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March-01-2009,
The EU Appears to be Doing a 360...By Hartley Henderson

In 2007 all eyes in the gambling community were on the EU when countries were making deals to allow the United States to change its trade commitments regarding gambling. Japan, Macao, Canada, Australia, Costa Rica and India were also involved in the process, but the only two entities anyone was paying close attention to were Antigua and the European Union. Antigua was of interest since they brought the issue to the table, and the EU was of interest because they had the potential to demand such a large amount of compensation for allowing the U.S. to rewrite the commitments it could force the American government to back down or pursue a different avenue. In the end the EU's compensation agreement was a big disappointment to those who didn't want the U.S. to go down that road. Few details were made public concerning the final agreement, but sums of around $4 billion were bandied about, as well as concessions in shipping and storage. To date neither the U.S. or the EU has revealed all the details of the deal. Antigua, of course, won a decision for $21 million a year as compensation for being the effected party in the gambling dispute, but has yet to come to an agreement which would allow the US change its commitments. It appears India also still needs to come to an agreement with the United States.

If those details about $4 billion and concessions in shipping and storage are indeed correct, however, it appears no one is happy with it. In the United States some Democrats, such as Barney Frank and Robert Wexler, are upset at the agreement and believe the U.S. has no business reneging on trade agreements. Furthermore, Democrats such as Peter Defazio and Barney Frank, along with Ron Paul, have demanded to know more details about what exactly the U.S. has given the EU for the right to rewrite the commitments, as they want to ensure it's a fair deal for all. Other right wing groups are also upset at the deal, but for a different reason. They believe that the USTR should have told other countries to stuff themselves and simply rewritten the agreement without any compensation. As well, the Centre for International Policy has demanded to know what exactly the United States gave up in all these agreements, since the country has a right to know. But thus far the USTR has refused to release any details, citing security concerns. It is hoped that the Obama administration will see the absurdity of that stance and will at least reveal more details of what was given up in the deal with the EU, Canada and the other countries so American citizens and state governments can decide for themselves if it's in their best interests.

So if few in the U.S. public eye are joyful about the agreement and the USTR is refusing to release details, then there must be much more to the agreement and the EU and other countries must have walked away with the bank, right? Apparently not. Almost immediately after the EU made its decision to allow the U.S. to rewrite its commitments, the Remote Gambling Association (RGA) in the UK came forward complaining about U.S. tactics. EU trade commissioner Peter Mandelson responded with a statement to the U.S. that the EU would not put up with American discriminatory tactics in the area of gambling. He followed it up with a visit to the U.S., stating the same. The comments had everyone scratching their heads. After all, Mandelson was the one who signed the agreement with the United States. The whole issue sounded like a mother telling her kid that it was OK to have ice cream and then yelling at him for eating the ice cream. RGA spokesperson Clive Hawkswood last year made it clear, however, that the issue did not involve the ability to offer gambling services in the U.S. by European companies, but rather that they were upset with the United States' attempt to arrest EU citizens for offering their services prior to the UIGEA being enacted. They stated that the U.S., in doing so, violated treaties because prior to the UIGEA no one offering gambling services to the United States was breaking U.S. law.

If, indeed, those were the arguments of the RGA then, they seem to have made a 360 and now want full unfettered access to the U.S. market. In a recent email conversation with Clive Hawkswood, I tried to clear up some comments made by the RGA over the last two months that the United States was breaking a trade agreement by blocking access from EU operators. As well, there have been many rumblings that maybe this deal with the EU wasn't what it appeared after all, and that it had a lot of strings attached, which is why the U.S. government won't release details.

I asked Mr. Hawkswood the following:

Do you know if a deal between the EU and US was ever actually confirmed? I know the original reports stated the two agreed to let the US rewrite commitments in exchange for concessions in shipping and storage, but comments by the EU make one wonder if there was more to the deal that is now putting the US in breach of the agreement. Also there seems to be no rush by the US to rewrite its commitments, probably because it's far down the list of priorities for the current government, but also likely because they know full well online gambling expansion in the United States is imminent with California and other states about to start an online poker network. I know Barney Frank and some others are concerned about the hypocrisy, too. As Shakespeare wrote, "Something's rotten in the state of Denmark". There is more to this whole issue than either side is letting on.

