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Abstract
The General Agreement on Trade in Services (GATS) has attracted much attention in public and academic debate. The aim of this article is to analyse the application of the GATS to internet-based services, thus providing a lens through which important issues concerning the GATS can be highlighted. This article reviews the far-reaching implications of the recent US—Gambling dispute for the regulation of (internet-based) services. It argues that World Trade Organization Members need to make a greater effort to delineate the key GATS obligations (market access, national treatment, and disciplines on domestic regulation) in order to provide national law- and policy-makers and trade negotiators with more legal certainty and predictability in the application of the GATS.
Notes
1 Claus-Dieter Ehlermann was subsequently appointed as an arbitrator to decide on the ‘reasonable period of time’ for the US to implement the recommendations and rulings of the Dispute Settlement Body (DSB) of the WTO in this dispute. Ehlermann found that the reasonable period of time would expire on 3 April 2006 (WTO Citation2005b). The implementation of this ruling is still disputed among the parties. On 19 July 2006, the DSB established a compliance panel to review the US implementation of US—Gambling. The compliance panel has not yet issued its report.
2 The following cases involved GATS issues on a more limited scale: EC—Regime for the Importation, Sale and Distribution of Bananas (EC—Bananas III), WT/DS27/AB/R; Canada—Certain Measures Concerning Periodicals, WT/DS31/AB/R; Canada—Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R; and Mexico—Measures Affecting Telecommunications Services, WT/DS204/R.
3 In 2003, Antigua and Barbuda (one of the smallest states in the world) brought a complaint before the WTO alleging that the US did not comply with its obligations under the GATS. Antigua and Barbuda argued that the US measures concerning the cross-border supply of gambling and betting services were inconsistent with several provisions of the GATS, including the provisions on market access and national treatment. In July 2003, a panel was established by the DSB to examine this dispute.
4 The standing AB was established in 1995. It hears appeals from panel cases, but appeals are limited to issues of law only. The rules and procedures for WTO dispute settlement are set out in the Dispute Settlement Understanding (DSU).
5 For background information on the GATS negotiations, see Weiss (Citation1995, 1179–1987).
6 On the relationship between schedules of specific commitments and the market access and national treatment obligations, see Krajewski (Citation2003, 76–81).
7 Article XX GATS.
8 Article XX:3 GATS.
9 Article I:2 GATS reads as follows: ‘For the purposes of this Agreement, trade in services is defined as the supply of a service: (a) from the territory of one Member into the territory of any other Member; (b) in the territory of one Member to the service consumer of any other Member; (c) by a service supplier of one Member, through commercial presence in the territory of any other Member; (d) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member.’
10 With regard to electronic services, see Wunsch-Vincent (Citation2006a, 84–90).
11 For comparative research on this matter, see the contributions in Swiss Institute of Comparative Law (Citation2004).
12 Internet-based gambling is a service that is supplied through remote means directly to the consumers. This is in contrast to traditional land-based or on-site gambling where the consumer is at the supplier's point of presence.
13 This view is also shared by the US Department of Justice. The WTO panel also made findings concerning the Wire Act (paras 6.363–6.365), the Travel Act (paras 6.368–6.373) and the Illegal Gambling Business Act (paras 6.376–6.380).
14 In the proceedings before the panel, the US representatives admitted that the remote (and cross-border) supply of gambling and betting services is generally unlawful in the US. Several prominent executives of online gambling companies are currently being prosecuted by US authorities for their alleged involvement in activities considered illegal by the US authorities.
15 Doubts have been raised whether the Unlawful Internet Gambling Enforcement Act of 2006 is in compliance with the requirements of the GATS (Financial Times Citation2006).
16 Article I:2(a) GATS.
17 Loscalzo and Shapiro (Citation2000) argued that the prohibition (instead of regulation) of internet gambling may exacerbate the problems that the prohibition wants to address (for example, underage gambling). In the absence of respected and regulated US companies offering internet-based gambling, users have to access the sites of other international and often less well-known companies.
18 But see, in the specific context of financial services, the recommendations of the Financial Action Task Force (FATF) to combat money-laundering and terrorist-financing. These recommendations were drawn up to combat the misuse of financial systems by persons laundering drug money, and to deal with the financing of terrorism.
19 With regard to financial services, the WTO Secretariat produced an informal note on the distinction between modes 1 and 2. The note stated that ‘the ambiguity [concerning modes 1 and 2] is due to the fact that the delivery of financial services very often does not require the physical presence of the consumer. Electronic means associated with the globalization of financial markets has made it possible to “deliver” a financial service almost anywhere in the world’ (WTO Citation1997). This issue continues to be debated in the Council for Trade in Services.
20 Article I:2(a) of the GATS. See also Krajewski (Citation2003, 66–67) supporting the view that the supply of services through the internet falls within mode 1.
