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UNITED STATES � MEASURES AFFECTING THE CROSS-BORDER SUPPLY OF
AB-2005-1
(Continued)
257. Having upheld the Panel's interpretation of Article XVI:2(a) and (c), we now consider its application of that interpretation to the measures at issue in this case. In so doing, we consider, for the reasons already explained, only that part of the Panel's analysis relating to the three federal laws, and not its analysis relating to state laws. 258. The Panel's explanation of the three federal laws is set out in paragraphs 6.360 to 6.380 of the Panel Report. It is, in our view, useful to set out briefly the relevant part of each statute, as well as the Panel's finding in respect of that statute. The relevant part of the Wire Act states:
259. With respect to this provision, the Panel found that "the Wire Act prohibits the use of at least one or potentially several means of delivery included in mode 1"294, and that, accordingly, the statute "constitutes a 'zero quota' for, respectively, one, several or all of those means of delivery."295 The Panel reasoned that the Wire Act prohibits service suppliers from supplying gambling and betting services using remote means of delivery, as well as service operations and service output through such means. Accordingly, the Panel determined that "the Wire Act contains a limitation 'in the form of numerical quotas' within the meaning of Article XVI:2(a) and a limitation 'in the form of a quota' within the meaning of Article XVI:2(c)."296 260. As regards the Travel Act, the Panel quoted the following excerpt:
261. The Panel determined that "the Travel Act prohibits gambling activity that entails the supply of gambling and betting services by 'mail or any facility' to the extent that such supply is undertaken by a 'business enterprise involving gambling' that is prohibited under state law and provided that the other requirements in subparagraph (a) of the Travel Act have been met."298 The Panel further opined that the Travel Act prohibits service suppliers from supplying gambling and betting services through the mail, (and potentially other means of delivery), as well as services operations and service output through the mail (and potentially other means of delivery), in such a way as to amount to a "zero" quota on one or several means of delivery included in mode 1.299 For these reasons, the Panel found that "the Travel Act contains a limitation 'in the form of numerical quotas' within the meaning of Article XVI:2(a) and a limitation' in the form of a quota' within the meaning of Article XVI:2(c)."300 262. The Panel considered the relevant part of the Illegal Gambling Business Act to be the following:
263. The Panel then determined that because the IGBA "prohibits the conduct, finance, management, supervision, direction or ownership of all or part of a 'gambling business' that violates state law, it effectively prohibits the supply of gambling and betting services through at least one and potentially all means of delivery included in mode 1 by such businesses"; that this prohibition concerned service suppliers, service operations and service output; and that, accordingly, the IGBA "contains a limitation 'in the form of numerical quotas' within the meaning of Article XVI:2(a) and a limitation 'in the form of a quota' within the meaning of Article XVI:2(c)."302 264. The United States' appeal of the Panel's findings with respect to the consistency of its measures with sub-paragraphs (a) and (c) of Article XVI:2 rests on two pillars: (i) that the Panel erred in interpreting those provisions; and (ii) that the measures at issue do not contain any limitations that explicitly take the form of numerical quotas or designated numerical units. The United States does not appeal the Panel's findings as to the various activities that are prohibited under these statutes. We have upheld the Panel's interpretation of sub-paragraphs (a) and (c) of Article XVI:2 and, in particular, its determination that these provisions encompass measures equivalent to a zero quota. In these circumstances, the fact that the Wire Act, the Travel Act and the IGBA do not explicitly use numbers, or the word "quota", in imposing their respective prohibitions, does not mean, as the United States contends, that the measures are beyond the reach of Article XVI:2(a) and (c). As a result, there is no ground for disturbing the above findings made by the Panel. 265. We have upheld the Panel's finding that the United States' Schedule to the GATS includes a specific commitment in respect of gambling and betting services.303 In that Schedule, the United States has inscribed "None" in the first row of the market access column for subsector 10.D. In these circumstances, and for the reasons given in this section of our Report, we also uphold the Panel's ultimate finding, in paragraph 7.2(b)(i) of the Panel Report, that, by maintaining the Wire Act, the Travel Act, and the Illegal Gambling Business Act, the United States acts inconsistently with its obligations under Article XVI:1 and Article XVI:2(a) and (c) of the GATS. VII. Article XIV of the GATS: General Exceptions 266. Finally, we turn to the Panel's analysis of the United States' defence under Article XIV of the GATS. We found above that Antigua failed to make a prima facie case of inconsistency with Article XVI in relation to the eight state laws examined by the Panel.304 The Panel found that no other state laws had been sufficiently identified by Antigua as part of its claims in this dispute.305 We therefore limit our discussion to the Panel's treatment of the defence asserted by the United States with respect to the three federal laws�the Wire Act, the Travel Act, and the Illegal Gambling Business Act ("IGBA")�under Article XIV. 267. The United States and Antigua each raises multiple allegations of error with respect to the Panel's analysis under Article XIV. We begin with Antigua's claim that the Panel erred in examining the merits of the United States' defence, notwithstanding that the United States did not raise it until its second written submission to the Panel. Next, we consider the participants' allegations that the Panel erred by taking it upon itself to construct the defence or rebuttal for the other party. We then turn to the participants' claims of error in relation to the Panel's analysis under paragraphs (a) and (c) of Article XIV, and under the chapeau, or introductory paragraph, of Article XIV.
268. Antigua argues that "the Panel erred in its decision to consider the United States' defence in this proceeding at all" and thereby failed to satisfy its obligations under Article 11 of the DSU.306 Antigua points out that the United States did not raise its defence under Article XIV of the GATS until its second written submission to the Panel, which was filed on the same day as Antigua's second written submission. Antigua submits that this delayed invocation by the United States of its defence was a "simple litigation tactic"307, and that, because the United States did not invoke the defence at an earlier stage of the panel proceeding, Antigua was "deprived of a full and fair opportunity to respond to the defence."308 269. Article 6.2 of the DSU requires that the legal basis for a dispute, that is, the claims, be identified in a panel request with specificity sufficient "to present the problem clearly," so that a responding party will be aware, at the time of the establishment of a panel, of the claims raised by the complaining party to which it might seek to respond in the course of the panel proceedings. In contrast, the DSU is silent about a deadline or a method by which a responding party must state the legal basis for its defence.309 This does not mean that a responding party may put forward its defence whenever and in whatever manner it chooses. Article 3.10 of the DSU provides that "all Members will engage in these procedures in good faith in an effort to resolve the dispute", which implies the identification by each party of relevant legal and factual issues at the earliest opportunity, so as to provide other parties, including third parties, an opportunity to respond. 270. At the same time, the opportunity afforded to a Member to respond to claims and defences made against it is also a "fundamental tenet of due process".310 A party must not merely be given an opportunity to respond, but that opportunity must be meaningful in terms of that party's ability to defend itself adequately. A party that considers it was not afforded such an opportunity will often raise a due process objection before the panel.311 The Appellate Body has recognized in numerous cases that a Member's right to raise a claim312 or objection313, as well as a panel's exercise of discretion314, are circumscribed by the due process rights of other parties to a dispute. Those due process rights similarly serve to limit a responding party's right to set out its defence at any point during the panel proceedings. 271. Due process may be of particular concern in cases where a party raises new facts at a late stage of the panel proceedings. The Appellate Body has observed that, under the standard working procedures of panels315, complaining parties should put forward their cases�with "a full presentation of the facts on the basis of submission of supporting evidence"�during the first stage of panel proceedings.316 We see no reason why this expectation would not apply equally to responding parties, which, once they have received the first written submission of a complaining party, are likely to be aware of the defences they might invoke and the evidence needed to support them. 272. It follows that the principles of good faith and due process oblige a responding party to articulate its defence promptly and clearly. This will enable the complaining party to understand that a specific defence has been made, "be aware of its dimensions, and have an adequate opportunity to address and respond to it."317 Whether a defence has been made at a sufficiently early stage of the panel proceedings to provide adequate notice to the opposing party will depend on the particular circumstances of a given dispute. 273. Furthermore, as part of their duties, under Article 11 of the DSU, to "make an objective assessment of the matter" before them, panels must ensure that the due process rights of parties to a dispute are respected.318 A panel may act inconsistently with this duty if it addresses a defence that a responding party raised at such a late stage of the panel proceedings that the complaining party had no meaningful opportunity to respond to it. To this end, panels are endowed with "sufficient flexibility" in their working procedures, by virtue of Article 12.2 of the DSU, to regulate panel proceedings and, in particular, to adjust their timetables to allow for additional time to respond or for additional submissions where necessary.319 274. In the present case, the United States made no mention of Article XIV of the GATS until its second written submission, filed on 9 January 2004.320 Antigua did not refer to Article XIV in its second written submission, filed on the same day, although Antigua had, in its first written submission, referred to the possibility that the United States might seek to invoke Article XIV.321 Both parties discussed issues relating to Article XIV in their opening statements at the second substantive panel meeting on 26 January 2004.322 275. At the hearing in this appeal, Antigua acknowledged that it "had the opportunity to respond" to the United States' defence, and had "responded sufficiently", during its opening statement at the second substantive panel meeting.323 When asked whether it had informed the Panel of any prejudice resulting from the United States' allegedly late invocation of the defence, Antigua answered that it had not so informed the Panel. Nevertheless, Antigua maintained at the hearing that it was prejudiced on the grounds that the late invocation by the United States of its defence hampered the Panel's ability to assess that defence, resulting in the Panel's making the defence for the United States.324 276. In these circumstances, we are of the view that, although the United States could have raised its defence earlier, the Panel did not err in deciding to assess whether the United States' measures are justified under Article XIV. From the outset, Antigua was apparently aware that the United States might argue that its measures satisfy the requirements of Article XIV. Antigua admitted that it raised no objection to the timing of the United States' defence before the Panel. Antigua also acknowledged that it did have an opportunity to respond adequately to the United States' defence, albeit at a late stage of the proceeding. For these reasons, we consider that the Panel did not "deprive" Antigua of a "full and fair opportunity to respond to the defence".325 We find, therefore, that the Panel did not fail to satisfy its obligations under Article 11 of the DSU by entering into the merits of the United States' defence under Article XIV.