Mr. Hawkswood's response was as follows:

There are two issues with the EU and they do sometimes get confused. The first was [that] the deal that was done to secure EU agreement to the US withdrawing its relevant commitments under GATS. That was the one you mention, but the US can't go ahead and withdraw the commitments until all the interested nations have also done deals with them. Antigua still hasn't done that, so the commitments remain in place for the time being. However, even if they are eventually withdrawn it can only have effect going forward and not [retroactively]. This is where the second EU issue comes in. It relates to a complaint that we made to the EU under the Trade Barriers Regulations. The main argument here is that, under GATS, EU online gambling operators are entitled to take business from the US and that the threatened DoJ enforcement action is effectively an unacceptable trade barrier. This triggered a formal process within the EU and we believe their investigation is close to completion and we are confident that it will find in our favour. If that's the case then we expect the EU will seek to negotiate a deal to provide protection for EU businesses (this will not have a financial element), and if that fails [we] will take the US to the WTO.

So the difference between the two courses of action is that the first addresses the US desire to withdraw its GATS commitments, and the second is about US actions while those commitments are still in place.

The response was a far cry from his comments last year when Mr. Hawkswood stated that the only issue involved prosecution of EU operators prior to the passing of the UIGEA; so I pressed on.

It seems clear that there has been quite a bit of backlash against Mandelson for making the deal with the US in the first place, particularly since it does nothing to help EU online gambling operators, and as you know there are a lot of upset parties in the US, also. Do you know if anyone in the new USTR is talking to the new EU trade commissioner to make this whole issue go away? Obama made it clear he wants to ensure trade agreements are implemented and I don't think Ashton was too excited about the deal, so this may be an out. I'm sure you'll agree that your organization and those that were affected would much rather have an open US market for online gaming than some concessions in shipping and storage.

Hawkswood's response did indeed address the questions, but again it sounds as if the RGA is no longer interested in just a stop to arrests of EU operators, but now wants access to the U.S. market

1. EU operators should, under GATS, be allowed to take business from the US, but DoJ prosecutions and threats of prosecution have deterred the big players from continuing to trade. That makes it a trade barrier.

2. We were disappointed that the EU did a deal so readily, but it wasn't a great surprise. It's too early to tell whether Baroness Ashton will be hardline over these issues, but we found Peter Mandelson to be very supportive on our TBR complaint. As far as I know there have been no overtures from USTR, and I suspect there will be nothing formal until they are told the outcome of the EU enquiry.

3. Our long term target is, of course, to have a non discriminatory licensing regime in the US and, as you say, concessions in other areas are no good for us. The TBR complaint though, if successful, would not involve further concessions, but reliable assurances that no further enforcement action will be pursued against EU gambling interests, so that would bring direct benefits to the sector.

Hawkswood also commented that the RGA is upset at the U.S. with regards to the Anurag Dikshitz plea. The RGA feels the U.S. pressured him to come to an agreement with them and because Party Poker withdrew when the UIGEA passed they should have let him off the hook.

So the question that has to be asked is the following: If indeed the EU, perhaps because of a push from the RGA, now wants to back out of the agreement, what caused the change of heart? The answer seems to be twofold. First, there has been a change in both the U.S. and EU trade representation with Ron Kirk as the new USTR for the Obama led regime and Catherine Ashton replacing Peter Mandelson in the EU. Kirk is a staunch free trader and cares about trade agreements, so it is very likely he would not have approved the rewriting of the commitment if he was in charge back in 2006 when the WTO ruled that the U.S. was in violation of the trade agreement. Almost certainly he would have pursued other avenues. With that in mind, and given how most in the Democratic government don't agree with the method the U.S. used to try to get out of its commitment, perhaps the EU sees an opportunity to work with the U.S. to allow remote gambling by EU operators that will be acceptable to both sides, essentially ripping up all side deals that were made. Until the U.S. actually comes to agreements with Antigua and India, and until they actually rewrite their commitments, nothing changes. So there is indeed a bit of room for more negotiation. As for the other countries that the U.S. came to agreements with, it is likely they would have no problems ripping up those agreements if the U.S. chooses not to go ahead. Australia, Macao, Costa Rica and Canada would almost certainly be only too happy to have unfettered access to the U.S. market for gambling services from their countries. In Canada it appears the country is about to allow single game sportsbetting, and Ontario wants to offer an online network. Surely allowing U.S. customers to play into that network would boost their revenues and the federal government in Canada has told me on several occasions that anything related to gambling is a provincial issue only. Furthermore, much of the gambling software out there is designed by Cryptologic and other Canadian companies. And in Australia, Centrebet, IAS and other Australian companies would be thrilled to have access to the U.S. market.

