The first internet gambling case brought under the WTO in which it found that the US prohibition on cross-border online gambling breached the WTO, has sent ripples through the online industry. Moreover the interpretation of the “market access” and “national treatment” obligations under the GATS (General Agreement on Trade and Services) in the case has significant implications for the e-commerce industry as a whole. Indeed Google has started using the case as a basis for challenging internet censorship in China.
The case is rather intricate and still ongoing but it has been decided on its main points:
- Firstly, the appellate body in the case ruled that although online provision of services may not have existed at the time the GATS obligations were committed to by the US in relation to betting and gambling services, this did not preclude on-line provision of such services being caught within the scope of that service category.
- Secondly, the appellate body ruled that the market access obligation (which essentially prohibits restrictive measures such as monopolies, limitations on foreign ownership, etc) will apply to a service whatever the means of service delivery – it is not possible to restrict the obligation to a service supplied by a particular means of delivery. This means that online supply in any service sector (for example, medical services, advertising, news and some financial services) cannot be prohibited without breaching GATS where a WTO member country has made a commitment in relation to that service category. This is the case even if the prohibition is equally applicable to domestic operators.
- A point on the interpretation of “national treatment”, which requires equal conditions of competition for foreign and domestic service suppliers, was not actually ruled on, as the US had already been found to violate the market access principle. The issue raised, though, was whether a difference in treatment in online vs face-to-face supply would effectively constitute indirect discrimination against a foreign service supplier. It seems reasonable to conclude that it does, since a prohibition on supply via the internet has a deeper negative impact on foreign suppliers because the face-to-face alternative is much easier for domestic suppliers than for foreign entities. Moreover, if a country were allowed to treat a service differently merely because it was supplied remotely, it would make the commitment to equal treatment for “cross-border” supply largely meaningless.
The US reaction
The ruling in the case has been received with alarm in the US by a group of US Attorney Generals complaining that it has an unacceptable impact on their ability to regulate internet commerce, and, as an example, prevents them banning spam e-mail because the US has made a commitment on the cross-border supply of advertising services.
Criticism of the ruling appears inflated, in particular, a ban on spam e-mail is unlikely to breach any commitments under the GATS since it only prohibits one, particularly unwelcome, form of cross-border advertising it does not make the cross-border supply of advertising services impossible. However, the case has highlighted that the WTO is the one of the few international trade treaties that covers cross border e-commerce and can have an important impact on domestic regulation.