Panelists At European Think Tank Take Aim At U.S. Policy On Gaming Trade Dispute

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$100 Billion In Potential Benefits for EU Industries Because of US Policy "Mistake" At WTO In Antigua Case

Discussion About Credibility of Global Trading System

Brussels (October 10, 2007) — Panelists at a trade forum held at a leading European think tank today leveled harsh criticism at the U.S. government for abandoning its commitments to the World Trade Organization over the gaming industry, claiming the decision threatens the credibility of the WTO itself and could lead to a chain reaction of similar withdrawals by other nations.

The Centre for the New Europe, a leading Brussels-based think tank with a special interest in open trade, focused the forum on a burgeoning trade clash between the U.S. and Europe over Internet gaming. According to analysts, the US could be liable for up to $100 billion in trade concessions to European industries because of illegal discriminatory trade restrictions placed by the U.S. against European gaming operators.

The amount of the dispute is the largest in the history of the WTO, and the U.S. withdrawal of its commitments represents the first time that has happened in WTO history. The withdrawal alarmed the speakers, all of whom specialize in trade issues.

"The U.S. decision is a major threat to a rules-based international trading system," said Nao Matsukata, the former Director of Policy Planning for the office of the U.S. Trade Representative. "If more countries follow the U.S. lead and do the same thing, the entire WTO system could implode and that would be extremely dangerous for U.S. economic interests and for free trade generally," he added.

"Part of what makes the U.S. such a formidable opponent in international negotiations is its credibility," Mastukata said. "That credibility is now at stake for the U.S. government not just in the trade area but in foreign relations generally." Mastukata, one of the most respected trade specialists in the U.S., also called the U.S. policy decision a "mistake not backed by any logical explanation of which I am aware."

The possible trade concessions are the result of Antigua's victory earlier this year at the WTO, which ruled that the US violated its treaty obligations by excluding online Antiguan gaming operators while allowing domestic operators to offer various forms of online gaming. Instead of complying with the ruling, the Bush Administration withdrew the enormous gambling industry from its free trade commitments.

As a result of the Bush Administration withdrawal, all 151 WTO members are allowed to seek compensation for the withdrawal equal to the size of the entire US land-based and online gaming market, estimated at nearly $100 billion. The EU, along with India and five other countries, has filed notice that it intends to seek compensation.

"The WTO has worked largely to the advantage of the U.S.," said Sallie James, a trade specialist at the Cato Institute who also spoke on the panel. "Any action the U.S. takes to undermine the integrity of the system is extremely dangerous to U.S. economic interests and to free trade generally."

Lode Van Den Hende, a trade lawyer at Herbert Smith in Brussels, criticized the U.S. for prosecuting foreign online gaming companies while letting domestic online gaming interests operate with impunity.

"This is absolute discrimination against foreign operators that the WTO has found to be illegal," he said. "It is exactly the kind of practice that the WTO was set up to eliminate, and now the U.S. is violating this very basic principle that it fought hard to put in place at the inception of the organization."

Matsukata earlier had called the U.S. decision to withdraw its gaming commitments a "watershed moment" in the WTO. "The implications are enormous for the U.S. and EU, as this threatens to weaken the credibility of the rules which govern international trade," he said.

The panelists agreed that in the near future the U.S. likely would have a regulated, licensed, and non-discriminatory system in place for Internet gaming that would bring the U.S. back into compliancee with WTO rules. Gaming industry representatives believe a legislative bill in the U.S. Congress sponsored by Rep. Barney Frank "“ which essentially creates a regulatory system for online gaming -- could alleviate their concerns about market access and discriminatory prosecutions.

Already, several publicly listed online European gaming operators, such as PartyGaming and 888 Holdings, have lost billions of dollars in revenues and market value because of the US laws excluding overseas operators. Meanwhile, US giants such as Yahoo! and the Las Vegas-based Sands Corporation are beginning to market online gaming services in Europe.

The EU has developed the world's leading Internet gaming businesses and is considered to have a strong lead over the US in this sector, with operations in the UK, Gibraltar, Malta, Austria, Bulgaria, Ireland, Estonia, and Sweden, employing an estimated 15,000 workers.

Unless the matter is settled, the size and nature of the trade concessions will be determined by WTO arbitration. Currently, the EU and other countries are reportedly insisting on significant concessions, but the negotiations are confidential.

The $100 billion US gaming market is the largest in the world, employing more than 350,000 people and generates billions of dollars of tax revenues.

The online gaming dispute also has broader implications for Internet Commerce. It is the first WTO case supporting a small country's right and ability to create a globally important business sector on the Internet, as Antigua claims it was doing with online gaming. The WTO will most likely deal with other Internet cases soon, as US search giant Google has suggested it will press a claim against China for violating the WTO by barring Chinese users from certain Internet sites using the Google search function.

Contacts for follow-up interviews:

Sallie James, Cato Institute: + 1 202 789 5264 (sjames@cato.org)
Lode Van Den Hende, Herbert Smith: +32 25117450 (lode.vandenhende@herbertsmith.com)
Nao Matsukata, Alston & Bird:+ 1 202 2997681 (nao.matsukata@alston.com)