Antigua and Barbuda vs USA

12 May 2004

Gordon Milner

The World Trade Organisation (WTO) is reported to have ruled in favour of Antigua in respect of its complaint that, by banning internet gambling, the United States has violated its commitments under the General Agreement on Trade in Services (GATS).

This case is significant for two reasons: firstly, it is the first time that a complaint relating to internet services has been brought under the WTO-GATS framework; secondly, it has important implications for Hong Kong and other jurisdictions that have sought to regulate offshore internet gambling.

Hong Kong generates some10% of its tax revenue each year from the Hong Kong Jockey Club, the only authorised gaming entity in the jurisdiction. To safeguard this source of tax revenue from competition from offshore betting sites, the Gambling Ordinance was amended in 2002 to criminalise the placing of bets with unauthorised bookmakers inside or outside Hong Kong. As a result of the amendment, an overseas bookmaker would face criminal liability for accepting a bet from a person in Hong Kong, even though the activities of the bookmaker were entirely legitimate in its own country.

Although a finding by the WTO of a breach of a GATS treaty obligation by one country is not prima facie binding on other treaty members, the ruling does clarify the WTO’s general position and may, therefore, set a precedent for how the organisation would view similar practices in other jurisdictions. Against this backdrop the Antigua ruling may leave Hong Kong law exposed to challenge by other jurisdictions from which internet betting sites operate.

A breach of GATS gives rise to a right for the complainant to issue sanctions against the breaching member. In the present case, any sanctions imposed by Antigua would not appear to present a material issue for the US. But a complaint against Hong Kong by a more substantial jurisdiction could have a serious adverse effect given the Hong Kong economy’s reliance on international trade.

Although the final text of the decision has not yet been released, the US has expressed its intention to appeal to the appellate body of the WTO. On appeal, the US is likely to argue that the exceptions set out in Article XIV of GATS permit its ban on internet gambling. Those exceptions include measures “necessary to protect public morals or to maintain public order”. However, even if the US were to succeed on those grounds at appeal, the exceptions may be of little comfort to the Hong Kong government as the ban imposed by Hong Kong law on offshore internet gambling is based on protecting tax revenue rather than protecting public morals.

Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.