarding treaty interpretation. First, it recalled that although a particular Member’s
Schedule represents the commitments that bind one Member, “Schedules also represent a common
agreement among all Members,” such that “the task of ascertaining the meaning of a concession in a
Schedule … involves identifying the common intention of Members, and is to be achieved by following
the customary rules of interpretation of public international law, codified in Articles 31 and 32 of the
Vienna Convention.” Noting that GATS Article XX:3 establishes that Members’ Schedules are an
“integral part” of the GATS, the Appellate Body considered that the general principles of treaty
interpretation would apply when determining the meaning of a GATS Schedule. (Paras. 159-160)
The Appellate Body then turned to subsector 10 of the U.S. GATS Schedule. It noted that the
Panel had examined the term “Other recreational services (except sporting)” in subsector 10.D, as well as
the term “Entertainment services” in subsector 10.A. After consulting dictionary definitions of these
terms, the Panel had then concluded that “the ordinary meaning of ‘sporting’ does not include gambling.”
(Para. 163)
In considering the Panel’s approach, the Appellate Body explained, “[i]n order to identify the
ordinary meaning, a Panel may start with the dictionary definitions of the terms to be interpreted.”
However, it cautioned that “dictionaries, alone, are not necessarily capable of resolving complex
questions of interpretation, as they typically aim to catalogue all meanings of words — be those meanings
common or rare, universal or specialized.” In the case at hand, the Appellate Body expressed “three
reservations about the way in which the Panel determined the ordinary meaning of the word ‘sporting’ in
the United States’ Schedule”: (1) “to the extent that the Panel’s reasoning simply equates the ‘ordinary
meaning’ with the meaning of words as defined in dictionaries, this is, in our view, too mechanical an
approach”; (2) “the Panel failed to have due regard to the fact that its recourse to dictionaries revealed that
gambling and betting can, at least in some contexts, be one of the meanings of the word ‘sporting’”; and
(3) “the Panel failed to explain the basis for its recourse to the meanings of the French and Spanish words
‘déportivos’ and ‘sportifs’ in the light of the fact that the United States’ Schedule explicitly states, in a
cover note, that it ‘is authentic in English only.’” Thus, the Appellate Body concluded that the Panel’s
finding regarding the word “sporting” was “premature,” and, instead, the Panel “should have taken note
that, in the abstract, the range of possible meanings of the word ‘sporting’ includes both the meaning
claimed by Antigua and the meaning claimed by the United States, and then continued its inquiry into
which of those meanings was to be attributed to the word as used in the United States’ GATS Schedule.”
(Paras. 164-167)
Nonetheless, despite finding an error in the Panel’s conclusion regarding the meaning of
“sporting” at such an early stage, the Appellate Body considered that “this alone is not decisive” of the
U.S. appeal, because the Panel continued its analysis by examining whether other words in subsector 10
“did serve to make a specific commitment on gambling and betting services.” In this regard, the Panel
had examined the terms “recreational services” and “entertainment services,” and, after consulting
dictionary definitions, had concluded that the definitions left “a number of questions open,” such that it
had to consider the context of the terms. The Appellate Body then noted the U.S. argument that the Panel
“erred in treating two documents from the Uruguay Round of trade negotiations, namely W/120 and the
1993 Scheduling Guidelines, as relevant context within the meaning of Article 31(2) of the Vienna
Convention.” (Paras. 168-169)
In addressing this issue, the Appellate Body first set out the definition of the term “context” as
established by VCLT Article 31(2): “The context for the purpose of the interpretation of a treaty shall
comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the
treaty which was made between all the parties in connexion with the conclusion of the treaty; (b) any
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 8
instrument which was made by one or more parties in connexion with the conclusion of the treaty and
accepted by the other parties as an instrument related to the treaty.” The Appellate Body then discussed
the nature of the two documents at issue. The first document, W/120, titled “SERVICES SECTORAL
CLASSIFICATION LIST,” was circulated by the GATT Secretariat in 1991 following the circulation of
an informal note containing a draft services sectoral classification list, and it contained a short cover note
explaining that the document reflects, to the extent possible, comments made by negotiating parties on the
earlier note and that W/120 itself might be subject to future modification. The document itself contains 2
columns, the left entitled “SECTORS AND SUBSECTORS,” which consists of 11 broad service sectors,
each divided into several subsectors, and a right column entitled, “CORRESPONDING CPC,” which sets
out, for nearly every subsector listed in the left-hand column, a CPC number to which that subsector
corresponds. The Appellate Body noted that it was not under dispute that the reference to the “CPC”
refers to the United Nations’ Provisional Central Product Classification, which is an exhaustive, detailed,
multi-level classification of goods and services, within which each category is mutually exclusive.
(Paras. 171-172) The second document at issue, known as the “1993 Scheduling Guidelines,” was an
“Explanatory Note” issued by the GATT Secretariat in 1993, in response to requests by the negotiating
parties to “assist in the preparation of offers, requests, and national Schedules of commitments” and to
ensure “comparable and unambiguous commitments” and achieve “precision and clarity.” The document
addresses two main questions: (1) what items should be put in a Schedule; and (2) how they should be
entered. (Para. 173)
The Appellate Body saw “two main difficulties with the Panel’s characterization of these
documents as context.” First, it could find no basis for the Panel’s finding that the documents constitute
an agreement made between all the parties or made between some parties and accepted by the others as
such. In particular, it said that it did not agree that, simply by requesting the preparation and circulation
of these documents and using them in preparing their offers, the parties accepted these documents as
agreements or instruments related to the treaty and, in fact, it pointed to evidence offered by the United
States indicating otherwise. Similarly, the Appellate Body could find no evidence to support the Panel’s
finding that “the agreement of the parties encompassed an agreement to use the documents ‘as
interpretative tools in the interpretation and application of Members’ scheduled commitments.” Thus, the
Appellate Body concluded, “the Panel erred in categorizing W/120 and the 1993 Scheduling Guidelines
as ‘context’ for the interpretation of the United States’ GATS Schedule.” (Paras. 174-178)
The Appellate Body then noted that there was “additional context referred to by the Panel and the
participants … .” In particular, it examined “(i) the remainder of the United States’ Schedule of specific
commitments; (ii) the substantive provisions of the GATS; (iii) the provisions of covered agreements
other than the GATS; and (iv) the GATS Schedules of other Members.” (Para. 178)
As to the remainder of the U.S. Schedule, while observing that the Schedule makes no reference
to CPC codes, the Appellate Body noted that it does refer to document W/120 in two instances.
