European Commission Concludes US in Violation of Trade Agreements

On June 10th, the European Commission released a report finding that U.S. online gaming laws and their enforcement are in violation of the World Trade Organization's General Agreement of Trade and Services (GATS). The European Commission's investigation was prompted by a complaint lodged in December 2007 by the Remote Gambling Association (RGA) following the United States' 2006 passage of the UIGEA.

The report stated that, "(T)he investigation has established the existence of an obstacle to trade in the sense of the Trade Barriers Regulation. Moreover, the investigation has shown that adverse trade effects within the meaning of the Trade Barriers Regulation exist and have been caused by the obstacles to trade identified. Finally, the investigation has concluded that action is necessary in the interests of the Community."

The investigation has been ongoing since March 2008 and the report has been long awaited. But it might not be entirely coincidental that its release comes as U.S. Representative Barney Frank's bill, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, is in committee and looking for support. In fact, the report specifically stated that the European Commission's actions against the U.S. hinged on the path chosen by the Obama administration, asserting: "Moreover, the approach that the new US Administration takes with regard to the subject matter under investigation in this Trade Barriers Regulation examination may also be relevant for determining which subsequent acts are in the interest of the Community."

EU Trade Commissioner Catherine Ashton said: "Internet gambling is a complex and delicate area, and we do not want to dictate how the US should regulate its market. However, the US must respect its WTO obligations. I hope that we will be able to reach an amicable solution to this issue."

But just in case the U.S. needs motivation to be amicable, the report made it perfectly clear that there are high costs associated with U.S. infractions, citing the losses in revenue and stock market capitalization incurred by European companies who had to vacate the U.S. market. The report also provided a projection of what U.S. online gaming revenue would have been if not for the UIGEA, which showed $10 billion of hypothetical revenue loss for 2012 alone.

The report also chastised the U.S. Department of Justice for continuing to pursue European online gambling and betting companies that left the U.S. market in 2006, stating "The report comes to the conclusion that these proceedings are legally unjustified as well as discriminatory, because the activities of EU companies took place under the cover of US WTO commitments."

The U.S. is in the process of formally withdrawing from its GATS obligations as they pertain to online gaming. While the European Commission acknowledges that this process may have some influence on the actions it may ultimately take, it also was quick to point out that the U.S. would still be culpable for all its GATS violations prior to the withdrawal.

A graph from the European Commission's recent report on the United States' alleged World Trade Organization violations regarding remote (online) gambling shows the actual and projected impact of the 2006 UIGEA

Source: European Commission report