In May 2007, the US announced its intention to withdraw a commitment itmade under the General Agreement on Trade in Services (GATS) concerning “gambling and betting services”. However, the US endeavour to deny gaming operators access to itsmarkets by withdrawing its GATS commitments is unlikely to succeed given the extensive rights conferred to foreign investors under the US Investment Incentive Agreements (“IIAs”).

Rights conferred by US IIAs: protections contained in the US IIAs, comprising 40 Bilateral Investment Treaties (BITs) and 11 Free Trade Agreements (FTA’s),may be relied upon by foreign investors seeking to establish a gaming business in the US under the “commercial presence” route.

The vastmajority of BITs in theworld focus on investment protection rather than on liberalisation of investment flows. Consequently,most BITs do not provide a right to establish an investment but rather provide only post-establishment rights, that is, the protections in the BITswould only apply once the investment has beenmade in the host state in accordancewith its laws.

However, the BITs and FTA’s entered into by the US are an exception to this trend. 

  • IIAs to which the US is a party generally contain provisions guaranteeing to investors the right to establish investments in the US. 
  • Therefore, these IIAs oblige the US to permit investment flows into its territory in addition to guaranteeing such investments withminimumstandards of protection once they have been established. Consequently, the US would be obliged to extend national treatment andMFN-treatment (albeit with certain exceptions) to investors even at the pre-entry phase.
  • Foreign investors are therefore entitled to be treated no less favourably than domestic investors in the host country or as compared to investors of any third State. Therefore, if a domestic US investor (or an investor froma third State) were to be entitled to establish a gaming business in the US, a foreign investor (of a State which has an investment agreement with the US) would be equally entitled to do so.

Exceptions: however, the right to establish an investment in the territory of the US is subject to a number of exceptions. 

  • For instance, the non-discrimination andMFN-treatment provisions of the US-Czech BIT would not apply to advantages accorded by the US to nationals or companies of States with which it has a FTA or has entered into a customs union. 
  • Some of the US IIAs contain a “denial of benefits” clause that entitle it to deny treaty benefits to companies incorporated within amember state purely for the purpose of taking advantage of investment protections. Therefore, in order to derive the protections of the US BITs and FTAs, it would be necessary for an investor to demonstrate that it has substantial business activities in its home State and that the channelling of investments fromthat State was not merely an exercise in “treaty shopping”.

Dispute resolution: in the event the US denies an investor permission to establish a gaming business, this may well amount to a breach of its treaty obligations. The putative investor could then choose to enforce its rights by recourse to the dispute resolutionmechanismcontained in the applicable IIA.

Wider effect via Article II GATS: which applies to allWTOMembers, contains amost-favoured-nation (MFN) obligation whereby eachMember has to accord any otherMember the same treatment that it accords to any other country. Thus, if the US denies an investor froma country that does not have a BIT permission to establish a gaming business with the US, that countrymay invoke theMFN obligation to argue that its companies should be treated the same way as companies fromcountries that do have BITs with the US.

Conclusion: the raft of IIAs to which the US is a party afford foreign investors substantial rights to access the US gaming market. These rights are in addition tomarket access opportunities available under current GATS commitmentsmade by the US, and are likely to be invaluable in the event that the US does succeed in withdrawing its commitments concerning “gambling and betting services”.