Nonetheless, the Appellate Body found that this context “does not indicate clearly the scope of the
commitment in subsector 10.D.” (Para. 179)
Next, examining the context provided by the structure of the GATS itself, the Appellate Body
noted that “services” is defined very broadly and that any reference to a “sector” means a reference to all
of the subsectors contained within that sector. Thus, it considered that the structure of the GATS implies
two things: (1) a Member may schedule a specific commitment in respect of any service; and (2) a
specific service cannot fall within two different sectors or subsectors, that is, “the sectors and subsectors
in a Member’s Schedule must be mutually exclusive.” Elaborating on this second implication, it
explained that, in this way, “notwithstanding the broad language used in sector 10 — for example,
‘recreational services,’ ‘sporting,’ and ‘entertainment services’ –, gambling and betting services can only
fall — if at all — within one of those service categories.” (Para. 180)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 9
As for context provided by other covered agreements, the Appellate Body confirmed that service
sectors are to be identified pursuant to document W/120, but it said that the identification of sectors “does
not appear to assist in the task of ascertaining within which subsector of a Member’s Schedule a specific
service falls.” (Para. 181)
The Appellate Body then examined the participants’ arguments regarding other Members’
Schedules as relevant context. In this regard, the Appellate Body pointed out that GATS Article XX:3
establishes that Members’ Schedules are “an integral part” of the GATS, but at the same time, the
Appellate Body agreed with the Panel that “use of other Members’ Schedules as context must be tempered
by the recognition that ‘[e]ach Schedule has its own intrinsic logic, which is different from the US
Schedule.” (Para. 182) In general, the Appellate Body found the U.S. arguments based on other
Members’ Schedules to be “unpersuasive.” In particular, the Appellate Body rejected the argument that
the U.S. Schedule must reflect something different than the CPC based on the fact that other Members
referred to CPC codes in their Schedules, whereas the United States did not. Rather, the Appellate Body
pointed out that, like the Schedules of nearly all Members, the U.S. Schedule generally follows the
structure and language of document W/120, which refers to the CPC. In addition, the Appellate Body
considered that the fact that several Members specifically used the words “gambling and betting services”
or some approximation thereof “undercut[s] [the United States’] assertion that it intended to single out
such services for exclusion from the scope of its commitment.” It also noted that the United States did
not point to any example in another Member’s Schedule where the category of “sporting services” clearly
included gambling and betting services. (Paras. 183-184)
Finally, the Appellate Body considered the U.S. arguments in respect of subsector 10.E, titled
“Other.” Noting that one Member did schedule gambling and betting services in that subsector (and that
another Member scheduled them in subsector 10.A), the Appellate Body recognized that Members dealt
with gambling and betting services in different subsectors, but it also pointed out that these examples
suggest that Members used “specific language” to make clear the location of their commitments. In
addition, it considered that the U.S. argument that these services fall under subsector 10.E of the U.S.
Schedule contradicts the U.S. argument that those services were excluded under the language concerning
“sporting services” in the U.S. entry for subsector 10.D. In this regard, the Appellate Body recalled that
the same service cannot be covered in two different subsectors. Overall, the Appellate Body considered
there to be a “broad range of ways” in which Members disaggregated their entries beyond the five
subsectors identified in document W/120 as falling within sector 10, and, it concluded, therefore, that the
context “does not … provide a definitive answer to the question” as to where gambling and betting
services fall within the U.S. Schedule. (Paras. 185-186)
Therefore, the Appellate Body turned to other tools of treaty interpretation. First, examining the
object and purpose of the GATS, while the Appellate Body agreed with the Panel that transparency and
the need for precision and clarity are objectives of the GATS, it considered that these considerations do
not assist in determining where “gambling and betting services” fall within the U.S. Schedule. (Paras.
188-189) Second, the Appellate Body considered Antigua’s arguments regarding “subsequent practice,”
pursuant to VCLT Article 31(3)(b). In this regard, the Appellate Body disagreed with Antigua that the
2001 Scheduling Guidelines constitute “subsequent practice” revealing a common understanding that
Members’ specific commitments are to be construed in accordance with W/120 and the 1993 Scheduling
Guidelines. Furthermore, it concluded that a submission by the United States regarding classification of
energy services and a publication by the United States International Trade Commission (“USITC”) do not
establish a “common, consistent, discernible pattern of acts or pronouncements by Members as a whole,”
nor do they “demonstrate a common understanding among Members.” It concluded that Antigua failed to
identify any relevant subsequent practice that can assist in the interpretation of the U.S. Schedule. (Paras.
190-194)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 10
As a result, the Appellate Body concluded that the general rule of interpretation set out in VCLT
Article 31 “leaves the meaning of ‘other recreational services (except sporting)’ ambiguous,” such that it
considered it necessary in this case “to turn to the supplementary means of interpretation” provided for in
VCLT Article 32. (Para. 195) At the outset, the Appellate Body observed that both participants agree
that document W/120 and the 1993 Scheduling Guidelines constitute “supplementary means of
interpretation, including the preparatory work of the treaty and the circumstances of its conclusion,”
within the meaning of VCLT Article 32. (Para. 196)
Turning to document W/120, the Appellate Body noted that subsector 10.D is cross-referenced
with Group 964 of the CPC, which in turn is broken down into the following classes and sub-classes:
964 Sporting and other recreational services
9641 Sporting services
96411 Sports event promotion services
96412 Sports event organization services
96413 Sports facility operation services
96419 Other sporting services
9649 Other recreational services
96491 Recreation park and beach services
96492 Gambling and betting services
96499 Other recreational services n.e.c.
Thus, the Appellate Body noted, “the CPC Class that corresponds to ‘Sporting services’ (9641) does not
include gambling and betting services,” which instead fall under the Class “Other recreational services”
(9649). (Paras. 198-201)
Next, the Appellate Body observed that the issue of how document W/120 relates to individual
Member’s Schedules is dealt with in the 1993 Scheduling Guidelines. Examining these Guidelines, the
Appellate Body emphasized that they “express a clear preference for parties to use W/120 and the CPC
classifications in their Schedules,” and, at the same time, for those who wanted to use their own
classifications, it instructs them “to do so in a ‘sufficiently detailed’ way ‘to avoid any ambiguity as to the
scope of the commitment.’” The Appellate Body opined that the requisite clarity as to the scope of a
commitment could not have been achieved through the mere omission of CPC codes as argued by the
United States, particularly where sector 10 of the U.S. Schedule “follows the structure of W/120 in all
other respects, and adopts precisely the same terminology as used in W/120.” It concluded, “it is
reasonable to assume that parties to the negotiations examining a sector of a Schedule that tracked so
closely the language of the same sector in W/120 would — absent a clear indication to the contrary — have
expected the sector to have the same coverage as the corresponding W/120 sector.” And, as a result, it
considered this evidence to “provide strong support for interpreting subsector 10.D of the United States’
Schedule as corresponding to subsector 10.D of W/120, notwithstanding the absence of CPC codes in the
United States’ Schedule.” (Paras. 202-205) The Appellate Body found confirmation for this view in
several drafts of the U.S. Schedule, which included explanatory notes indicating that the United States
used W/120 and sought to follow the 1993 Scheduling Guidelines. (Paras. 206-207)
Thus, the Appellate Body concluded, “the relevant entry in the United States’ Schedule, ‘Other
recreational services (except sporting),’ must be interpreted as excluding from the scope of its specific
commitment services corresponding to CPC class 9641, ‘Sporting services,’” and, “[f]or the same reasons,
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 11
the entry must be read as including within the scope of its commitment services corresponding to CPC
9649, ‘Other recreational services,’ including Sub-class 96492, ‘Gambling and betting services.’” (Para.
