Notice of initiation of an examination procedure concerning obstacles to trade within the meaning of Council Regulation (EC) No 3286/94 consisting of the US ban on foreign internet gambling and its enforcement
Date: 2008-03-11
Institutions: European Commission
Subjects: Internet, United States, automatic game, common commercial policy, complaint to the Commission, game of chance

11.3.2008

EN

Official Journal of the European Union

C 65/5

PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMMON
COMMERCIAL POLICY

COMMISSION

Notice of initiation of an examination procedure concerning obstacles to trade within the meaning
of Council Regulation (EC) No 3286/94 consisting of the US ban on foreign internet gambling and
its enforcement

(2008/C 65/07)

On 20 December 2007, the Commission received a complaint
under Article 4 of Regulation (EC) No 3286/94 (1) (hereinafter
‘the Regulation’). The period of time referred to in Article 5(4)
of the Regulation was suspended with the agreement of the
complainant until 15 January 2008.

1. Complainant

The complaint was lodged by the Remote Gambling Association
(hereinafter ‘RGA’).

the world's largest

RGA is a London-based trade association including in its
membership most of
internet gambling
companies. Nine of the top ten Community suppliers belong to
the RGA, as well as 16 of the first 20. It therefore represents a
the Community internet gambling
substantial proportion of
industry.

The RGA is therefore an association acting on behalf of one or
more Community enterprises within the meaning of Articles 4(1)
and 2(6) of the Regulation.

2. Service concerned

The complaint concerns the supply of commercial gambling
and betting services delivered via remote communication and
primarily the internet.

The service is identified as falling under sub sector 96492
‘gambling and betting services’, sector 964 ‘Sporting and other

(1) Council Regulation (EC) No 3286/94 of 22 December 1994 laying
down Community procedures in the field of the common commercial
policy in order to ensure the exercise of the Community's rights
under international trade rules, in particular those established under
the auspices of the World Trade Organisation (WTO) (OJ L 349,
31.12.1994, p. 71). Regulation as last amended by Regulation (EC)
No 125/2008 (OJ L 40, 14.2.2008, p. 1).

recreational services’ of the ‘Services sectoral classification list’
(the so called ‘W/120 list’) used in the GATS context.

There is no specific EU legislation, although a number of EU
jurisdictions do licence internet gambling operators (Austria,
Ireland, Italy, Malta, the United Kingdom and Gibraltar) on the
basis of national legislation or regulation.

3. Subject

The complaint focuses on US (i) legislation imposing a ban on
internet gambling; (ii) measures taken to enforce that legislation;
(iii) the fact that the legislation is enforced in a discriminatory
way.

In this respect, the complaint explicitly identifies the relevant
provisions in the US Wire Act and the safe harbour allegedly
created by the Interstate Horse Racing Act (IHA); the Travel Act;
the Illegal Gambling Business Act (IGBA); the Wagering Para-
phernalia Act, and Federal anti-money laundering legislation;
prohibitions contained in State laws;
Internet
Gambling Enforcement Act (UIGEA); and the differential and
discriminatory treatment of EU suppliers compared to US
suppliers based on these laws.

the Unlawful

4. Allegations of obstacles to Trade

The complainant considers that
the measures described in
Section 3 constitute an obstacle to trade within the meaning of
Article 2(1) of the Regulation.

C 65/6

EN

Official Journal of the European Union

11.3.2008

The complainant alleges that the measures described in Section 3
are inconsistent with several provisions of the General Agree-
ment on Trade in Services (hereinafter ‘GATS’).

5. Allegation of adverse trade effects

The complainant alleges that, by maintaining the Wire Act, the
Travel Act and the IGBA — which were found to violate
Article XVI of
the GATS in the US-Gambling dispute
(WT/DS285) — and by taking enforcement measures against
foreign service suppliers, the US is denying market access incon-
sistently with Article XVI of the GATS. Moreover, the complai-
in which the US
nant argues that the adoption of UIGEA,
Congress recognises that internet gambling can be regulated,
and the selective enforcement of
the law, notably through
possible criminal sanctions, against foreign service providers but
not against US based providers, both make the violation of
Article XVI GATS more clear cut and undermine very consider-
ably the US position with regard to a possible Article XVI
defence.

the fact

Second, the complainant alleges that the measures described in
Section 3 are inconsistent with Article XVII of the GATS. The
complaint argues that US based operators of internet horse race
betting and non-US based operators of internet gambling are
like service suppliers or like services, and that the US violates
Article XVII of the GATS by applying less favourable treatment
to non-US based operators of internet gambling. The complaint
that some EU operators did not offer
claims that
gambling on horse racing is entirely related to the regulatory
measures applied by the US, distorting the competitive relation-
ship between US-based operators and non-US based operators.
Moreover,
it is argued that the selective enforcement of the
prohibition to provide remote gambling services against foreign
service providers but not against US-based providers, notably
through possible criminal sanctions, constitutes a clear instance
of discrimination which is inconsistent with Article XVII of the
GATS.