277. In its analysis of issues arising under Article XIV of the GATS, the Panel drew extensively on arguments made and evidence submitted by the parties in connection with other issues in this case. This approach of the Panel to Article XIV is the subject of appeals by both Antigua and the United States. Each alleges that the Panel erred in its treatment of the burden of proof. 278. Antigua argues that the Panel acted inconsistently with its obligations under Article 11 of the DSU because it "constructed the GATS Article XIV defence on behalf of the United States."326 First, with respect to Article XIV(a), Antigua claims that the United States identified only two interests relating to "public morals" or "public order", namely: (i) organized crime; and (ii) underage gambling. Antigua argues that the Panel, however, identified an additional three concerns on its own initiative: (i) money laundering327, (ii) fraud328, and (iii) public health.329 Secondly, Antigua contends that the Panel erred in its analysis of the United States' defence under the chapeau of Article XIV because the United States' arguments assessed by the Panel were not taken from the United States' submissions relating to Article XIV, but rather, from the United States' response to Antigua's national treatment claim under Article XVII of the GATS. 279. In its appeal, the United States submits that it established its case that the Wire Act, the Travel Act, and the IGBA are justified under Article XIV, but that the Panel improperly constructed a rebuttal under the chapeau to that provision when Antigua itself had failed to do so. The United States alleges, in particular, that the Panel did so "by recycling evidence and argumentation that Antigua had used to allege a national treatment violation under Article XVII as if those arguments had been made in the context of the Article XIV chapeau."330 280. We begin our analysis by referring to the Appellate Body's view that:
281. However, a panel enjoys such discretion only with respect to specific claims that are properly before it, for otherwise it would be considering a matter not within its jurisdiction. Moreover, when a panel rules on a claim in the absence of evidence and supporting arguments, it acts inconsistently with its obligations under Article 11 of the DSU.332 282. In the context of affirmative defences, then, a responding party must invoke a defence and put forward evidence and arguments in support of its assertion that the challenged measure satisfies the requirements of the defence. When a responding party fulfils this obligation, a panel may rule on whether the challenged measure is justified under the relevant defence, relying on arguments advanced by the parties or developing its own reasoning. The same applies to rebuttals. A panel may not take upon itself to rebut the claim (or defence) where the responding party (or complaining party) itself has not done so. 283. Turning to the issues on appeal, we begin with the three protected interests that the Panel allegedly identified on its own in examining the United States' defence under paragraph (a) of Article XIV, namely, health concerns, and combating money laundering and fraud. In both its first and second written submissions to the Panel, the United States, in responding to one of Antigua's claims under the GATS, identified five "concerns associated with the remote supply of gambling [services]."333 These "concerns" relate to: (1) organized crime334; (2) money laundering335; (3) fraud336; (4) risks to youth, including underage gambling337; and (5) public health.338 When subsequently arguing that the Wire Act, the Travel Act, and the IGBA are justified under Article XIV(a), the United States explicitly referred back to the discussion, earlier in its second written submission to the Panel, of all these interests except for that relating to public health.339 284. In other words, four of the five interests mentioned by the Panel were plainly discussed or referred to by the United States as part of its defence under Article XIV(a). The fifth interest�relating to public health�was prominently identified by the United States in a previous discussion of the protected interests relating to the remote supply of gambling services and, therefore, was not an invention of the Panel.340 In our view, the fact that this fifth interest was not explicitly raised again in the context of the United States' Article XIV arguments should not have precluded the Panel from considering it as part of its analysis under Article XIV(a). We therefore dismiss this ground of Antigua's appeal. 285. We turn now to the participants' arguments relating to the Panel's treatment of the burden of proof in its analysis under the chapeau of Article XIV. Antigua had advanced a claim before the Panel under Article XVII of the GATS, alleging that the United States fails to accord to Antiguan services and service suppliers, treatment no less favourable than that accorded to like domestic services and service suppliers.341 Throughout the panel proceedings, the United States disputed this assertion, consistently arguing that United States laws on gambling make no distinction between domestic and foreign services, or between domestic and foreign service suppliers.342 The Panel exercised judicial economy with respect to Antigua's claim under Article XVII.343 Nevertheless, in the course of considering whether the Wire Act, the Travel Act, and the IGBA satisfy the conditions of the chapeau of Article XIV, the Panel examined arguments put by the parties in relation to Antigua's Article XVII claim.344 286. On appeal, both participants contest the Panel's use of such arguments. Antigua contends that the Panel's reliance on the United States' arguments on Article XVII demonstrates that the Panel constructed a defence for the United States, whereas the United States points to the Panel's reliance on Antigua's arguments on Article XVII as proof that the Panel improperly assumed Antigua's responsibility to rebut the United States' defence. 287. In arguing its Article XIV defence before the Panel, the United States asserted that its measures satisfy the requirements of the chapeau of Article XIV because they do not discriminate at all. In particular, the United States contended:
In our view, this statement by the United States, particularly the adverb "repeatedly", reflects an intention to incorporate into its Article XIV defence its previous arguments relating to non-discrimination in general, which were made in response to Antigua's national treatment claim. We therefore consider that the Panel did not err in referring to these arguments�originally made in the context of Article XVII�in its Article XIV analysis. 288. With respect to Antigua's rebuttal of the arguments, we note that, contrary to the United States' assertions, Antigua did contend that the three federal statutes are applied in a discriminatory manner and therefore fail to meet the requirements of the chapeau of Article XIV. In its opening statement at the second substantive panel meeting, Antigua said:
We consider that, in making this statement, Antigua effectively formulated an allegation of discrimination, describing it as" clear[]" and "obvious". This must be understood as a reference to the arguments that it had advanced in support of its national treatment claim. Accordingly, the Panel did not err in evaluating, as part of its analysis under the chapeau to Article XIV, the extent to which Antigua's arguments under Article XVII rebutted the defence advanced by the United States. 289. Therefore, we find that the Panel did not improperly assume the burden of constructing the defence under Article XIV(a) for the United States. We also find that the Panel did not improperly assume the burden of making a rebuttal to the United States' defence on behalf of Antigua. 290. Antigua also claims on appeal that the Panel improperly constructed the defence for the United States under paragraph (c) of Article XIV. Antigua argues that the United States "failed to sufficiently identify"347 the Racketeer Influenced and Corrupt Organizations statute (the "RICO statute") as a law relevant to the Panel's examination of the challenged United States measures under Article XIV(c). Antigua submits that the Panel should therefore have refused to consider the RICO statute in its assessment of the United States' Article XIV(c) defence. In the light of our analysis in the next sub-section of this Report, it is not necessary for us to determine whether the Wire Act, the Travel Act, and the IGBA might also constitute measures falling under Article XIV(c).348 In these circumstances, we need not rule on Antigua's appeal relating to the Panel's treatment of the burden of proof in its analysis under paragraph (c) of Article XIV.