208) As a result, the Appellate Body said that it upheld, “albeit for different reasons,” the Panel’s
finding that “the United States’ Schedule under the GATS includes specific commitments on
gambling and betting services under subsector 10.D.” (Para. 213)
GATS Article XVI:2(a) and (c) – Market Access
As explained by the Appellate Body, GATS Article XVI “sets out specific obligations for
Members that apply insofar as a Member has undertaken ‘specific market access commitments’ in its
Schedule.” Article XVI:1 “obliges Members to accord services and service suppliers of other Members
‘no less favourable treatment than that provided for under the terms, limitations and conditions agreed and
specified in its Schedule.’” Article XVI:2 then “defines, in six sub-paragraphs, measures that a Member,
having undertaken a specific commitment, is not to adopt or maintain, ‘unless otherwise specified in its
Schedule.’” Here, the relevant sub-paragraphs were (a) and (c), which state:
In sectors where market-access commitments are undertaken, the
measures which a Member shall not maintain or adopt either on the basis
of a regional subdivision or on the basis of its entire territory, unless
otherwise specified in its Schedule, are defined as:
(a) limitations on the number of service suppliers whether in the form of
numerical quotas, monopolies, exclusive service suppliers or the
requirements of an economic needs test; …
(c) limitations on the total number of service operations or on the total
quantity of service output expressed in terms of designated numerical
units in the form of quotas or the requirement of an economic needs test;
(footnote omitted)
The Appellate Body then noted that the “relevant entry for mode 1 supply in the market access column of
subsector 10.D of the United States’ Schedule reads ‘None.’” Therefore, it said, “the United States has
undertaken to provide full market access, within the meaning of Article XVI, in respect of the services
included within the scope of its subsector 10.D commitment.” (Paras. 214-215)
Before the Panel, Antigua claimed that, “in maintaining measures that prohibit the cross-border
supply of gambling and betting services, the United States is maintaining quantitative limitations that fall
within the scope of sub-paragraphs (a) and (c) of Article XVI and that are, therefore, inconsistent with the
market access commitment undertaken in subsector 10.D of the United States’ Schedule.” On this issue,
the Panel concluded that “a prohibition on the supply of certain services effectively ‘limits to zero’ the
number of service suppliers and number of service operations relating to that service,” and therefore
results in a “zero quota.” This, it found, constitutes a “‘limitation on the number of service suppliers in
the form of numerical quotas’ within the meaning of Article XVI:2(a)” and “a limitation ‘on the total
number of service operations or on the total quantity of service output … in the form of quotas’ within the
meaning of Article XVI:2(c).” Thus, the Panel held that the United States acted inconsistently with
Article XVI in respect of the three federal laws and eight state laws at issue. (Paras. 216-217) The
United States appealed the Panel’s interpretation of Article XVI:2(a) and (c), as well as its application of
those provisions to the measures at issue. The Appellate Body considered the U.S. appeal with regard to
the three federal laws at issue, which were the only measures for which it had found that Antigua made a
prima facie case (see Procedural and Systemic Issues section above). (Para. 218)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 12
In its appeal, the United States argued that “none of the measures at issue states any numerical
units or is in the form of quotas and that, therefore, none of those measures falls within the scope of subparagraph (a) or (c) of Article XVI:2.” In this regard, the United States contended that “the Panel erred in
its interpretation of sub-paragraphs (a) and (c) of Article XVI:2 by failing to give effect to certain
elements of the text of these provisions, notably to key terms such as ‘form’ and ‘numerical quotas.’”
(Para. 222) The Appellate Body addressed the U.S. appeal under each provision in turn.
GATS Article XVI:2(a)
In its findings on Article XVI:2(a), the Panel determined that: “[a prohibition on one, several or
all means of delivery cross-border] is a ‘limitation on the number of service suppliers in the form of
numerical quotas’ within the meaning of Article XVI:2(a) because it totally prevents the use by service
suppliers of one, several or all means of delivery that are included in mode 1.” In its appeal, the United
States submitted that this interpretation “ignores the text of sub-paragraph (a), in particular the meaning of
‘form’ and ‘numerical quotas,’ and erroneously includes within the scope of Article XVI:2(a) measures that
have the effect of limiting the number of service suppliers or output to zero.” (Paras. 223-224)
In addressing this issue, the Appellate Body examined a number of the specific terms in this
provision. In this regard, it first stated that the terms of the provision “reflect that the focus of Article
XVI:2(a) is on limitations relating to numbers or, put differently, to quantitative limitations.” It further
noted that dictionary definitions suggest “a broad meaning for the term ‘form.’” In addition, it considered
that the meaning of the word “numerical” includes “characteristic of a number or numbers,” and therefore
said, “[b]ecause zero is quantitative in nature, it can, in our view, be deemed to have the ‘characteristics
of’ a number—that is, to be ‘numerical.’” It also noted the definitions of “monopolies” and “exclusive
service suppliers” provided in the GATS, and said that the limitations on the number of service suppliers
should be read to include limitations that are “in form or in effect, monopolies or exclusive service
suppliers.” When viewed “as a whole,” the Appellate Body said, “the text of sub-paragraph (a) supports
the view that the words ‘in the form of’ must be read in conjunction with the words that precede them—
‘limitations on the number of service suppliers’—as well as the words that follow them, including the
words ‘numerical quotas.’” Thus, “it is clear that the thrust of sub-paragraph (a) is not on the form of
limitations, but on their numerical, or quantitative, nature.” (Paras. 225-232) The Appellate Body then
confirmed its finding based on the provision’s context, and the object and purpose of the GATS. In
addition, it noted that “this is an appropriate case in which to have recourse to supplementary means of
interpretation, such as preparatory work,” and it referred to the “1993 Scheduling Guidelines” as relevant
preparatory work that confirms its interpretation. (Paras. 233-237)
On this basis, the Appellate Body concluded, “limitations amounting to a zero quota are
quantitative limitations and fall within the scope of Article XVI:2(a).” Therefore, the Appellate Body
upheld the Panel’s finding that “[a prohibition on one, several or all means of delivery crossborder] is a ‘limitation on the number of service suppliers in the form of numerical quotas’ within
the meaning of Article XVI:2(a) because it totally prevents the use by service suppliers of one,
several or all means of delivery that are included in mode 1.” (Paras. 238-239)
GATS Article XVI:2(c)
According to the Panel, the “correct reading of Article XVI:2(c)” is that “limitations referred to
under that provision may be: (i) in the form of designated numerical units; (ii) in the form of quotas; or
(iii) in the form of the requirement of an economic needs test.” The Panel then found that “where a
specific commitment has been undertaken in respect of a service, a measure prohibiting one or more
means of delivery of that service is: … a limitation ‘on the total number of service operations or on the
total quantity of service output … in the form of quotas’ within the meaning of Article XVI:2(c) because it
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 13
… results in a ‘zero quota’ on one or more or all means of delivery include[d] in mode 1.” On appeal, the
United States argued that, “when properly interpreted, sub-paragraph (c) identifies only two types of
limitations,” and that the measures at issue do not fall under either. (Paras. 240-242)
In addressing this issue, the Appellate Body took a different interpretive approach than the Panel.
In this regard, the Appellate Body said “there is scope for overlap between [the elements of this
provision]: between limitations on the number of service operations and limitations on the quantity of
service output, for example, or between limitations in the form of quotas and limitations in the form of an
economic needs test.” It further noted that “all types of limitations in sub-paragraph (c) are quantitative in
nature, and all restrict market access.” Thus, it said, “even if sub-paragraph (c) is read as referring to only
two types of limitations, as contended by the United States, it does not follow that sub-paragraph (c)
would not catch a measure equivalent to a zero quota.” (Para. 247)
The Appellate Body then turned to “supplementary means of interpretation,” due to any possible
“ambiguity” as to the meaning of the provision. In this regard, it referred to the 1993 Scheduling
Guidelines as “preparatory work” in support of its approach. (Paras. 248-249)
Applying this interpretation here, the Appellate Body said that “the measures at issue, by
prohibiting the supply of services in respect of which a market access commitment has been taken,
amount to a ‘zero quota’ on service operations or output with respect to such services” and thus “fall
within the scope of Article XVI:2(c).” On this basis, the Appellate Body upheld the Panel’s finding
that “a measure prohibiting the supply of certain services where specific commitments have been
undertaken is a limitation: … within the meaning of Article XVI:2(c) because it totally prevents the
services operations and/or service output through one or more or all means of delivery that are
included in mode 1 … [and] results in a ‘zero quota’ on one or more or all means of delivery include
in mode 1.” (Paras. 251-252)
Application of Article XVI to the Measures at Issue
The Appellate Body then applied its interpretations of Article XVI:2(a) and (c) to the three
federal laws at issue, the Wire Act, the Travel Act and the Illegal Gambling Business Act. In this regard,
the Panel had determined that all three measures contain a limitation “in the form of numerical quotas”
within the meaning of Article XVI:2(a) and a limitation “in the form of a quota” within the meaning of
Article XVI:2(c). After reviewing the Panel’s analysis of the operation of these measures, the Appellate
Body noted that the U.S. appeal relates to the Panel’s interpretations of Article XVI:2(a) and (c), and the
Panel’s conclusion that the measures at issue do not contain any limitations “that explicitly take the form
of numerical quotas or designated numerical units.” Recalling its earlier finding that “these provisions
encompass measures equivalent to a zero quota,” and noting that “the fact that the Wire Act, the Travel
Act and the IGBA do not explicitly use numbers, or the word ‘quota,’ in imposing their respective
prohibitions, does not mean, as the United States contends, that the measures are beyond the reach of
Article XVI:2(a) and (c),” the Appellate Body concluded, “there is no ground for disturbing the above
findings made by the Panel.” (Paras. 257-264)
On this basis, the Appellate Body upheld the Panel’s finding that “by maintaining the Wire
Act, the Travel Act, and the Illegal Gambling Business Act, the United States acts inconsistently
with its obligations under Article XVI:1 and Article XVI:2(a) and (c) of the GATS.” (Para. 265)
GATS Article XIV – General
With respect to the U.S. defense under GATS Article XIV, the Appellate Body said that it would
consider whether the three federal laws at issue could be justified under this provision. (Para. 266) In
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 14
addition, noting that GATS Article XIV “sets out the general exceptions from obligations under that
Agreement in the same manner as does [GATT] Article XX,” the Appellate Body found previous
decisions under Article XX “relevant for [the] analysis under Article XIV of the GATS.” (Para. 291)
Furthermore, the Appellate Body noted, GATS Article XIV “contemplates a ‘two-tier analysis’ of a
measure that a Member seeks to justify under that provision,” under which a panel “should first determine
whether the challenged measure falls within the scope of one of the paragraphs of Article XIV,” and, if it
does, it “should then consider whether that measure satisfies the requirements of the chapeau of Article
XIV.” (Para. 292)
GATS Article XIV(a) – Measures Necessary to Protect Public Morals or Maintain Public Order
GATS Article XIV(a) provides an exception for “measures … necessary to protect public morals
or to maintain public order.” The Panel found that the measures at issue “are designed so as to protect
public morals or maintain public order,” but that the United States had not proved that the measures are
“necessary” for this purpose. As a result, the measures could not be justified under Article XIV(a). On
appeal, Antigua challenged the Panel’s finding that the measures are “designed” for this purpose, and both
participants challenged certain aspects of the Panel’s findings on the “necessary” element. (Paras. 293-
295) The Appellate Body considered each issue in turn.