21 Mode 2 refers to the movement of the consumer whereby the service is delivered outside the territory of the WTO Member that made the commitment. Traditionally, this required the actual movement of the consumer or, at least, the movement of the property of the consumer into the territory of another WTO Member (WTO Citation2001, paragraph 29).
22 In the context of free movement of services, see Case C-76/90 Säger [1991] ECR I-4221, where the European Court of Justice ruled that Article 49 EC requires ‘not only the elimination of all discrimination against a person providing services on the ground of his nationality but also the abolition of any restriction, even if it applies without distinction to national providers of services and to those of other Member States, when it is liable to prohibit or otherwise impede the activities of a provider of services established in another Member State where he lawfully provides similar services’ (emphasis added).
23 For a comparison, see Pauwelyn (Citation2005, 133).
24 Article XVI:2(e) and (f). For more detail, see Krajewski (Citation2003, 85–95).
25 For an overview of national treatment in WTO law, see Trebilcock and Howse (Citation2005, Chapter 3) and Mattoo (Citation1997).
26 For a discussion of this matter, see Krajewski (Citation2003, 97–107). Determining the likeness of service suppliers is a particularly challenging exercise.
27 See Krajewski (Citation2003, 102) and Mattoo (Citation1997, 119–121). Krajewski, for instance, argued that ‘[a] service supplied across the border and a service supplied through commercial presence do not have the same or similar characteristics. For example, the supply of financial services through Internet banking (mode 1) and the supply of that service in a branch of the bank (mode 3) have different features … There is usually no fully competitive relationship between services supplied through different modes of supply, because services supplied through different modes of supply may have different end-users. On-line banking services can only be supplied to consumers with access to a computer, while services supplied in a branch require that the consumers are physically close enough to the branch to enter it’ (Krajewski Citation2003, 102).
28 The drafting of this provision reflects previous GATT practice (Krajewski Citation2003, 107).
29 So far, only disciplines for the accountancy sector exist. See WTO (Citation1998).
30 This provision stipulates, in essence, that domestic regulation shall not be contrary to the criteria outlined in Article VI:4(a)–(c) if that could not reasonably have been expected of that Member at the time the specific commitments in those sectors were made.
31 This issue was heavily disputed among the parties, and the US argued unsuccessfully that it had never intended to make such a commitment. The US argument was rejected by the panel and the AB, which both interpreted the relevant part of the US schedule of commitments by following closely the rules of interpretation mandated by WTO law. This paper will not explore in detail how the panel and the AB arrived at their conclusion.
32 The Council for Trade in Services and the Committee on Trade in Financial Services have for some time been debating the implications arising from the supply of services through different means of delivery, especially through the internet or other electronic means.
33 This paper does not deal with the justification of the US measure on the grounds of ‘public morals’, Article XIV(a).
34 Wunsch-Vincent (Citation2006b) argued that, due to the particular facts of this case, the consequences of US—Gambling may be less alarming than sometimes argued by commentators. The interpretation of the panel and the AB applied to a situation where the cross-border supply of a particular service was completely prohibited despite a full market access commitment. Such a situation is to be distinguished from the imposition of certain regulatory requirements that relate to the quality of the service (for example, strict licensing criteria for the purposes of consumer protection measures, etc). These qualitative measures would be within the scope of Article VI (and Article XVII) only.
35 He further argued that the approach taken in US—Gambling ‘risks WTO intrusion into the regulatory freedom of WTO Members far beyond what was originally agreed to in the WTO Treaty … Essentially, if the scope of market access restrictions under Article XVI of GATS were defined too broadly … scores of domestic regulations would already be prohibited and the ongoing negotiations would lose much of their purpose’ (Pauwelyn Citation2005, 133).
36 The term ‘qualification requirements’ refers to ‘substantive requirements which a professional service supplier is required to fulfil in order to obtain certification or a licence’ (WTO Citation1999a, paragraph 4).
37 For an illustrative list of different categories of measures covered by Article VI:4, see WTO (Citation1996, paragraph 4).
38 Pauwelyn (Citation2005, 166) is very critical of this argument.
39 In US—Gambling, the US submitted that a ‘commitment for cross-border supply of medical services does not imply that Members must then permit doctors to diagnose patients over the telephone or over the internet’ (WTO Citation2004, paragraph 3.132). Note that the US made a similar argument with regard to internet-based gambling, which failed to convince the panel and the AB.
40 To illustrate this point, one can mention the example of the prohibition on internet-based gambling, adopted pursuant to several public policy objectives; or the prohibition that lawyers give legal advice over the internet, adopted pursuant to consumer protection considerations. The ‘General Exceptions’ in Article XIV still provide WTO Members with the possibility to justify prima facie GATS-inconsistent measures on the grounds, inter alia, of public morals, public order, and human, animal or plant life or health. The scope of this provision, however, is limited and shifts the burden on the defending WTO Member to justify its otherwise GATS-inconsistent measure.