Sorry nfleqbc but as I understand it based on your two options, #2 will bring the U.S. into compliance, #1 will not. The applelate body ruled that the U.S. was guilty of not offering gambling services as was required under WTO rules. If the U.S. somehow stopped all interstate horse betting and assured that no cross border gambling of any kind ever occurred - (this would mean they couldn't allow poker networks, casino wagering or similar between states and any intentions by tribal gaming to offer services cross border would have to be halted) then the U.S. could say to the WTO that America has no interstate wagering of any sort in the country and its "morals" claim would be upheld.
Simply allowing Antigua to offer horse racing on American races would not solve the problem because it is not only horse racing that is at question. What the WTO dispute panel did say yesterday is that if Antigua could have offered horse racing to Americans as happens remotely in the U.S. now then it would have amounted hypothetically to $21 million. And that is the amount they awarded as damages. The argument is illogical and goes against all previous rules and decisions since the dispute body is supposed to come up with actuals not hypotheticals and Antigua showed it has lost $3.4 billion per year because America did not freely allow wagering from Antigua causing many online gambling companies to withdraw from the country. America committed to "other recreational services" which includes all forms of cross border wagering, not just horse racing.
Until such a time that the U.S. is allowed to withdraw its commitments (which I believe requires the approval of all WTO members who issued complaints), the old commitment stands. The $21 million simply means that Antigua can't charge as much to Americans for software or music (to recoup losses) than if they were allowed $3.4 billion.
Here's a link to the full text of the decision
http://docsonline.wto.org/GEN_highLi... 2FDS285%2FARB