GATS Article XIV(a) – “Measures … to Protect Public Morals or to Maintain Public Order”
The Panel found that “the term ‘public morals’ denotes standards of right and wrong conduct
maintained by or on behalf of a community or nation,” and further found that “the definition of the term
‘order,’ read in conjunction with footnote 5 of the GATS, ‘suggests that ‘public order’ refers to the
preservation of the fundamental interests of a society, as reflected in public policy and law.’” Thus, the
Panel found that the three federal statutes are “measures that are designed to ‘protect public morals’ and/or
‘to maintain public order’ within the meaning of Article XIV(a).” Antigua contested this finding on the
basis that “the Panel failed to determine whether the concerns identified by the United States satisfy the
standard set out in footnote 5 to Article XIV(a).” The Appellate Body rejected this appeal, saying that it
saw “no basis to conclude that the Panel failed to assess whether the standard set out in footnote 5 had
been satisfied” and that “[a]s Antigua acknowledges, the Panel expressly referred to footnote 5 in a way
that demonstrated that it understood the requirement therein to be part of the meaning given to the term
‘public order.’” It further noted, “the Panel was not required, in addition, to make a separate, explicit
determination that the standard of footnote 5 had been met.” Therefore, the Appellate Body upheld the
Panel’s finding that “the concerns which the Wire Act, the Travel Act and the Illegal Gambling
Business Act seek to address fall within the scope of ‘public morals’ and/or ‘public order’ under
Article XIV(a).” (Paras. 296-299)
GATS Article XIV(a) – “Necessary”
The Panel found that the United States had not demonstrated the “necessity” of the three federal
laws for the purpose of protecting public morals or maintaining public order. This finding was based on
the Panel’s determinations that: (i) “the interests and values protected by [the Wire Act, the Travel Act,
and the IGBA] serve very important societal interests that can be characterized as ‘vital and important in
the highest degree’”; (ii) the Wire Act, the Travel Act, and the IGBA “must contribute, at least to some
extent,” to addressing the U.S. concerns “pertaining to money laundering, organized crime, fraud,
underage gambling and pathological gambling”; (iii) the measures in question “have a significant
restrictive trade impact”; and (iv) “[i]n rejecting Antigua’s invitation to engage in bilateral or multilateral
consultations and/or negotiations, the United States failed to pursue in good faith a course of action that
could have been used by it to explore the possibility of finding a reasonably available WTO-consistent
alternative.” Both participants appealed certain aspects of the Panel’s findings. The Appellate Body first
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 15
offered a general explanation of the “necessary” requirement, and then turned to the specific appeal
points. (Paras. 300-303)
With regard to the “necessary” requirement, the Appellate Body first explained that “necessity” is
“an objective standard.” In this regard, it said, while “a Member’s characterization of a measure’s
objectives and of the effectiveness of its regulatory approach—as evidenced, for example, by texts of
statutes, legislative history, and pronouncements of government agencies or officials—will be relevant in
determining whether the measure is, objectively, ‘necessary,’” a panel “is not bound by these
characterizations … and may also find guidance in the structure and operation of the measure and in
contrary evidence proffered by the complaining party.” The Appellate Body then referred to its
interpretation of this standard in Korea – Beef, in which it explained that “whether a measure is ‘necessary’
should be determined through ‘a process of weighing and balancing a series of factors.’” According to the
Appellate Body, this process is “comprehended in the determination of whether a WTO-consistent
alternative measure which the Member concerned could ‘reasonably be expected to employ’ is available,
or whether a less WTO-inconsistent measure is ‘reasonably available.’” Turning then to the factors, the
Appellate Body said that the weighing and balancing process “begins with an assessment of the ‘relative
importance’ of the interests or values furthered by the challenged measure.” As to the other two factors,
which, it noted, are not “exhaustive” as to the possible factors to be considered, one is “the contribution of
the measure to the realization of the ends pursued by it,” and the other is “the restrictive impact of the
measure on international commerce.” In addition to examining these factors, it said a “comparison
between the challenged measure and possible alternatives should then be undertaken, and the results of
such comparison should be considered in the light of the importance of the interests at issue.” The
Appellate Body then stated: “It is on the basis of this ‘weighing and balancing’ and comparison of
measures, taking into account the interests or values at stake, that a panel determines whether a measure is
‘necessary’ or, alternatively, whether another, WTO-consistent measure is ‘reasonably available.’” (Paras.
304-307)
With regard to the significance of the reasonably available alternative measure requirement, the
Appellate Body elaborated, “[a]n alternative measure may be found not to be ‘reasonably available,’
however, where it is merely theoretical in nature, for instance, where the responding Member is not
capable of taking it, or where the measure imposes an undue burden on that Member, such as prohibitive
costs or substantial technical difficulties.” Moreover, a “reasonably available” alternative measure “must
be a measure that would preserve for the responding Member its right to achieve its desired level of
protection with respect to the objective pursued under paragraph (a) of Article XIV.” (Para. 308)
The Appellate Body further clarified that “it is not the responding party’s burden to show, in the
first instance, that there are no reasonably available alternatives to achieve its objectives,” that is, “a
responding party need not identify the universe of less trade-restrictive alternative measures and then
show that none of those measures achieves the desired objective.” Rather, “it is for a responding party to
make a prima facie case that its measure is ‘necessary’ by putting forward evidence and arguments that
enable a panel to assess the challenged measure in the light of the relevant factors to be ‘weighed and
balanced’ in a given case.” In doing so, the Appellate Body noted, the responding party “may … point out
why alternative measures would not achieve the same objectives as the challenged measure, but it is
under no obligation to do so in order to establish, in the first instance, that its measure is ‘necessary.’”
