US to discuss gambling restrictions dispute with European Commission

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

This month, the European Commission and the US are due to discuss their dispute over the US's protectionist gambling laws. In the event that no agreement is forthcoming, the Commission could refer the dispute to the World Trade Organisation (WTO). Whilst the Commission's backing over the issue is clearly a fillip for the European online gambling industry, the likelihood remains that, if and when the US gambling market opens up, it will only be open to those paying US taxes.

Following on from our last update, the European Commission released a report in June concluding that US measures in prosecuting overseas gambling operators "is evidence of an obstacle to trade", which is inconsistent with the General Agreement on Trade in Services (GATS) and prohibited by the WTO Agreement. The report was the result of a Commission investigation initiated last year as a result of a complaint by the Remote Gambling Association.

As the US's largest trading partner, the EU is a far more significant complainant than tiny Antigua and Barbuda, which was unable to influence US gambling policy despite winning its WTO dispute with the US over online gambling restrictions in December 2007. Nevertheless, it would be an enormous surprise if this dispute led to anything other than a settlement whereby the US can continue to prohibit European gambling operators from offering their services to US residents.

The US has been trying to pull out of its WTO commitments in relation to gambling since the Antigua and Barbuda ruling, and responded to the Commission's report with surprise on the basis that it had understood gambling services were in the process of being excluded from its GATS obligations. From the EU perspective, there is likely to be little appetite for a divisive dispute at a time when it hopes that the US will join its efforts to open up world trade during the recession. EU Trade Commissioner Catherine Ashton, whilst stating that "the US must respect its WTO obligations", is also reported as stating that "internet gambling is a complex and delicate area, and we do not want to dictate how the US should regulate its market … I hope that we will be able to reach an amicable solution to the issue".

As we argued in May, there are a number of reasons for the gambling industry to be hopeful that the US market will open up in the relatively near future. However, fundamental to those reasons is the potential tax revenue which could be generated on a state and federal level were the market to be liberalised. The idea of those tax revenues, derived from the losses of American gamblers, being diverted to overseas governments is likely to be sufficiently abhorrent to Americans to ensure that the door remains closed to operators without a US presence for some time to come.