291. Article XIV of the GATS sets out the general exceptions from obligations under that Agreement in the same manner as does Article XX of the GATT 1994. Both of these provisions affirm the right of Members to pursue objectives identified in the paragraphs of these provisions even if, in doing so, Members act inconsistently with obligations set out in other provisions of the respective agreements, provided that all of the conditions set out therein are satisfied. Similar language is used in both provisions349, notably the term "necessary"350 and the requirements set out in their respective chapeaux. Accordingly, like the Panel, we find previous decisions under Article XX of the GATT 1994 relevant for our analysis under Article XIV of the GATS.351 292. Article XIV of the GATS, like Article XX of the GATT 1994, contemplates a "two-tier analysis" of a measure that a Member seeks to justify under that provision.352 A panel should first determine whether the challenged measure falls within the scope of one of the paragraphs of Article XIV. This requires that the challenged measure address the particular interest specified in that paragraph and that there be a sufficient nexus between the measure and the interest protected. The required nexus�or "degree of connection"�between the measure and the interest is specified in the language of the paragraphs themselves, through the use of terms such as "relating to" and "necessary to".353 Where the challenged measure has been found to fall within one of the paragraphs of Article XIV, a panel should then consider whether that measure satisfies the requirements of the chapeau of Article XIV.
293. Paragraph (a) of Article XIV covers:
294. In the first step of its analysis under this provision, the Panel examined whether the measures at issue�the Wire Act, the Travel Act, and the IGBA�are "designed" to protect public morals and to maintain public order.354 As a second step, the Panel determined whether these measures are "necessary" to protect public morals or to maintain public order, within the meaning of Article XIV(a).355 The Panel found that:
295. Our review of this conclusion proceeds in two parts. We address first Antigua's challenge to the Panel's finding that the three federal statutes are "measures that are designed to 'protect public morals' and/or 'to maintain public order' in the United States within the meaning of Article XIV(a)."357 We then address the participants' respective challenges to the Panel's finding that the three federal statutes are not "necessary" to protect public morals and to maintain public order.
296. In its analysis under Article XIV(a), the Panel found that "the term 'public morals' denotes standards of right and wrong conduct maintained by or on behalf of a community or nation."358 The Panel further found that the definition of the term "order", read in conjunction with footnote 5 of the GATS, "suggests that 'public order' refers to the preservation of the fundamental interests of a society, as reflected in public policy and law."359 The Panel then referred to Congressional reports and testimony establishing that "the government of the United States consider[s] [that the Wire Act, the Travel Act, and the IGBA] were adopted to address concerns such as those pertaining to money laundering, organized crime, fraud, underage gambling and pathological gambling."360 On this basis, the Panel found that the three federal statutes are "measures that are designed to 'protect public morals' and/or 'to maintain public order' within the meaning of Article XIV(a)."361 297. Antigua contests this finding on a rather limited ground, namely that the Panel failed to determine whether the concerns identified by the United States satisfy the standard set out in footnote 5 to Article XIV(a) of the GATS, which reads:
298. We see no basis to conclude that the Panel failed to assess whether the standard set out in footnote 5 had been satisfied. As Antigua acknowledges362, the Panel expressly referred to footnote 5 in a way that demonstrated that it understood the requirement therein to be part of the meaning given to the term "public order".363 Although "no further mention"364 was made in the Panel Report of footnote 5 or of its text, this alone does not establish that the Panel failed to assess whether the interests served by the three federal statutes satisfy the footnote's criteria. Having defined "public order" to include the standard in footnote 5, and then applied that definition to the facts before it to conclude that the measures "are designed to 'protect public morals' and/or 'to maintain public order'"365, the Panel was not required, in addition, to make a separate, explicit determination that the standard of footnote 5 had been met. 299. We therefore uphold the Panel's finding, in paragraph 6.487 of the Panel Report, that " the concerns which the Wire Act, the Travel Act and the Illegal Gambling Business Act seek to address fall within the scope of 'public morals' and/or 'public order' under Article XIV(a)."
300. In the second part of its analysis under Article XIV(a), the Panel considered whether the Wire Act, the Travel Act, and the IGBA are "necessary" within the meaning of that provision. The Panel found that the United States had not demonstrated the "necessity" of those measures.366 301. This finding rested on the Panel's determinations that:
(i) "the interests and values protected by [the Wire Act, the Travel Act, and
the IGBA] serve very important societal interests that can be 302. Each of the participants appeals different aspects of the analysis undertaken by the Panel in determining whether the "necessity" requirement in Article XIV(a) was satisfied. According to Antigua, the Panel failed to establish a sufficient "nexus" between gambling and the concerns raised by the United States.371 In addition, Antigua claims that the Panel erroneously limited its discussion of "reasonably available alternatives". In its appeal, the United States argues that the Panel departed from the way in which "reasonably available alternative" measures have been examined in previous disputes and erroneously imposed "a procedural requirement on the United States to consult or negotiate with Antigua before the United States may take measures to protect public morals [or] protect public order".372 303. We begin our analysis of this issue by examining the legal standard of "necessity" in Article XIV(a) of the GATS. We then turn to the participants' appeals regarding the Panel's interpretation and application of this requirement.
304. We note, at the outset, that the standard of "necessity" provided for in the general exceptions provision is an objective standard. To be sure, a Member's characterization of a measure's objectives and of the effectiveness of its regulatory approach�as evidenced, for example, by texts of statutes, legislative history, and pronouncements of government agencies or officials�will be relevant in determining whether the measure is, objectively, "necessary". A panel is not bound by these characterizations373, however, and may also find guidance in the structure and operation of the measure and in contrary evidence proffered by the complaining party. In any event, a panel must, on the basis of the evidence in the record, independently and objectively assess the "necessity" of the measure before it. 305. In Korea � Various Measures on Beef, the Appellate Body stated, in the context of Article XX(d) of the GATT 1994, that whether a measure is "necessary" should be determined through "a process of weighing and balancing a series of factors".374 The Appellate Body characterized this process as one:
306. The process begins with an assessment of the "relative importance" of the interests or values furthered by the challenged measure.376 Having ascertained the importance of the particular interests at stake, a panel should then turn to the other factors that are to be "weighed and balanced". The Appellate Body has pointed to two factors that, in most cases, will be relevant to a panel's determination of the "necessity" of a measure, although not necessarily exhaustive of factors that might be considered.377 One factor is the contribution of the measure to the realization of the ends pursued by it; the other factor is the restrictive impact of the measure on international commerce. 307. A comparison between the challenged measure and possible alternatives should then be undertaken, and the results of such comparison should be considered in the light of the importance of the interests at issue. It is on the basis of this "weighing and balancing" and comparison of measures, taking into account the interests or values at stake, that a panel determines whether a measure is "necessary" or, alternatively, whether another, WTO-consistent measure is "reasonably available".378 308. The requirement, under Article XIV(a), that a measure be "necessary"�that is, that there be no "reasonably available", WTO-consistent alternative�reflects the shared understanding of Members that substantive GATS obligations should not be deviated from lightly. An alternative measure may be found not to be "reasonably available", however, where it is merely theoretical in nature, for instance, where the responding Member is not capable of taking it, or where the measure imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties. Moreover, a "reasonably available" alternative measure must be a measure that would preserve for the responding Member its right to achieve its desired level of protection with respect to the objective pursued under paragraph (a) of Article XIV.379 309. It is well-established that a responding party invoking an affirmative defence bears the burden of demonstrating that its measure, found to be WTO-inconsistent, satisfies the requirements of the invoked defence.380 In the context of Article XIV(a), this means that the responding party must show that its measure is "necessary" to achieve objectives relating to public morals or public order. In our view, however, it is not the responding party's burden to show, in the first instance, that there are no reasonably available alternatives to achieve its objectives. In particular, a responding party need not identify the universe of less trade-restrictive alternative measures and then show that none of those measures achieves the desired objective. The WTO agreements do not contemplate such an impracticable and, indeed, often impossible burden. 310. Rather, it is for a responding party to make a prima facie case that its measure is "necessary" by putting forward evidence and arguments that enable a panel to assess the challenged measure in the light of the relevant factors to be "weighed and balanced" in a given case. The responding party may, in so doing, point out why alternative measures would not achieve the same objectives as the challenged measure, but it is under no obligation to do so in order to establish, in the first instance, that its measure is "necessary". If the panel concludes that the respondent has made a prima facie case that the challenged measure is "necessary"�that is, "significantly closer to the pole of 'indispensable' than to the opposite pole of simply 'making a contribution to'"381�then a panel should find that challenged measure "necessary" within the terms of Article XIV(a) of the GATS. 311. If, however, the complaining party raises a WTO-consistent alternative measure that, in its view, the responding party should have taken, the responding party will be required to demonstrate why its challenged measure nevertheless remains "necessary" in the light of that alternative or, in other words, why the proposed alternative is not, in fact, "reasonably available". If a responding party demonstrates that the alternative is not "reasonably available", in the light of the interests or values being pursued and the party's desired level of protection, it follows that the challenged measure must be "necessary" within the terms of Article XIV(a) of the GATS.