However, if the complaining party “raises a WTO-consistent alternative measure that, in its view, the
responding party should have taken, the responding party will be required to demonstrate why its
challenged measure nevertheless remains ‘necessary’ in the light of that alternative or, in other words, why
the proposed alternative is not, in fact, ‘reasonably available.’” Finally, if a responding party
“demonstrates that the alternative is not ‘reasonably available,’ in the light of the interests or values being
pursued and the party’s desired level of protection, it follows that the challenged measure must be
‘necessary’ within the terms of Article XIV(a) of the GATS.” (Paras. 309-311)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 16
With this interpretation of “necessary” as background, the Appellate Body then considered the
participants’ specific claims on appeal. First, Antigua claimed that “the Panel erred in concluding, in the
course of its analysis of these factors, that the three federal statutes contribute to protecting the interests
raised by the United States.” On this issue, the Appellate Body noted that “[t]he Panel set out, in some
detail, how the United States’ evidence established a specific connection between the remote supply of
gambling services and each of the interests identified by the United States, except for organized crime.”
The Appellate Body found “no error in the Panel’s approach, nor in its finding … that the Wire Act, the
Travel Act, and the IGBA ‘must contribute’ to addressing those concerns.” (Paras. 312-313)
In addition, the Appellate Body noted, “the United States and Antigua each appeals different
aspects of the Panel’s selection of alternative measures to compare with the Wire Act, the Travel Act, and
the IGBA.” In this regard, the United States argued that “the Panel erred in examining the one alternative
measure that it did consider.” In particular, the United States argued that “[t]he Panel relied on the
‘necessity’ test in Article XIV as the basis for imposing a procedural requirement on the United States to
consult or negotiate with Antigua before the United States may take measures to protect public morals
[or] protect public order.” (Paras. 314, 316)
With regard to the U.S. appeal, the Appellate Body noted that “[i]n its ‘necessity’ analysis under
Article XIV(a), the Panel appeared to understand that, in order for a measure to be accepted as ‘necessary’
under Article XIV(a), the responding Member must have first ‘explored and exhausted’ all reasonably
available WTO-compatible alternatives before adopting its WTO-inconsistent measure.” This
understanding, the Appellate Body said, “led the Panel to conclude that, in this case, the United States had
‘an obligation to consult with Antigua before and while imposing its prohibition on the cross-border
supply of gambling and betting services.’” Because the Panel found that the United States “had not
engaged in such consultations with Antigua, the Panel also found that the United States had not
established that its measures are ‘necessary’ and, therefore, provisionally justified under Article XIV(a).”
(Para. 315)
On this issue, the Appellate Body found that the Panel’s “necessity” analysis “was flawed because
it did not focus on an alternative measure that was reasonably available to the United States to achieve the
stated objectives regarding the protection of public morals or the maintenance of public order.”
According to the Appellate Body, “[e]ngaging in consultations with Antigua, with a view to arriving at a
negotiated settlement that achieves the same objectives as the challenged United States’ measures, was not
an appropriate alternative for the Panel to consider because consultations are by definition a process, the
results of which are uncertain and therefore not capable of comparison with the measures at issue in this
case.” (Paras. 317-318)
With regard to Antigua’s appeal, Antigua argued that “the Panel erred in failing to consider
additional alternative measures.” Specifically, Antigua claimed that the Panel “‘erred in limiting’ its
search for alternatives to the universe of existing United States regulatory measures” and that “the Panel
erred by examining only those measures that had been explicitly identified by Antigua even though
‘Antigua was never given the opportunity to properly rebut the Article XIV defence.’” (Paras. 314, 319)
The Appellate Body rejected these appeal claims, noting, inter alia: “the Panel did not state that it was
limiting its search for alternatives in the manner alleged by Antigua”; “although the Panel began its
analysis of alternative measures by considering whether the United States already employs measures less
restrictive than a prohibition to achieve the same objectives as the three federal statutes, its inquiry did not
end there”; and “we do not see why the Panel should have been expected to continue its analysis into
additional alternative measures, which Antigua itself failed to identify.” (Para. 320)
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 17
On the basis of the above reasoning, the Appellate Body found that “the Panel erred in
assessing the necessity of the three United States statutes against the possibility of consultations
with Antigua because such consultations … cannot qualify as a reasonably available alternative
measure with which a challenged measure should be compared.” Therefore, the Appellate Body
reversed the Panel’s finding that the measures were not provisionally justified under Article XIV(a).
Having reversed this finding, the Appellate Body then considered whether the three federal laws are
“necessary” under Article XIV(a). (Paras. 321-322)
Reviewing the Panel’s reasoning on the “necessary” issue, the Appellate Body observed that the
Panel “found that the three federal statutes protect ‘very important societal interests’”; the Panel “observed
that ‘strict controls may be needed to protect [such] interests’”; and the Panel “found that the three federal
statutes contribute to the realization of the ends that they pursue.” Although the Panel “recognized the
‘significant restrictive trade impact’” of the measures, the Appellate Body concluded that the Panel “did
not place much weight, in the circumstances of this case, on the restrictive trade impact of the three
federal statutes.” The Appellate Body further noted that the Panel appeared “to have accepted virtually all
of the elements upon which the United States based its assertion that the three federal statutes are
‘indispensable,’” and the Panel “acknowledged that, but for the United States’ alleged refusal to accept
Antigua’s invitation to negotiate, the Panel would have found that the United States had made its prima
facie case that the Wire Act, the Travel Act, and the IGBA are ‘necessary,’ within the meaning of Article
XIV(a).” The Appellate Body also stated that “the record … reveals no reasonably available alternative
measure proposed by Antigua or examined by the Panel that would establish that the three federal statutes
are not ‘necessary’ within the meaning of Article XIV(a).” Therefore, it said, “[b]ecause the United States
made its prima facie case of ‘necessity,’ and Antigua failed to identify a reasonably available alternative
measure, we conclude that the United States demonstrated that its statutes are ‘necessary,’ and therefore
justified, under paragraph (a) of Article XIV.” On this basis, the Appellate Body found that “the Wire
Act, the Travel Act, and the IGBA are ‘measures … necessary to protect public morals or to
maintain public order,’ within the meaning of paragraph (a) of Article XIV of the GATS.” (Paras.
323-327)
GATS Article XIV(a)/DSU Article 11 – Objective Assessment of “Necessary” Element
The Appellate Body considered several claims, by both Antigua and the United States, that the
Panel’s analysis under GATS Article XIV(a) was inconsistent with DSU Article 11. For the U.S. claim,
the Appellate Body exercised judicial economy and made no finding. On the two Antiguan claims, the
Appellate Body found, for the first claim, that “Antigua’s arguments on this issue appear to us to amount
to mere disagreement with the Panel’s exercise of discretion in selecting which evidence to rely on when
making its findings”; and for the second claim, that “there was no need for the Panel to have analyzed
evidence relating to the supply of gambling services specifically from Antigua, and we see no error in the
Panel’s decision not to make an assessment of the Antiguan industry.” Therefore, the Appellate Body
concluded, “the Panel did not fail to ‘make an objective assessment of the facts of the case,’ as
required by Article 11 of the DSU, with respect to its analysis under Article XIV(a) of the GATS.”
(Paras. 328-334)
GATS Article XIV(c) – Measures Necessary to Secure Compliance
The Panel found that “the United States has not been able to provisionally justify that the Wire
Act, the Travel Act (when read together with the relevant state laws) and the Illegal Gambling Business
Act (when read together with the relevant state laws) are necessary within the meaning of Article XIV(c)
of GATS to secure compliance with the RICO statute.” As explained by the Appellate Body, “[t]he
Panel’s finding under Article XIV(c) rests on the same basis as its finding under Article XIV(a), namely
that the measures are not ‘necessary’ because, in failing to engage in consultations with Antigua, the
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 18
United States failed to explore and exhaust all reasonably available alternative measures.” Having
reversed this finding under Article XIV(a), the Appellate Body also reversed the Panel’s finding
under Article XIV(c) “on the same ground.” However, because it had already found the measures to
fall under Article XIV(a), it exercised judicial economy and did not complete the analysis of this issue.