The other more likely reason that the EU has made this 360 however, is that the EU is starting to see the United States' stated reasoning for rewriting its commitments as what it truly is - bunk. In telling the WTO why they believed they should not be held to the agreement signed in 1994, the USTR used 2 main arguments. First, they stated it opposed their morals and second they believed it was impossible to regulate. The main reason, however, is that the U.S. believed online gambling went against their public morals and the country signed that part of the agreement in error. The WTO found the U.S. was not totally truthful because they allowed remote betting on horse racing, but accepted the U.S. at its word (i.e. the U.S. government now believed it was immoral) and told America that if they stopped allowing remote betting on horse racing they would accept the morals argument. Of course the U.S. couldn't do so because of the giant horse racing lobby, so it chose to go the route of rewriting that part of the agreement. Since that date, however, the U.S. has talked quite a bit about online gambling in America, and it is not only in the area of horse racing. New Jersey and Delaware are looking at offering sports betting in their states, albeit in a parlay type of game. Nevada continues to get nearer to online gambling, and now Kentucky, which recently tried to seize domain names, is looking at it closely, too. And surely most states are seeing how they can benefit from online gambling. Obviously when a report comes out stating the U.S. could make $53 billion in taxes over a decade from online gambling (as was reported by Safe & Secure), it is hard to ignore. It may not make a world of difference to the federal government but to hard hit states that represents welcome revenue.

And then there is California. The state is about to go online with an intrastate poker network---it's not a matter of if, but a matter of when. Other states will follow suit, and then, by law, you have an interstate poker network since any activity that is legal in two states is automatically legal between the states. But California, while anxious to start the network, doesn't believe it is in their interest to be the ones running the network, nor are they interested in developing software in-state. They simply want the tax revenues from it. Another internet site stated that 888 gaming was at the forefront to design and run the poker network, and while that may be true (I have nothing to show it isn't), more likely they will try to find a different software designer and management company. The state apparently wants nothing to do with Party Poker because of the baggage attached with Dikshitz and others, and they probably won't go near any networks that are currently catering to the U.S. market, such as Pokerstars, Full Tilt Poker or Absolute Poker. If California has decided not to approach any poker operators that ever catered to the U.S. market that rules out 888 gaming also. The more likely choice for California would be a network like Ongame Network or Betfair poker, which have never accepted U.S. clients. Regardless, the fact that California is even looking outside of the United States for a poker provider speaks volumes. After all, the whole reason for the U.S. rewriting its commitments is to avoid having to allow offshore operators to provide gambling services to the United States. The fact that a European company will be managing the software in the US rather than from Europe doesn't change the fact that some foreign operator will likely be running an "immoral" poker network in the United States. Clearly, even the contemplation of this move by California is causing the United States trade representatives and the EU to take a step back and say, "one second, what exactly are we doing?" It makes absolutely no sense to rewrite a commitment prohibiting foreign operators from providing services to the United States if states within the country are asking foreign operators to run a gambling service within their state. And furthermore, if California does indeed hire a place like Betfair or Bwin to run their poker network, but doesn't allow bids from other jurisdictions, then certainly Canada, Antigua and Costa Rica have a beef with the World Trade Organization. As a WTO commissioner told me last year:

"Regardless of a commitment, a Member would not be allowed to discriminate between different WTO Members in allowing trade. So if the US tolerated internet gambling from some non-US jurisdictions, but not others, there would be a problem. And [that] is something the WTO would have to address.

So to sum up, the EU is clearly taking a second look at this agreement to see if there is some wiggle room that would allow EU operators to offer gambling services to the United States. Right now this issue is not a priority for Kirk or anyone in the U.S. government; but until the United States comes to terms with Antigua and India, there is nothing stopping the two sides from changing their minds about any previous agreements (and for that matter any country involved in the negotiations) and trying to work out something that will satisfy all parties. Because, clearly, as it stands now you have a lot of angry individuals who are clinging to agreements they know will benefit no one.

03-01-2009
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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