312. In considering whether the United States' measures are "necessary" under Article XIV(a) of the GATS, the Panel began by considering the factors set out by the Appellate Body in Korea � Various Measures on Beef as they apply to the Wire Act, the Travel Act, and the IGBA. Antigua claims that the Panel erred in concluding, in the course of its analysis of these factors, that the three federal statutes contribute to protecting the interests raised by the United States. 313. The Panel set out, in some detail, how the United States' evidence established a specific connection between the remote supply of gambling services and each of the interests identified by the United States382, except for organized crime.383 In particular, the Panel found such a link in relation to money laundering384, fraud385, compulsive gambling386, and underage gambling.387 Considering that the three federal statutes embody an outright prohibition on the remote supply of gambling services388, we see no error in the Panel's approach, nor in its finding, in paragraph 6.494 of the Panel Report, that the Wire Act, the Travel Act, and the IGBA "must contribute" to addressing those concerns.389 314. In addition, the United States and Antigua each appeals different aspects of the Panel's selection of alternative measures to compare with the Wire Act, the Travel Act, and the IGBA. The United States argues that the Panel erred in examining the one alternative measure that it did consider, and Antigua contends that the Panel erred in failing to consider additional alternative measures. 315. In its "necessity" analysis under Article XIV(a), the Panel appeared to understand that, in order for a measure to be accepted as "necessary" under Article XIV(a), the responding Member must have first "explored and exhausted" all reasonably available WTO-compatible alternatives before adopting its WTO-inconsistent measure.390 This understanding led the Panel to conclude that, in this case, the United States had "an obligation to consult with Antigua before and while imposing its prohibition on the cross-border supply of gambling and betting services".391 Because the Panel found that the United States had not engaged in such consultations with Antigua, the Panel also found that the United States had not established that its measures are "necessary" and, therefore, provisionally justified under Article XIV(a).392 316. In its appeal of this finding, the United States argues that "[t]he Panel relied on the 'necessity' test in Article XIV as the basis for imposing a procedural requirement on the United States to consult or negotiate with Antigua before the United States may take measures to protect public morals [or] protect public order".393 The United States submits that the requirement in Article XIV(a) that a measure be "necessary" indicates that "necessity is a property of the measure itself" and, as such, "necessity" cannot be determined by reference to the efforts undertaken by a Member to negotiate an alternative measure.394 The United States further argues that in previous disputes, the availability of alternative measures that were "merely theoretical" did not preclude the challenged measures from being deemed to be "necessary".395 Similarly, the United States argues, the fact that measures might theoretically be available after engaging in consultations with Antigua does not preclude the "necessity" of the three federal statutes. 317. In our view, the Panel's "necessity" analysis was flawed because it did not focus on an alternative measure that was reasonably available to the United States to achieve the stated objectives regarding the protection of public morals or the maintenance of public order. Engaging in consultations with Antigua, with a view to arriving at a negotiated settlement that achieves the same objectives as the challenged United States' measures, was not an appropriate alternative for the Panel to consider because consultations are by definition a process, the results of which are uncertain and therefore not capable of comparison with the measures at issue in this case. 318. We note, in addition, that the Panel based its requirement of consultations, in part, on "the existence of [a] specific market access commitment [in the United States' GATS Schedule] with respect to cross-border trade of gambling and betting services".396 We do not see how the existence of a specific commitment in a Member's Schedule affects the "necessity" of a measure in terms of the protection of public morals or the maintenance of public order. For this reason as well, the Panel erred in relying on consultations as an alternative measure reasonably available to the United States. 319. We turn now to Antigua's allegation that the Panel improperly limited its examination of possible alternative measures against which to compare the Wire Act, the Travel Act, and the IGBA. Antigua claims that the Panel "erred in limiting" its search for alternatives to the universe of existing United States regulatory measures.397 Antigua also alleges that the Panel erred by examining only those measures that had been explicitly identified by Antigua even though "Antigua was never given the opportunity to properly rebut the Article XIV defence."398 320. We observe, first, that the Panel did not state that it was limiting its search for alternatives in the manner alleged by Antigua. Secondly, although the Panel began its analysis of alternative measures by considering whether the United States already employs measures less restrictive than a prohibition to achieve the same objectives as the three federal statutes399, its inquiry did not end there. The Panel obviously did consider alternatives not currently in place in the United States, as evidenced by its (ultimately erroneous) emphasis on the United States' alleged failure to pursue consultations with Antigua.400 Finally, we do not see why the Panel should have been expected to continue its analysis into additional alternative measures, which Antigua itself failed to identify. As we said above401, it is not for the responding party to identify the universe of alternative measures against which its own measure should be compared. It is only if such an alternative is raised that this comparison is required.402 We therefore dismiss this aspect of Antigua's appeal. 321. In our analysis above, we found that the Panel erred in assessing the necessity of the three United States statutes against the possibility of consultations with Antigua because such consultations, in our view, cannot qualify as a reasonably available alternative measure with which a challenged measure should be compared.403 For this reason, we reverse the Panel's finding, in paragraph 6.535 of the Panel Report, that, because the United States did not enter into consultations with Antigua:
322. Having reversed this finding, we must consider whether, as the United States contends404, the Wire Act, the Travel Act, and the IGBA are properly characterized as "necessary" to achieve the objectives identified by the United States and accepted by the Panel. The Panel's analysis, as well as the factual findings contained therein, are useful for our assessment of whether these measures satisfy the requirements of paragraph (a) of Article XIV. 323. As we stated above, a responding party must make a prima facie case that its challenged measure is "necessary". A Panel determines whether this case is made through the identification, and weighing and balancing, of relevant factors, such as those in Korea � Various Measures on Beef, with respect to the measure challenged. In this regard, we note that the Panel: (i) found that the three federal statutes protect "very important societal interests"405; (ii) observed that "strict controls may be needed to protect [such] interests"406; and (iii) found that the three federal statutes contribute to the realization of the ends that they pursue.407 Although the Panel recognized the "significant restrictive trade impact"408 of the three federal statutes, it expressly tempered this recognition with a detailed explanation of certain characteristics of, and concerns specific to, the remote supply of gambling and betting services. These included: (i) " the volume, speed and international reach of remote gambling transactions"409; (ii) the "virtual anonymity of such transactions"410; (iii) " low barriers to entry in the context of the remote supply of gambling and betting services"411; and the (iv) " isolated and anonymous environment in which such gambling takes place".412 Thus, this analysis reveals that the Panel did not place much weight, in the circumstances of this case, on the restrictive trade impact of the three federal statutes. On the contrary, the Panel appears to have accepted virtually all of the elements upon which the United States based its assertion that the three federal statutes are "indispensable".413 324. The Panel further, and in our view, tellingly, stated that
325. From all of the above, and in particular from the summary of its analysis made in paragraphs 6.533 and 6.534 of the Panel Report, we understand the Panel to have acknowledged that, but for the United States' alleged refusal to accept Antigua's invitation to negotiate, the Panel would have found that the United States had made its prima facie case that the Wire Act, the Travel Act, and the IGBA are "necessary", within the meaning of Article XIV(a). We thus agree with the United States that the "sole basis" for the Panel's conclusion to the contrary was its finding relating to the requirement of consultations with Antigua.415 326. Turning to the Panel's analysis of alternative measures, we observe that the Panel dismissed, as irrelevant to its analysis, measures that did not take account of the specific concerns associated with remote gambling.416 We found above that the Panel erred in finding that consultations with Antigua constitutes a measure reasonably available to the United States.417 Antigua raised no other measure that, in the view of the Panel, could be considered an alternative to the prohibitions on remote gambling contained in the Wire Act, the Travel Act, and the IGBA. In our opinion, therefore, the record before us reveals no reasonably available alternative measure proposed by Antigua or examined by the Panel that would establish that the three federal statutes are not "necessary" within the meaning of Article XIV(a). Because the United States made its prima facie case of "necessity", and Antigua failed to identify a reasonably available alternative measure, we conclude that the United States demonstrated that its statutes are "necessary", and therefore justified, under paragraph (a) of Article XIV. 327. For all these reasons, we find that the Wire Act, the Travel Act, and the IGBA are "measures ... necessary to protect public morals or to maintain public order", within the meaning of paragraph (a) of Article XIV of the GATS.418
328. Antigua and the United States also challenge several aspects of the Panel's analysis under Article XIV(a) as inconsistent with a panel's duty, pursuant to Article 11 of the DSU, to "make an objective assessment of the matter before it, including an objective assessment of the facts of the case". 329. In several instances, Antigua claims that the Panel failed to comply with Article 11 of the DSU because the Panel relied solely or primarily on evidence submitted by the United States, including statements of United States officials and the United States Congress, without taking into consideration contrary evidence submitted by Antigua.419 Antigua's arguments in this respect rely on the fact that the Panel did not discuss or mention certain pieces of evidence submitted by Antigua. Although Antigua alleges an "unobjective assessment of Antiguan evidence"420, it provides no examples or arguments in support of this assertion to establish that the Panel somehow exceeded its discretion. 330. As the Appellate Body has pointed out on several occasions:
As a result, unless a panel "has exceeded the bounds of its discretion ... in its appreciation of the evidence"422, the Appellate Body will not interfere with the findings of the panel.423 331. Antigua's arguments on this issue appear to us to amount to mere disagreement with the Panel's exercise of discretion in selecting which evidence to rely on when making its findings. This is not a basis on which we may conclude, on appeal, that the Panel failed to make an "objective assessment of the facts of the case". 332. Antigua additionally contends that the Panel acted inconsistently with Article 11 of the DSU because it undertook no assessment of factual evidence relating specifically to Antiguan gambling and betting services when evaluating whether the Wire Act, the Travel Act, and the IGBA are "necessary". To determine whether the statutes at issue are "necessary" under Article XIV(a), the Panel was called upon to assess the relationship between, on the one hand, the United States' restrictions on the remote supply of gambling, and, on the other hand, the "public moral"/"public order" interests identified by the United States as the reasons for the restrictions contained in the Wire Act, the Travel Act, and the IGBA. The United States did not explicitly identify either the source of supply or the foreign nature of the supply of gambling and betting services as a relevant concern. In other words, the evidence put before the Panel by the United States suggests that the nexus is with the remote supply of gambling services, regardless of its source or the national origin of the suppliers. Moreover, the statutes at issue make no distinction on their face as to gambling services from different origins; the Panel found simply that the statutes prohibit the remote supply of gambling and betting services.424 As a result, there was no need for the Panel to have analyzed evidence relating to the supply of gambling services specifically from Antigua, and we see no error in the Panel's decision not to make an assessment of the Antiguan industry. 333. The United States appeals, under Article 11 of the DSU, the Panel's factual finding that the United States rejected Antigua's invitation to engage in consultations to explore means by which Antiguan gambling service suppliers might provide their services without contributing to the concerns identified by the United States.425 We have already found that the Panel erred in concluding that consultations were required in order for the three federal statutes to be considered "necessary" under Article XIV(a). Therefore, in resolving this dispute, we need not rule on this claim on appeal. 334. Therefore, we find that the Panel did not fail to "make an objective assessment of the facts of the case", as required by Article 11 of the DSU, with respect to its analysis under Article XIV(a) of the GATS.