(Paras. 335-337)
GATS Article XIV Chapeau/DSU Article 11
After finding that the measures were provisionally justified under GATS Article XIV(a), the
Panel then examined whether the measures satisfy the requirements of the Article XIV chapeau, which
states:
Subject to the requirement that such measures are not applied in a
manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where like conditions prevail, or a
disguised restriction on trade in services, nothing in this Agreement shall
be construed to prevent the adoption or enforcement by any Member of
measures [of the type specified in the subsequent paragraphs of Article
XIV]. …
The Panel found that “the United States has not demonstrated that it does not apply its prohibition on the
remote supply of wagering services for horse racing in a manner that does not constitute ‘arbitrary and
unjustifiable discrimination between countries where like conditions prevail’ and/or a ‘disguised
restriction on trade’ in accordance with the requirements of the chapeau of Article XIV.” (Paras. 338-340)
The Appellate Body considered a number of claims by both participants related to the Panel’s findings on
the chapeau, as follows.
First, Antigua alleged that the Panel erred in determining whether the Wire Act, the Travel Act,
and the IGBA meet the requirements of the chapeau “after having found that they [] were not
provisionally justified.” In this regard, the Panel explained that, even though such an examination was
“not necessary,” it wanted “to assist the parties in resolving the underlying dispute in this case.” The
Appellate Body rejected Antigua’s claim, stating that there is no requirement for panels to “stop
evaluating” a defense once it is determined that a measure is not provisionally justified. Such additional
findings, it noted, may “assist the Appellate Body” in completing the analysis. (Paras. 342-345)
Second, Antigua alleged that the Panel “erred by focusing its discussion under the chapeau on the
remote supply of gambling services rather than on the entire gambling industry.” The Appellate Body
rejected this claim, noting the Panel’s finding that the “remote supply” of gambling services “gives rise to
particular concerns,” and that “[s]uch an approach merely reflects the view that the distinctive
characteristics of the remote supply of gambling services may call for distinctive regulatory methods, and
that this could render a comparison between the treatment of remote and non-remote supply of gambling
services inappropriate.” (Paras. 346-347)
Third, the United States contended that the Panel’s reasoning, “in particular its standard of
‘consistency,’ reveals that the Panel, in fact, assessed only whether the United States treats domestic
service suppliers differently from foreign service suppliers.” Such an assessment is inadequate, the
United States argued, “because the chapeau also requires a determination of whether differential
treatment, or discrimination, is ‘arbitrary’ or ‘unjustifiable.’” The Appellate Body rejected this claim,
stating that the Panel did not ignore the “arbitrary” or “unjustifiable” elements, but rather, based on the
arguments before it, “the Panel determined that Antigua had rebutted the United States’ claim of no
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 19
discrimination at all by showing that domestic service suppliers are permitted to provide remote gambling
services in situations where foreign service suppliers are not so permitted.” (Paras. 348-351)
Fourth, the Appellate Body reviewed the Panel’s finding “on the alleged non-enforcement of
certain laws against United States remote suppliers of gambling services.” On this issue, the Appellate
Body first noted “that none of the three federal statutes distinguishes, on its face, between domestic and
foreign service suppliers.” However, the Appellate Body “agree[d] with the Panel that, in the context of
facially neutral measures, there may nevertheless be situations where the selective prosecution of persons
rises to the level of discrimination.” Turning to the facts of this case, the Appellate Body said that “the
evidence before the Panel could not justify finding that, notwithstanding the neutral language of the
statute, the facts are ‘inconclusive’ to establish ‘non-discrimination’ in the United States’ enforcement of
the Wire Act.” Here, the Appellate Body explained, “the Panel came to its conclusion—that the United
States failed to establish non-discrimination in the enforcement of its laws—on the basis of only five
cases: one case of prosecution against a foreign service supplier; one case of ‘pending’ prosecution against
a domestic service supplier; and three cases with no evidence of prosecution against domestic service
suppliers.” From these five cases, the Panel concluded that the United States’ defense “had been
sufficiently rebutted to warrant a finding of ‘inconclusiveness.’” According to the Appellate Body,
however, “the proper significance to be attached to isolated instances of enforcement, or lack thereof,
cannot be determined in the absence of evidence allowing such instances to be placed in their proper
context.” Such evidence, the Appellate Body noted, “might include evidence on the overall number of
suppliers, and on patterns of enforcement, and on the reasons for particular instances of nonenforcement.” In this regard, it observed that “enforcement agencies may refrain from prosecution in
many instances for reasons unrelated to discriminatory intent and without discriminatory effect.” The
Appellate Body then stated: “Faced with the limited evidence the parties put before it with respect to
enforcement, the Panel should rather have focused, as a matter of law, on the wording of the measures at
issue.” Examining this wording, the Appellate Body concluded, “[t]hese measures, on their face, do not
discriminate between United States and foreign suppliers of remote gambling services.” (Paras. 354-357)
On this basis, the Appellate Body reversed the Panel’s finding that the United States “has
failed to demonstrate that the manner in which it enforced its prohibition on the remote supply of
gambling and betting services against TVG, Capital OTB and Xpressbet.com is consistent with the
requirements of the chapeau.” (Para. 357)
Finally, the United States and Antigua each alleged that the Panel did not comply with DSU
Article 11 “in its analysis under the chapeau of Article XIV.” In this regard, the Appellate Body first
examined Antigua’s appeal relating to video lottery terminals and Nevada bookmakers, and then
considered the U.S. appeal concerning the Interstate Horseracing Act. (Para. 358)
With regard to Antigua’s appeal, Antigua argued that the Panel made its findings notwithstanding
the evidence it had submitted, and that the Panel effectively “reversed” the burden of proof. The
Appellate Body rejected this claim, noting its understanding that the Panel determined that Antigua failed
to rebut the U.S. defense that the measures do not discriminate at all, and that the Panel did not reverse
the burden of proof. (Paras. 359-360)
With regard to the U.S. claim, the Appellate Body noted that under the Interstate Horseracing Act
(“IHA”), “[a]n interstate off-track wager may be accepted by an off-track betting system” where consent
is obtained from certain organizations. The measure defines “interstate off-track wager” as follows:
[T]he term … ‘interstate off-track wager’ means a legal wager placed or
accepted in one State with respect to the outcome of a horserace taking
place in another State and includes pari-mutuel wagers, where lawful in
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 20
each State involved, placed or transmitted by an individual in one State
via telephone or other electronic media and accepted by an off-track
betting system in the same or another State, as well as the combination of
any pari-mutuel wagering pools.
According to Antigua, “the IHA, on its face, authorizes domestic service suppliers, but not foreign service
suppliers, to offer remote betting services in relation to certain horse races.” Thus, “to this extent, in
Antigua’s view, the IHA ‘exempts’ domestic service suppliers from the prohibitions of the Wire Act, the
Travel Act, and the IGBA.” (Para. 361) In response, the United States argued that “the IHA—a civil
statute—cannot ‘repeal’ the Wire Act, the Travel Act, or the IGBA—which are criminal statutes—by
implication, that is, merely by virtue of the IHA’s adoption subsequent to that of the Wire Act, the Travel
Act, and the IGBA.” Rather, “under principles of statutory interpretation in the United States, such a
repeal could be effective only if done explicitly, which was not the case with the IHA.” (Paras. 362)
In addressing this issue, the Appellate Body noted that the U.S. appeal “essentially challenges the
Panel’s failure to accord sufficient weight to the evidence submitted by the United States with respect to
the relationship under United States law between the IHA and the measures at issue.” According to the
Appellate Body, “[t]he Panel found that the evidence provided by the United States was not sufficiently
persuasive to conclude that, as regards wagering on horseracing, the remote supply of such services by
domestic firms continues to be prohibited notwithstanding the plain language of the IHA.” Thus, the
Appellate Body said, “we are not persuaded that the Panel failed to make an objective assessment of the
facts.” (Para. 364)
Overall, therefore, the Appellate Body concluded that “none of the challenges under
Article 11 of the DSU relating to the chapeau of Article XIV of the GATS has succeeded.”
