The chairmen of two powerful House committees Nov. 19 called on the Bush administration to pursue a legislative solution to the dispute with the European Union and other members of the World Trade Organization over Internet gambling, saying that the current approach could end up being very costly for the United States and set a dangerous precedent.
Reps. Barney Frank (D-Mass.) and John Conyers, Jr. (D-Mich.), who chair the Financial and Judiciary Committees, respectively, said in a letter to U.S. Trade Representative Susan C. Schwab that they were “surprised” by the administration’s “relatively unprecedented” approach to the issue, which has involved withdrawing commitments made by the United States in previous trade agreements and exposing itself to compensation demands from other WTO members.
“[W]e are very concerned about the precedent this sets for future situations in which parties to these agreements find a particular obligation inconvenient or politically difficult,” Frank and Conyers wrote. “Traditionally, when a U.S. law has been found to be out of compliance [with WTO rules], the administration has consulted with Congress about possible legislative solutions that seek to bring the U.S. back into compliance. In this case, however, your agency has chosen not to consult with Congress, but to instead take what we view as a drastic step which could have significant consequences for the entire WTO system.”
Also signing the letter were Reps. Robert Wexler (D-Fla.), John B. Larson (D-Conn.), Shelley Berkley (D-Nev.), Jim McDermott (D-Wash.), Steve Cohen (D-Tenn.), and Joseph Crowley (N.Y.).
Stephen J. Norton, a USTR spokesman, said that the Bush administration will review the letter and “work with Congress and its trading partners to address this matter.”
The United States, which was due to reach compensation agreements with the EU, Canada, India, Costa Rica, Macao, and Antigua and Barbuda by Oct. 22, recently reached agreement with the complaining parties to extend the talks until Dec. 14.
Officials said that the requests for compensation were prompted by the May 4 announcement from USTR that the United States would modify its services schedule to correct what it described as a drafting “oversight” by specifically ruling out any market access commitments on gambling services.
Scheduling Change to Achieve Compliance
U.S. officials said the scheduling change was the only way the United States could comply with a WTO dispute panel ruling in 2004 involving a complaint filed by Antigua and Barbuda while maintaining its long-standing ban on Internet gambling. But the move has provoked widespread criticism for setting a precedent that other WTO members could use to rescind negotiated commitments.
The WTO panel backed Antigua by ruling that U.S. market access commitments under Subsector 10.D of the General Agreement on Trade in Services (GATS) schedule covering “other recreational services” include gambling services, despite U.S. claims that it never intended to open its market to foreign gambling firms.
Under WTO rules, however, any country that alters its GATS market access schedule must offer compensation to affected countries in order to maintain trade “not less favorable” than that provided for in the original schedule.
While European gambling firms have urged Brussels to demand up to $100 billion in compensation–a strategy aimed at convincing the United States that it would be less costly to lift its gambling ban–the United States is believed to be offering only market access improvements in the marginal sectors of storage services, warehousing services, and technical standards testing.
‘Expensive’ Compensation
The Nov. 19 letter from the eight Democratic lawmakers to Schwab, however, maintains that compensation, in whatever form, “could prove expensive for the U.S. economy.”
It said that “we are writing to express our interest in considering possible legislative solutions that might restore U.S. compliance with the GATS agreement without renouncing any of our commitments under that agreement.”
Nao Matsukata, a former USTR official who is now senior policy adviser at Alston & Bird LLP, said at a hearing of the House Judiciary Committee on Nov. 15 that the issue could be resolved through legislation (H.R. 2046) proposed by Frank earlier this year, which would license U.S. and foreign companies to provide online gambling services but would allow non-discriminatory regulation at the state level.
“The historical record clearly demonstrates that, in past instances where the United States has lost in WTO disputes, the Executive Branch has not hesitated to turn to the Congress,” Matsukata said. “The apparent unwillingness of [USTR] to consult with the Congress toward a legislative solution on this matter is unusual, unexplained, and deserving of appropriate scrutiny. Why has the USTR pursued a risky legal and negotiating strategy in this instance, and is it fully aware of the potential costs of failure?”
Matsukata, who served as director of policy planning for then-U.S. Trade Representative Robert B. Zoellick from 2001 to 2004, said that H.R. 2046 would provide a “regulatory approach consistent with WTO rules regarding discrimination and market access but honor the sovereignty of the states with respect to the types of gaming allowed in the jurisdictions.” Moreover, he said, the bill would subject foreign and domestic gaming operators alike to a fair barrier to market access that would ensure competition among responsible service providers.
“I would encourage the committee to consider a legislative solution to this matter of U.S. compliance with our commitments in the [WTO],” Matsukata said. “There is little need for brinkmanship to take the country into another fruitless trade war, nor should the United States create precedents that will allow others the latitude to undo the bipartisan, 60-year effort to build a durable, rules-based global trading system.”