335. The Panel found, in paragraph 6.565 of the Panel Report, that:
336. The United States appeals this finding on the same grounds that it appeals the Panel's finding that the United States had not established that the Wire Act, the Travel Act, and the IGBA are within the scope of Article XIV(a). The Panel's finding under Article XIV(c) rests on the same basis as its finding under Article XIV(a), namely that the measures are not "necessary" because, in failing to engage in consultations with Antigua, the United States failed to explore and exhaust all reasonably available alternative measures. Given that we have reversed this finding under Article XIV(a), we also reverse the Panel's finding in paragraph 6.565 of the Panel Report on the same ground. 337. The United States requests us to complete the analysis and find that the Wire Act, the Travel Act, and the IGBA are "necessary", within the meaning of Article XIV(c), to secure compliance with the RICO statute. We found in the previous section of this Report that the Wire Act, the Travel Act, and the IGBA fall under paragraph (a) of Article XIV. As a result, it is not necessary for us to determine whether these measures are also justified under paragraph (c) of Article XIV. 338. Notwithstanding its finding that the measures at issue are not provisionally justified, the Panel examined whether those measures satisfy the requirements of the chapeau of Article XIV "so as to assist the parties in resolving the underlying dispute in this case."426 This examination is the subject of appeals by both participants. Unlike the Panel, we have found the Wire Act, the Travel Act, and the IGBA to fall within the scope of Article XIV(a). Therefore, we must now review the Panel's examination under the chapeau. 339. The chapeau of Article XIV provides:
The focus of the chapeau, by its express terms, is on the application of a measure already found by the Panel to be inconsistent with one of the obligations under the GATS but falling within one of the paragraphs of Article XIV.427 By requiring that the measure be applied in a manner that does not to constitute "arbitrary" or "unjustifiable" discrimination, or a "disguised restriction on trade in services", the chapeau serves to ensure that Members' rights to avail themselves of exceptions are exercised reasonably, so as not to frustrate the rights accorded other Members by the substantive rules of the GATS.428 340. The Panel found that:
341. In reviewing the Panel's treatment of the chapeau to Article XIV, we begin with Antigua's allegations of error, and then turn to those raised by the United States, proceeding as follows: (a) first, we examine Antigua's claim that the Panel should not have analyzed the United States' defence under the chapeau; (b) secondly, we analyze Antigua's allegation that the Panel erred by focusing its discussion under the chapeau on the remote supply of gambling services rather than on the entire gambling industry; (c) thirdly, we address the United States' argument that the Panel articulated and applied a standard under the chapeau that is inconsistent with its terms; (d) fourthly, we review the Panel's finding on the alleged non-enforcement of certain laws against United States remote suppliers of gambling services; and (e) finally, we examine whether, in its analysis under the chapeau of Article XIV, the Panel fulfilled its obligations under Article 11 of the DSU.
342. In deciding to assess whether the measures satisfied the requirements of the chapeau, the Panel explained that, even though such an examination was "not necessary", it wanted "to assist the parties in resolving the underlying dispute in this case."430 Antigua alleges that the Panel acted inconsistently with the Appellate Body's decision in Korea � Various Measures on Beef in determining whether the Wire Act, the Travel Act, and the IGBA meet the requirements of the chapeau after having found that they are were not provisionally justified. 343. In Korea � Various Measures on Beef , the Appellate Body stated, with respect to Article XX of the GATT 1994, that:
Contrary to Antigua's submission432, this statement does not impose a requirement on panels to stop evaluating a responding party's defence once they have determined that a challenged measure is not provisionally justified under one of the paragraphs of the general exception provision. 344. Provided that it complies with its duty to assess a matter objectively, a panel enjoys the freedom to decide which legal issues it must address in order to resolve a dispute.433 Moreover, in some instances, a panel's decision to continue its legal analysis and to make factual findings beyond those that are strictly necessary to resolve the dispute may assist the Appellate Body should it later be called upon to complete the analysis434, as, for example, in this case. 345. Therefore, the Panel did not err in examining whether the Wire Act, the Travel Act, and the IGBA meet the requirements of the chapeau of Article XIV, even though the Panel had found these measures not to fall within the scope of Article XIV(a) or XIV(c).
346. In examining whether discrimination exists in the United States' application of the Wire Act, the Travel Act, and the IGBA, the Panel found that " some of the concerns the United States has identified are specific only to the remote supply of gambling and betting services."435 As a result, the Panel determined that it would have been "inappropriate", in the context of determining whether WTO-consistent alternative measures are reasonably available, to compare the United States' treatment of concerns relating to the remote supply of gambling services, with its treatment of concerns relating to the non-remote supply of such services. Antigua characterizes this approach as an improper "segment[ation]" of the gambling industry, the result of which was to "exclude[] a substantial portion of gambling and betting services from any analysis at all."436 347. We have already observed that the Panel found, on the basis of evidence adduced by the United States, that the remote supply of gambling services gives rise to particular concerns.437 We see no error in the Panel's maintaining such a distinction for purposes of analyzing any discrimination in the application of the three federal statutes. Such an approach merely reflects the view that the distinctive characteristics of the remote supply of gambling services may call for distinctive regulatory methods, and that this could render a comparison between the treatment of remote and non-remote supply of gambling services inappropriate.
348. We consider next whether, contrary to the United States' allegations, the Panel accurately described and applied the correct interpretation of the chapeau of Article XIV. On the basis of the arguments advanced by Antigua, the Panel examined certain instances of alleged discrimination in the application of the Wire Act, the Travel Act, and the IGBA.438 In the course of this analysis, the Panel found that the United States had not prosecuted certain domestic remote suppliers of gambling services439, and that a United States statute (the Interstate Horseracing Act) could be understood, on its face, to permit certain types of remote betting on horseracing within the United States.440 On the basis of these two findings, the Panel concluded that:
349. The United States contends that the Panel's reasoning, in particular its standard of "consistency", reveals that the Panel, in fact, assessed only whether the United States treats domestic service suppliers differently from foreign service suppliers. Such an assessment is inadequate, the United States argues, because the chapeau also requires a determination of whether differential treatment, or discrimination, is "arbitrary" or "unjustifiable". 350. The United States based its defence under the chapeau of Article XIV on the assertion that the measures at issue prohibit the remote supply of gambling and betting services by any supplier, whether domestic or foreign. In other words, the United States sought to justify the Wire Act, the Travel Act, and the IGBA on the basis that there is no discrimination in the manner in which the three federal statutes are applied to the remote supply of gambling and betting services.442 The United States could have, but did not, put forward an additional argument that even if such discrimination exists, it does not rise to the level of "arbitrary" or "unjustifiable" discrimination. 351. In the light of the arguments before it, we do not read the Panel to have ignored the requirement of "arbitrary" or "unjustifiable" discrimination by articulating the standard under the chapeau of Article XIV as one of "consistency".443 Rather, the Panel determined that Antigua had rebutted the United States' claim of no discrimination at all by showing that domestic service suppliers are permitted to provide remote gambling services in situations where foreign service suppliers are not so permitted. We see no error in the Panel's approach.