(Para. 366)
On the basis of the above findings, the Appellate Body concluded that “the United States
has not demonstrated that—in the light of the existence of the IHA—the Wire Act, the Travel Act,
and the IGBA are applied consistently with the requirements of the chapeau.” (Para. 369)
In its final conclusions on the Article XIV issue, the Appellate Body found that the United States
“has demonstrated that the Wire Act, the Travel Act, and the IGBA fall within the scope of paragraph (a)
of Article XIV, but that it has not shown, in the light of the IHA, that the prohibitions embodied in these
measures are applied to both foreign and domestic service suppliers of remote betting services for horse
racing.” For this reason, it found that the United States “has not established that these measures
satisfy the requirements of the chapeau.” (Para. 372)
COMMENTARY
For further reading on this dispute, see:
Panagiotis Delimatsis, “Don’t Gamble with GATS—The Interaction between Articles VI, XVI, XVII and
XVIII GATS in the Light of the US—Gambling Case,” 40 Journal of World Trade 6, 1059-1080 (2006).
“Gambling – with Regulation and Market Access in the GATS,” 32 Legal Issues of Economic Integration
3, 231-234 (2005).
Jeremy Marwell, “Trade and Morality: The WTO Public Morals Exception after Gambling,” 81 NYU
Law Review 2, 802 (2006).
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 21
Mitsuo Matsushita and Aya Iino, “Cross-Border Gambling and Betting Services Under WTO
Disciplines,” 1 Asian Journal of Comparative Law 1 (2006). Available at:
http://www.bepress.com/asjcl/vol1/iss1/art17.
Federico Ortino, “Treaty Interpretation and the WTO Appellate Body Report in US – Gambling: A
Critique,” 9 JIEL 1, 117-148 (2006).
Joost Pauwelyn, “WTO Softens Earlier Condemnation of U.S. Ban on Internet Gambling, but Confirms
Broad Reach into Sensitive Domestic Regulation,” ASIL Insight, April 2005.
Joost Pauwelyn, “Rien ne Va Plus? Distinguishing domestic regulation from market access in GATT and
GATS,” 4 World Trade Review 2, 131-170 (2005).
Joel Trachtman, U.S. – Gambling case note, 99 AJIL 861 (2005).
Sacha Wunsch-Vincent, “The Internet, cross-border trade in services, and the GATS: lessons from US–
Gambling,” 5 World Trade Review 3, 319-355 (2006).
Subsequent Developments
After the expiration of the reasonable period of time for implementation in this dispute, Antigua
was of the view that the United States had not complied with the DSB’s recommendations and rulings. As
a result, the matter was referred to the original panel under DSU Article 21.5. The Article 21.5 panel
found that the United States had not complied with the DSB’s recommendations and rulings. See DSC for
U.S. – Gambling, Article 21.5 (Panel).
GATS Article XVI – Market Access
In addressing the U.S. appeal under GATS Article XVI:2(a) and (c), the Appellate Body faced a
choice between two competing interpretations of these provisions. The United States argued that the
aspects of these provisions at issue here cover only measures that actually specify a numeric quantity of
service suppliers, or service operations or output. Thus, it asserted, a ban on a certain method of service
supply is not covered, because it does not specify a numeric quantity, even though the “effect” of the
measure may limit the supply of the service through this method to zero. By contrast, the Panel’s finding
on this issue was that such a ban is, in effect, a “zero quota,” and is therefore covered by these provisions.
The Appellate Body agreed with the Panel and upheld the finding of violation. (See paras. 224-239)
In evaluating these interpretations, the Appellate Body was faced with the tension between
establishing a standard that could be criticized as too broad and one that could be criticized as too narrow.
The Panel’s interpretation is quite broad, and seems to bring a wider range of measures under Article XVI
than the drafters may have anticipated. For example, in its appellant’s submission, the United States
argued that the Panel’s interpretation could lead to attempts at domestic regulation of e-mail “spam” being
found in violation of GATS Article XVI where Members have made commitments on advertising
services. (See para. 128 of U.S. appellant’s submission, available on USTR web site:
http://www.ustr.gov) The Appellate Body did not address this issue, but the U.S. concerns seem wellfounded. The Panel/Appellate Body findings appear to mean that any regulation that bans a particular
method of service delivery, such as e-mail, would constitute a “zero quota,” in violation of Article
XVI:2(a) and (c). In essence, this approach converts certain regulations that govern the means of service
delivery from “qualitative” regulations covered by GATS Article VI into “quantitative” regulations
covered by GATS Article XVI. As a result, it could be argued that the scope of Article XVI has been
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 22
expanded, as many people had previously understood that such regulations were governed exclusively by
Article VI. (We note that this finding may also apply in the context of services regulations other than
those related to the means of delivery. The full scope of these findings will have to be elaborated through
further disputes.)
On the other hand, the U.S. interpretation is somewhat narrow, and could allow Members to
evade their GATS commitments by simply banning a certain method of service delivery through
ostensibly legitimate regulations, as a substitute for imposing a numerical quota.
We note that there is a possible middle ground between the two approaches. The Panel had found
that a prohibition on “one, several or all means of delivery” was sufficient to constitute a “zero quota”
under Article XVI:2(a) or (c). If, however, the provisions were interpreted so that only a ban on all
means of delivery were covered, the U.S. “spam” example would likely no longer be problematic under
the rules. However, the Appellate Body did not address this possibility, as it emphasized that the Panel’s
finding that “one, several or all means of delivery” are covered was not appealed.
As a result of the Appellate Body’s decision to follow the Panel’s broad finding, Members need to
be especially careful during the GATS negotiations to ensure that domestic services regulations that may
ban certain types of service delivery, or otherwise limit service supply, are taken into account in the
commitments. In addition, they should look closely at whether such regulations can be justified under
Article XIV.
For further reading on this issue, see:
See Joost Pauwelyn, “Rien ne Va Plus? Distinguishing Domestic Regulation from Market Access in
GATT and GATS,” 4 World Trade Review 2 (July 2005) (draft available at:
http://www.law.duke.edu/fac/pauwelyn/pdf/RienNeVaPlus.pdf)
GATS Article XIV(a) – “Necessary” Standard
In its findings on the meaning of the term “necessary” in Korea – Beef (related to GATT Article
XX(d)) and EC – Asbestos (related to GATT Article XX(b)), the Appellate Body’s explanation of its
standard was somewhat unclear. In particular, the weight to be given to each of the factors that it
identified and the role of the “reasonably available alternative measure” analysis were not specified in
detail. In the Gambling case, however, in the context of GATS Article XIV(a), the Appellate Body has
provided a number of important clarifications as to how the “necessary” standard should be applied.
These clarifications are provided in paragraphs 304-311 of the report. See our summary of the Appellate
Body’s findings above.
Also in the context of the “necessary” standard, the Appellate Body reversed the Panel’s finding
that the “necessary” standard requires that the responding party consult with the complainant regarding
ways to address the complainant’s concerns about a measure. See DSC for U.S. – Gambling Services
(Panel) for more detail on the Panel’s findings.
GATS Article XIV Chapeau – Meaning of Discrimination
The Appellate Body’s findings related to “the alleged non-enforcement of certain laws against
United States remote suppliers of gambling services” — in the context of whether the measures were
applied in a manner that constitutes a means of arbitrary or unjustifiable discrimination — have important
implications for non-discrimination standards in WTO rules generally. As the Appellate Body explained,
“the Panel came to its conclusion—that the United States failed to establish non-discrimination in the
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 23
enforcement of its laws—on the basis of only five cases: one case of prosecution against a foreign service
supplier; one case of ‘pending’ prosecution against a domestic service supplier; and three cases with no
evidence of prosecution against domestic service suppliers.” From these five cases, the Panel concluded
that the United States’ defense “had been sufficiently rebutted to warrant a finding of ‘inconclusiveness.’”