The complainant gives consideration as well to the fact that the
relevant GATS legal framework is expected to undergo signifi-
cant changes in the coming months as a result of the intention
of the US to withdraw its GATS commitments on gambling and
betting services. The complainant argues that this withdrawal
would not have retroactive effects, and would therefore not
affect the US obligations in respect of any act or fact occurred
while the commitment was still in place. Given that the only
relevant trade (‘act or fact’) at issue in the complaint is the
remote gambling that a number of EU based operators offered
to persons in the US prior to their withdrawal from the US
market, and therefore while the US commitments were in place,
the US would according to the complainant be under the obli-
gation not to take or continue any measure that would consti-
tute a violation of its obligations in relation to such past trade.

the Commission is satisfied that

In light of the factual information available and the evidence
the complaint
submitted,
contains sufficient prima facie evidence of the existence of obsta-
cles to trade within the meaning of Article 2(1) of the Regu-
lation.

The complainant claims that the obstacles to trade identified in
the complaint have forced their total withdrawal from the US
market and have significant additional negative effects on their
business outside the US. It points out therefore that the obsta-
cles to trade can be considered as causing and threatening to
cause adverse trade effects.

It

the Community.

further maintains that

The complaint contains information and evidence showing that
the impact of
the measures has been serious both on the
services trade between the EU and the US and on the Com-
munity gambling sector, with potential significant impact on the
the
economy of
existing threats in the form of possible criminal sanctions may
have further serious impact on the affected companies and the
gambling sector. The main relevant indicators referred to in the
complaint are a loss of revenue for one financial year in the US
for the three main EU companies of USD 3 billion; a loss of
stock market value of more than USD 11 billion for the same
three companies following the adoption of UIGEA and their
withdrawal from the US market; the payment of substantial
fines in settlements with the US Department of Justice; reference
to the potential impact of possible sanctions on the ability of
the companies to operate their business under normal condi-
tions outside the US; and knock-on effects on sectors that
supply services to the gambling sector as well as on banks that
have provided payment services.

The Commission considers that the complaint contains suffi-
cient prima facie evidence of the adverse trade effects of the
measure on the complainant and a sector or
sectors of
economic activity in the Community within the meaning of
Article 2(4) of the Regulation.

6. Community interest

indicates that

the EU has developed the
The complainant
world's leading internet gaming business and has a strong lead
over the US in this sector. Many of the world's largest compa-
nies are licensed in and operate from the United Kingdom,
Gibraltar, Malta, Ireland and Austria. There are significant back
office operations providing technology, marketing and customer
service support in Sweden, Cyprus, Bulgaria and Estonia. The
complaint remarks that accurate statistics on this fast growing
e-commerce sector are not readily available, but offers some
indicators of the economic significance of the sector including
an estimate of 15 000 staff employed by the internet gaming
industry in the EU, with a proportion of high value knowledge
jobs higher than in many other industries. It further points out
that
indirect
economic impact on other sectors of the economy which are
involved in providing the infrastructure that an internet business
requires (primarily financial services,
information technology
and professional services).

the internet gaming sector has a significant

11.3.2008

EN

Official Journal of the European Union

C 65/7

The Global Europe Communication from October 2006 is also
an important factor to take into account. This Communication
states that that rejection of protectionism at home must be
accompanied by activism in creating open markets and fair
conditions for trade abroad. Its most relevant section is the
Action Plan for EU External Competitiveness, which includes
plans for a renewed Market Access Strategy, building on the one
launched in 1996 to help enforce multilateral and bilateral trade
deals and open third country markets. It is important in this
respect to ensure that other WTO Members abide by their WTO
commitments.

In view of the above, it is considered to be in the Community's
interest to initiate an examination procedure.

7. Procedure

after due

consultation of

Having decided,
the Advisory
Committee established by the Regulation, that there is sufficient
evidence to justify initiating an examination procedure for the
purpose of considering the legal and factual issues involved, and
that this is in the interest of the Community, the Commission
has commenced an examination in accordance with Article 8 of
the Regulation.

Interested parties may make themselves known and make
known their views in writing on specific issues raised by the
complaint, providing supporting evidence.

Furthermore, the Commission will hear the parties who so
request in writing when they make themselves known, provided
that they are primarily concerned by the result of the procedure.

This notice is published in accordance with Article 8(1)(a) of the
Regulation.

8. Time limit

Any information relating to the matter and any request for a
hearing should reach the Commission not later than 30 days
following the date of publication of this notice and should be
sent in writing to:

European Commission
Directorate-General for Trade
Mr Jean-François Brakeland, DG Trade F.2
CHAR 9/74
B-1049 Brussels
Fax (32-2) 299 32 64.

their

they may request

in the exercise of

the intervention of

It is also noted that if interested parties consider that they are
rights of
encountering difficulties
defence,
the Hearing
Officer of DG Trade. He acts as an interface between the inter-
ested parties and the Commission services, offering, where
necessary, mediation on procedural matters affecting the protec-
tion of their interests in this proceeding,
in particular, with
regard to issues concerning access to the file, confidentiality,
extension of time limits and the treatment of written and/or
oral submission of views. For further information and contact
details, interested parties may consult the Hearing Officer's web
pages on the website of DG Trade (http://ec.europa.eu/trade).