352. In the course of examining whether the Wire Act, the Travel Act, and the IGBA are applied consistently with the chapeau of Article XIV, the Panel considered whether these laws are enforced in a manner that discriminates between domestic and foreign service suppliers. Antigua identified four United States firms that it claimed engage in the remote supply of gambling services but have not been prosecuted under any of the three federal statutes: Youbet.com, TVG, Capital OTB, and Xpressbet.com.444 Antigua contrasted this lack of enforcement with the case of an Antiguan service supplier that "had modelled [its] business on that of Capital OTB" but was nevertheless prosecuted and convicted under the Wire Act.445 In support of its argument that it applies these statutes equally to domestic and foreign service suppliers, the United States submitted statistical evidence to show that most cases prosecuted under these statutes involved gambling and betting services solely within the United States.446 353. The Panel also " note[d] indications by the United States" that prosecution proceedings were pending against one domestic remote supplier of gambling services (Youbet.com), but stated that it had no evidence as to whether any enforcement action was being taken against the other three domestic remote suppliers of gambling services identified by Antigua.447 As to foreign service suppliers, the Panel observed that it had evidence of the prosecution of one Antiguan operator for violations of the Wire Act.448 The Panel found this evidence "inconclusive" and concluded that the United States had not shown that it enforces its prohibition against the remote supply of gambling services on the three domestic service suppliers in a manner consistent with the chapeau of Article XIV.449 354. We observe, first, that none of the three federal statutes distinguishes, on its face, between domestic and foreign service suppliers.450 We agree with the Panel that, in the context of facially neutral measures, there may nevertheless be situations where the selective prosecution of persons rises to the level of discrimination. In our view, however, the evidence before the Panel could not justify finding that, notwithstanding the neutral language of the statute, the facts are "inconclusive" to establish "non-discrimination" in the United States' enforcement of the Wire Act. The Panel's conclusion rests, not only on an inadequate evidentiary foundation, but also on an incorrect understanding of the type of conduct that can, as a matter of law, be characterized as discrimination in the enforcement of measures. 355. In this case, the Panel came to its conclusion � that the United States failed to establish non-discrimination in the enforcement of its laws � on the basis of only five cases: one case of prosecution against a foreign service supplier; one case of "pending" prosecution against a domestic service supplier451; and three cases with no evidence of prosecution against domestic service suppliers. From these five cases, the Panel in effect concluded that the United States' defence had been sufficiently rebutted to warrant a finding of "inconclusiveness". 356. In our view, the proper significance to be attached to isolated instances of enforcement, or lack thereof, cannot be determined in the absence of evidence allowing such instances to be placed in their proper context. Such evidence might include evidence on the overall number of suppliers, and on patterns of enforcement, and on the reasons for particular instances of non-enforcement. Indeed, enforcement agencies may refrain from prosecution in many instances for reasons unrelated to discriminatory intent and without discriminatory effect. 357. Faced with the limited evidence the parties put before it with respect to enforcement, the Panel should rather have focused, as a matter of law, on the wording of the measures at issue. These measures, on their face, do not discriminate between United States and foreign suppliers of remote gambling services.452 We therefore reverse the Panel's finding, in paragraph 6.589 of the Panel Report, that
358. The United States and Antigua each alleges that the Panel did not comply with its obligations under Article 11 of the DSU in its analysis under the chapeau of Article XIV. We examine first Antigua's appeal relating to video lottery terminals and Nevada bookmakers, and then consider the United States' appeal concerning the Interstate Horseracing Act. 359. The Panel examined Antigua's allegations that several states in the United States permit video lottery terminals453, and that Nevada permits bookmakers to offer their services over the internet and telephone.454 The Panel rejected both of these allegations. Antigua contends that the Panel made these findings notwithstanding that Antigua had submitted evidence and the United States had submitted none, and that, by so finding, the Panel effectively "reversed" the burden of proof.455 360. Antigua is correct that the burden of proof is on the United States, as the responding party invoking the Article XIV defence. Once the United States established its defence with sufficient evidence and arguments, however, it was for Antigua to rebut the United States' defence.456 In rejecting Antigua's allegations relating to video lottery terminals and Nevada bookmakers, we understand the Panel to have determined that Antigua failed to rebut the United States' asserted defence under the chapeau, namely that its measures do not discriminate at all. Consequently, we do not read the Panel to have reversed the burden of proof in these two instances, and we dismiss this ground of Antigua's appeal. 361. We now turn to the United States' Article 11 claim relating to the chapeau. T he Panel examined the scope of application of the Interstate Horseracing Act ("IHA").457 Before the Panel, Antigua relied on the text of the IHA, which provides that "[a] n interstate off-track wager may be accepted by an off-track betting system" where consent is obtained from certain organizations.458 Antigua referred the Panel in particular to the definition given in the statute of "interstate off-track wager":
Thus, according to Antigua, the IHA, on its face, authorizes domestic service suppliers, but not foreign service suppliers, to offer remote betting services in relation to certain horse races.460 To this extent, in Antigua's view, the IHA "exempts"461 domestic service suppliers from the prohibitions of the Wire Act, the Travel Act, and the IGBA.462 362. The United States disagreed, claiming that the IHA�a civil statute�cannot "repeal"463 the Wire Act, the Travel Act, or the IGBA�which are criminal statutes�by implication, that is, merely by virtue of the IHA's adoption subsequent to that of the Wire Act, the Travel Act, and the IGBA.464 Rather, under principles of statutory interpretation in the United States, such a repeal could be effective only if done explicitly, which was not the case with the IHA.465 363. Thus, the Panel had before it conflicting evidence as to the relationship between the IHA, on the one hand, and the measures at issue, on the other. We have already referred to the discretion accorded to panels, as fact-finders, in the assessment of the evidence.466 As the Appellate Body has observed on previous occasions, "not every error in the appreciation of the evidence (although it may give rise to a question of law) may be characterized as a failure to make an objective assessment of the facts."467 364. In our view, this aspect of the United States' appeal essentially challenges the Panel's failure to accord sufficient weight to the evidence submitted by the United States with respect to the relationship under United States law between the IHA and the measures at issue. The Panel had limited evidence before it, as submitted by the parties, on which to base its conclusion. This limitation, however, could not absolve the Panel of its responsibility to arrive at a conclusion as to the relationship between the IHA and the prohibitions in the Wire Act, the Travel Act, and the IGBA. The Panel found that the evidence provided by the United States was not sufficiently persuasive to conclude that, as regards wagering on horseracing, the remote supply of such services by domestic firms continues to be prohibited notwithstanding the plain language of the IHA. In this light, we are not persuaded that the Panel failed to make an objective assessment of the facts. 365. With respect to the Panel's analysis under the chapeau of Article XIV, the United States also contends that the Panel failed to satisfy its obligations under Article 11 of the DSU in finding that "the United States has failed to demonstrate that the manner in which it enforced its prohibition on the remote supply of gambling and betting services against TVG, Capital OTB and Xpressbet.com is consistent with the requirements of the chapeau."468 Having reversed this finding under the chapeau of Article XIV469, we need not rule on the United States' additional ground of appeal, namely that, in arriving at this finding, the Panel acted inconsistently with its duty under Article 11 of the DSU. 366. In sum, we find that none of the challenges under Article 11 of the DSU relating to the chapeau of Article XIV of the GATS has succeeded.