According to the Appellate Body, however, “the proper significance to be attached to isolated instances of
enforcement, or lack thereof, cannot be determined in the absence of evidence allowing such instances to
be placed in their proper context.” Such evidence, the Appellate Body noted, “might include evidence on
the overall number of suppliers, and on patterns of enforcement, and on the reasons for particular
instances of non-enforcement.” The Appellate Body then stated: “Faced with the limited evidence the
parties put before it with respect to enforcement, the Panel should rather have focused, as a matter of law,
on the wording of the measures at issue.” Examining this wording, the Appellate Body noted that “[t]hese
measures, on their face, do not discriminate between United States and foreign suppliers of remote
gambling services.” (See paras. 354-357)
The Appellate Body’s reasoning here is consistent with its statements in EC – Asbestos (see para.
100), in the context of GATT Article III:4, where it emphasized that the “less favorable treatment”
standard is based on a comparison of the group of imported and domestic products at issue, rather than an
examination of individual products. See DSC for EC – Asbestos (AB). Here, the Appellate Body similarly
stated that the small number of enforcement actions presented as evidence were insufficient for a finding,
and that the “overall” enforcement effort would have been more relevant. Thus, the “group” or “overall”
approach to determining whether discrimination exists is arguably becoming solidified as the Appellate
Body’s preferred method for examining non-discrimination requirements.
GATS Article XIV Chapeau – Implementation Issues
In the press reports related to this Appellate Body decision, both sides claimed victory based on
the Appellate Body’s ruling. According to these reports, the U.S. view is that it “should have little trouble
in adapting its laws to meet the remaining criticisms without dismantling restrictions needed to fight
‘illegal gambling … money laundering and organized crime.’” According to a USTR official, “U.S.
restrictions on Internet gambling can be maintained,” and the rules on internet gambling simply need to be
clarified. By contrast, a lawyer for Antigua disagreed that implementation of the ruling would be so easy,
stating: “The only way they can keep the laws is if they ban all types of remote gambling, both inside and
outside the country, and I cannot see them doing that.” See Richard Waddington, “Antigua, U.S. Both
Claim Win in WTO Gambling Row,” Reuters, April 7, 2005.
The Appellate Body’s finding that the three federal laws at issue are not justified under Article
XIV is based solely on its conclusion under the chapeau that “the United States has not demonstrated
that—in the light of the existence of the IHA—the Wire Act, the Travel Act, and the IGBA are applied
consistently with the requirements of the chapeau.” In particular, the Appellate Body upheld the Panel’s
finding that “the evidence provided by the United States was not sufficiently persuasive to conclude that,
as regards wagering on horseracing, the remote supply of such services by domestic firms continues to be
prohibited notwithstanding the plain language of the IHA.” (See paras. 364, 369) As a result, to
implement this ruling, the key issue for the United States will be to address the inconsistency with the
chapeau based on the IHA.
Whether implementation of this ruling actually brings the U.S. laws into compliance may depend
on what legislative or other action the United States takes with regard to the IHA. For example, the
United States could amend it to prohibit the possibility of remote supply altogether. On the other hand, it
may take a more limited action, such as some type of clarification that internet gambling is not permitted.
Whatever action is taken, unless the United States decides to allow internet gambling generally, there is a
chance that Antigua will challenge the measure taken to comply in a DSU Article 21.5 proceeding, as the
WorldTradeLaw.net DSC U.S. – Gambling Services (AB)
© 2005 WorldTradeLaw.net LLC, All rights reserved 24
goal of bringing this case was to force the United States to allow Antigua to offer internet gambling
within the United States.
Challenges to a Government “Practice”
In recent years, controversy has arisen in WTO dispute settlement as to whether the “practice” of
a Member can be challenged. On appeal in this case, the United States challenged “the Panel’s view that
‘practice’ may be challenged in and of itself.” In response, the Appellate Body noted, “the Panel’s
statement on ‘practice,’ in our view, was a mere obiter dictum, and we need not rule on it.” Nonetheless, it
then added, “[t]he Appellate Body has not, to date, pronounced upon the issue of whether ‘practice’ may
be challenged, as such, as a ‘measure’ in WTO dispute settlement,” and it cited to its report in U.S. –
OCTG Sunset Reviews where it had said something similar. (See paras. 129-132)
We note that, in contrast to its statement here and in the OCTG case, in U.S. – CVDs on EC
Products the Appellate Body referred to a particular methodology used by the U.S. Department of
Commerce as an “administrative practice” and found that this practice was inconsistent with WTO rules.
In that case, the Appellate Body made the following recommendation: “The Appellate Body recommends
that the Dispute Settlement Body request the United States to bring its measures and administrative
practice (the ‘same person’ method), as found in this Report and in the Panel Report as modified by this
Report, to be inconsistent with the SCM Agreement, into conformity with its obligations under that
Agreement.” (emphasis added) (See paras. 86 and 162). In reaching that conclusion, the Appellate Body
did not discuss in any detail the nature of agency “practice” and why “practice” should or should not be
challengeable in WTO dispute settlement. Furthermore, it did not explain the nature of the specific
“administrative practice” at issue to clarify whether that practice was somehow distinguishable from other
types of “practice” that have been at issue in other WTO disputes (in this regard, two panels have found
that the “practice” at issue was not challengeable). Rather, it simply examined the substantive aspects of
that practice and reached a finding of violation. Nonetheless, its explicit finding regarding an
“administrative practice” certainly implied that the Appellate Body viewed “practice” as a measure that
could be challenged in WTO dispute settlement.
In the OCTG and Gambling cases, however, the Appellate Body appears to have backtracked
from its findings in the CVDs case, and it now appears to view the question of whether a “practice” can be
challenged as an open one. It is possible that the Appellate Body made its findings on the “administrative
practice” in the CVDs case without a full understanding of the systemic implications of the issue of
“practice.” Regardless, given that it found the “administrative practice” in CVDs to violate WTO rules, it
would seem difficult for the Appellate Body to justify a change in its approach. Of course, the Appellate
Body may try to find some way to distinguish the “administrative practice” at issue in CVDs from other
types of “practice” that may be at issue. In general, the issue of “practice” has arisen in the context of
government agency “practice” in trade remedy investigations, a quasi-judicial setting. By contrast, the
“practices” at issue in Gambling seem to have involved a somewhat different set of government actions,
offered as evidence of the interpretation and application of the relevant laws. These “practices” were:
“the three court cases in which the relevant provisions of the Wire Act, Travel Act and Illegal Gambling
Business Act were applied, the examples of law enforcement action against financial intermediaries and
media companies and the various statements by government officials advising national advertisers not to
allow advertising for off-shore Internet gambling services.” (See Panel report, para. 6.198)
Last Update: May 22, 2007

Private and Confidential

Yours all information is private and confidential; it is not shared with any other party. So, no one will know that you have taken help for your Academic paper from us.



This essay is written by:

Prof. Amanda Verified writer

Finished papers: 435

Proficient in:

English, History, Business and Entrepreneurship, Nursing, Psychology, Management

You can get writing help to write an essay on these topics
100% plagiarism-free

Hire This Writer
© 2017 theacademicessays. All Rights Reserved. Design & Developed by theacademicessays.

Ask Your Homework Today!

We have over 1000 academic writers ready and waiting to help you achieve academic success

CLICK HERE TO GET ORIGINAL ANSWERS FROM WRITERS

WhatsApp
Hello! Need help with your assignments?
Loading...