367. In paragraph 6.607 of the Panel Report, the Panel expressed its overall conclusion under the chapeau of Article XIV as follows:
368. This conclusion rested on the Panel's findings relating to two instances allegedly revealing that the measures at issue discriminate between domestic and foreign service suppliers, contrary to the defence asserted by the United States under the chapeau. The first instance found by the Panel was based on "inconclusive" evidence of the alleged non-enforcement of the three federal statutes.470 We have reversed this finding.471 The second instance found by the Panel was based on "the ambiguity relating to" the scope of application of the IHA and its relationship to the measures at issue.472 We have upheld this finding.473 369. Thus, our conclusion�that the Panel did
not err in finding that the United States has not shown that its measures
satisfy the requirements of the chapeau�relates solely to the possibility that
the IHA exempts only domestic suppliers of remote betting services
for horse racing from the prohibitions in the Wire Act, the Travel Act, and the
IGBA. In contrast, the Panel's overall conclusion under the chapeau was
broader in scope. As a result of our reversal of one of the two findings on
which the Panel relied for its conclusion in paragraph 6.607 of the Panel
Report, we must modify that conclusion. We find, rather,
that the United States has not demonstrated that�in the light of the existence of the IHA�the Wire Act, the Travel Act, and the IGBA are applied consistently with the requirements of the chapeau. Put another way, we uphold the Panel, but only in part. 370. Our findings under Article XIV lead us to modify the overall conclusions of the Panel in paragraph 7.2(d) of the Panel Report.474 The Panel found that the United States failed to justify its measures as "necessary" under paragraph (a) of Article XIV, and that it also failed to establish that those measures satisfy the requirements of the chapeau. 371. We have found instead that those measures satisfy the "necessity" requirement. We have also upheld, but only in part, the Panel's finding under the chapeau. We explained that the only inconsistency that the Panel could have found with the requirements of the chapeau stems from the fact that the United States did not demonstrate that the prohibition embodied in the measures at issue applies to both foreign and domestic suppliers of remote gambling services, notwithstanding the IHA�which, according to the Panel, "does appear, on its face, to permit"475 domestic service suppliers to supply remote betting services for horse racing. In other words, the United States did not establish that the IHA does not alter the scope of application of the challenged measures, particularly vis-�-vis domestic suppliers of a specific type of remote gambling services. In this respect, we wish to clarify that the Panel did not, and we do not, make a finding as to whether the IHA does, in fact, permit domestic suppliers to provide certain remote betting services that would otherwise be prohibited by the Wire Act, the Travel Act, and/or the IGBA. 372. Therefore, we modify the Panel's conclusion in paragraph 7.2(d) of the Panel Report. We find, instead, that the United States has demonstrated that the Wire Act, the Travel Act, and the IGBA fall within the scope of paragraph (a) of Article XIV, but that it has not shown, in the light of the IHA, that the prohibitions embodied in these measures are applied to both foreign and domestic service suppliers of remote betting services for horse racing. For this reason alone, we find that the United States has not established that these measures satisfy the requirements of the chapeau. Here, too, we uphold the Panel, but only in part. VIII. Findings and Conclusions 373. For the reasons set out in this Report, the Appellate Body:
374. The Appellate Body recommends that the Dispute Settlement Body request the United States to bring its measures, found in this Report and in the Panel Report as modified by this Report to be inconsistent with the General Agreement on Trade in Services, into conformity with its obligations under that Agreement.
Signed in the original in Geneva this 23rd day of March 2005 by:
293 Section 1084(a) of Title 18 of the United States Code (quoted in Panel Report, para. 6.360). 294 Panel Report, para. 6.362. 295 Ibid., para. 6.363. 296 Ibid. 297 Section 1952(a) and (b) of Title 18 of the United States Code (quoted in Panel Report, para. 6.366). 298 Panel Report, para. 6.370. See also para. 6.367. 299 Ibid., paras. 6.368-6.370. 300 Ibid., para. 6.371. 301 Section 1955(a) and (b) of Title 18 of the United States Code (quoted in Panel Report, para. 6.374). 302 Panel Report, paras. 6.376-6.378. 303 Supra, para. 213. 304 Supra, paras. 149-155. 305 Panel Report, paras. 6.211-6.249. 2 306 Antigua's other appellant's submission, para. 72. 307 Ibid. 308 Antigua's other appellant's submission, para. 73. 309 The issue before us, therefore, is distinct from that addressed by the Appellate Body in EC � Bananas III, where a responding party challenged the panel's consideration of claims mentioned by certain complaining parties in the panel request, but not supported by any arguments until the second written submission before the panel. (Appellate Body Report, EC � Bananas III, paras. 145-147; see also Appellate Body Report, Chile � Price Band System, paras. 158-162) Here, we address a complaining party's challenge to a defence invoked by the responding party. 310 Appellate Body Report, Australia � Salmon, para. 278. See also Appellate Body Report, Chile � Price Band System, para. 176. 311 Appellate Body Report, US � FSC, paras. 165-166. See also Appellate Body Report, Thailand � H-Beams, para. 95.
312 See, for example, Appellate Body Report, EC � Tariff
Preferences, para. 113; Appellate Body Report, US � Oil Country Tubular
Goods Sunset Reviews, para. 161; and Appellate Body Report, Thailand �
313 Appellate Body Report, US � Carbon Steel, para. 123; Appellate Body Report, Mexico � Corn Syrup (Article 21.5 � US), para. 50; Appellate Body Report, US � FSC, para. 166; and Appellate Body Report, US � 1916 Act, para. 54. 314 See, for example, Appellate Body Report, US � 1916 Act, para. 150; and Appellate Body Report, US � FSC (Article 21.5 � EC), para. 243. 315 Appendix 3 to the DSU. We note that the Panel in this dispute operated under Working Procedures, drawn up in consultation with the parties, that provided for "all factual evidence [to be submitted] to the Panel no later than during the first substantive meeting, except with respect to evidence necessary for purposes of rebuttals or answers to questions." (Working Procedures of the Panel, Panel Report, p. A-2, para. 12) 316 Appellate Body Report, Argentina � Textiles and Apparel, para. 79. The first stage of panel proceedings continues through the first substantive panel meeting, whereas the second stage continues thereafter through the second substantive panel meeting. 317 Appellate Body Report, Chile � Price Band System, para. 164. See also Appellate Body Report, EC� Tariff Preferences, para. 113. 318 Appellate Body Report, Chile � Price Band System, paras. 174-177. 319 See Appellate Body Report, Australia � Salmon, para. 272. 320 In paragraph 87 of its second written submission to the Panel, the United States argued that the Wire Act, the Travel Act, and the IGBA "meet the requirements of Article XIV, over and above the fact that they are also consistent with the remainder of the GATS." 321 Antigua's first written submission to the Panel, para. 202 ("It is possible that the United States may try during the course of this proceeding to invoke one or more of the general exceptions of Article XIV of the GATS."). 322 Antigua's statement at the second substantive panel meeting, paras. 68-83; United States' statement at the second substantive panel meeting, paras. 74-76. 323 Antigua's response to questioning at the oral hearing. 324 Ibid. 325 Antigua's other appellant's submission, para. 73. 326 Antigua's other appellant's submission, para. 80. 327 Panel Report, paras. 6.499-6.505. 328 Ibid., paras. 6.506-6.509. 329 Ibid., paras. 6.510-6.514. 330 United States' appellant's submission, para. 188. 331 Appellate Body Report, EC � Hormones, para. 156. See also Appellate Body Report, US � Certain EC Products, para. 123. 332 Appellate Body Report, Chile � Price Band System, para. 173. 333 United States' second written submission to the Panel, para. 45. 334 United States' first written submission to the Panel, paras. 10-11; United States' second written submission to the Panel, paras. 46-49. 335 United States' first written submission to the Panel, paras. 12-13; United States' second written submission to the Panel, para. 50. 336 United States' first written submission to the Panel, paras. 14-15; United States' second written submission to the Panel, para. 51. 337 United States' first written submission to the Panel, paras. 16-18; United States' second written submission to the Panel, paras. 54-56. 338 United States' first written submission to the Panel, paras. 19-21; United States' second written submission to the Panel, paras. 52-53. 339 See the United States' second written submission to the Panel, para. 111 and footnote 139 thereto (referring to the United States' second written submission, paras. 46-51); and para. 114 and footnote 143 thereto (referring to the United States' second written submission, paras. 54-55). 340 United States' first written submission to the Panel, Section III.A.4 ("Supply of gambling into private homes, workplaces, and other environments creates additional health risks"); United States' second written submission to the Panel, Section III.B.1.b.iv ("Remote gambling poses a greater and broader threat to human health"). 341 Antigua's first written submission to the Panel, paras. 110-111, 117-118, 122-123, 125-128, and 188; Antigua's second written submission to the Panel, para. 39; Antigua's statement at the first substantive panel meeting, paras. 88-96; Antigua's statement at the second substantive panel meeting, paras. 61‑67; Antigua's response to Question 19 posed by the Panel, Panel Report, pp. C-45 to C-49. 342 See, for example, United States' first written submission to the Panel, para. 102 ("relevant restrictions on remote supply of gambling under U.S. law, whether by Internet or other means, are based on objective criteria that apply regardless of the national origin of the service or service supplier"); United States' second written submission to the Panel, para. 61 ("As the United States has repeatedly pointed out, U.S. restrictions on remote supply of gambling apply regardless of national origin"); United States' statement at the first substantive panel meeting, para. 52 ("The United States again points out, as we have throughout this dispute that U.S. restrictions applicable to Internet gambling and other forms of gambling services that Antiguan firms seek to supply on a cross-border basis apply equally to those remote supply activities within the United States."); United States' statement at the second substantive panel meeting, paras. 61-68; United States' responses to Questions 19 and 21-22 posed by the Panel, Panel Report, pp. C-45 to C-49 and C-50 to C-51. 343 Panel Report, para. 6.426. 344 Ibid., para. 6.584. See also paras. 6.585-6.603. 345 United States' second written submission to the Panel, para. 118. 346 Antigua's statement at the second substantive panel meeting, para. 80. 347 Antigua's other appellant's submission, para. 121. 348 Infra, para. 337. 349 Notwithstanding the general similarity in language between the two provisions, we note that Article XIV(a) of the GATS expressly enables Members to adopt measures "necessary to protect public morals or to maintain public order", whereas the corresponding exception in the GATT 1994, Article XX(a), speaks of measures "necessary to protect public morals". (emphasis added) 350 See, for example, paragraphs (a), (b), and (d) of Article XX of the GATT 1994:
351 In this respect, we observe that this case is not only the first where the Appellate Body is called upon to address the general exceptions provision of the GATS, but also the first under any of the covered agreements where the Appellate Body is requested to address exceptions relating to "public morals". 352 Appellate Body Report, US � Shrimp, para. 147. See also Appellate Body Report, US � Gasoline, p. 22, DSR 1996:I, 3, at 20. 353 Appellate Body Report, US � Gasoline, pp. 17-18, DSR 1996:I, 3, at 16. 354 Panel Report, paras. 6.479-6.487. 355 Ibid., paras. 6.488-6.534. 356 Ibid., para. 6.535. 357 Panel Report, para. 6.487. 358 Ibid., para. 6.465. 359 Ibid., para. 6.467. 360 Ibid., para. 6.486. 361 Ibid., para. 6.487. 362 Antigua's other appellant's submission, para. 89. 363 Panel Report, para. 6.467. 364 Antigua's other appellant's submission, para. 90. (original emphasis) 365 Panel Report, para. 6.487. 366 Ibid. 367 Ibid., para. 6.492:
368 Ibid., para. 6.494. 369 Ibid., para. 6.495. 370 Ibid., para. 6.531. 371 Antigua's other appellant's submission, para. 97. 372 United States' appellant's submission, para. 139. 373 Appellate Body Report, India � Patents (US), para. 66. 374 Appellate Body Report, Korea � Various Measures on Beef, para. 164. 375 Appellate Body Report, Korea � Various Measures on Beef, para. 166. 376 Ibid., para. 162. See also Appellate Body Report, EC � Asbestos, para. 172. 377 Appellate Body Report, Korea � Various Measures on Beef, para. 164. 378 Ibid., para. 166. 379 Appellate Body Report, EC � Asbestos, paras. 172-174. See also Appellate Body Report, Korea � Various Measures on Beef, para. 180. 380 Appellate Body Report, US � Gasoline, pp. 22-23, DSR 1996:I, 3, at 21; Appellate Body Report, US � Wool Shirts and Blouses, pp. 15-16, DSR 1997:I, 323, at 337; Appellate Body Report, US � FSC (Article 21.5 � EC), para. 133. 381 Appellate Body Report, Korea � Various Measures on Beef, para. 161. 382 Panel Report, paras. 6.498-6.520. 383 The Panel found that the United States had not submitted "concrete evidence" showing the particular vulnerability of the remote supply of gambling services to involvement by organized crime. Therefore, the Panel concluded, the United States had not demonstrated why the means used to regulate non-remote supply of gambling services could not sufficiently guard against the risk of organized crime. (Panel Report, para. 6.520) 384 Panel Report, paras. 6.500-6.504. 385 Ibid., paras. 6.507 and 6.508. 386 Ibid., paras. 6.511-6.513. 387 Ibid., paras. 6.516-6.518. 388 Supra, paras. 258-263. 389 The Appellate Body employed similar reasoning with respect to a prohibition on the import of products containing asbestos. See Appellate Body Report, EC � Asbestos, para. 168:
390 Panel Report, para. 6.528. (emphasis added) See also paras. 6.496, 6.522, and 6.534. 391 Ibid., para. 6.531. See also para. 6.534. 392 Panel Report, paras. 6.533-6.535. 393 United States' appellant's submission, para. 139. 394 Ibid., para. 142. 395 Ibid., para. 152. 396 Panel Report, para. 6.531. 397 Antigua's other appellant's submission, para. 103. 398 Ibid., para. 104. 399 See Panel Report, paras. 6.497-6.498. This type of approach was expressly encouraged by the Appellate Body in Korea � Various Measures on Beef, para. 172:
400 Supra, paras. 315-318. 401 Supra, para. 309. 402 Supra, paras. 310-311. 403 Supra, para. 317. 404 United States' appellant's submission, para. 176. 405 Panel Report, paras. 6.492 and 6.533. 406 Ibid., para. 6.493. 407 Ibid., para. 6.494. 408 Ibid., para para. 6.495. 409 Ibid., para. 6.505. 410 Ibid. 411 Ibid., para. 6.507. 412 Ibid., para. 6.514. 413 Panel Report, para. 6.534. 414 Ibid., para. 6.533. 415 United States' appellant's submission, para. 137. 416 Panel Report, paras. 6.497-6.498. 417 Supra, para. 317. 418 We address in the next sub-section of this Report the appeals raised by Antigua and the United States under Article 11 of the DSU, with respect to the Panel's analysis under Article XIV(a) of the GATS, and find them to be either without merit or not necessary to rule on in order to resolve this dispute. 419 Antigua's other appellant's submission, paras. 107-110 and 113-118. 420 Ibid., para. 113. (emphasis added) 421 Appellate Body Report, EC � Hormones, para. 132. 422 Appellate Body Report, US � Wheat Gluten, para. 151. See also Appellate Body Report, Canada � Wheat Exports and Grain Imports, para. 181. 423 Appellate Body Report, Japan � Apples, para. 221 (referring in footnote to Appellate Body Report, EC � Bed Linen (Article 21.5 � India), para. 170, and Appellate Body Report, US � Carbon Steel, para. 142). 424 Panel Report, paras. 6.361-6.362, 6.367, and 6.375. See also supra, para. 258-263. 425 United States' appellant's submission, paras. 171-175. 426 Panel Report, para. 6.566. 427 Appellate Body Report, US � Gasoline, p. 22, DSR 1996:I, 3, at 20. 428 Ibid., p. 22, DSR 1996:I, 3, at 20-21. 429 Panel Report, para. 6.608. 430 Panel Report, para. 6.566. 431 Appellate Body Report, Korea � Various Measures on Beef, para. 156. 432 Antigua's other appellant's submission, para. 141. 433 Appellate Body Report, India � Patents (US), para. 87; Appellate Body Report, US � Wool Shirts and Blouses, p. 19, DSR 1997:I, 323, at 340; Appellate Body Report, Canada � Autos, para. 114. 434 Appellate Body Report, US � Softwood Lumber IV, para. 118. 435 Panel Report, para. 6.498. 436 Antigua's other appellant's submission, para. 142. 437 Supra, para. 313. 438 Panel Report, para. 6.584. 439 Ibid., para. 6.588. 440 Panel Report, para. 6.599:
441 Ibid., para. 6.607. 442 Supra, para. 287. 443 See Panel Report, paras. 6.578-6.581, where the Panel discusses Appellate Body decisions relating to the chapeau of Article XX of the GATT 1994. In particular, we note the Panel's quotation of the relevant portion of paragraph 150 of the Appellate Body decision in US � Shrimp, which states:
(Panel Report, para. 6.578 (quoting Appellate Body Report, US � Shrimp, para. 150)) 444 Ibid., para. 6.585. 445 Ibid., para. 6.585. 446 Ibid., para. 6.586. 447 Ibid., para. 6.588. 448 Panel Report, para. 6.588. 449 Ibid., para. 6.589. 450 Supra, paras. 258-263. 451 Panel Report, para. 6.588. 452 Supra, paras. 258-263. 453 Panel Report, paras. 6.590-6.594. 454 Ibid., paras. 6.601-6.603. 455 Antigua's other appellant's submission, paras. 144-145. 456 See supra, para. 282. 457 We understand the Panel to have predicated its examination of the IHA on its view that the services under the IHA include services subject to the specific commitment undertaken by the United States in subsector 10.D of its Schedule. 458 Section 3004 of Title 15 of the United States Code, Exhibit AB-82 submitted by Antigua to the Panel. (emphasis added) 459 Section 3002 of Title 15 of the United States Code, Exhibit AB-82 submitted by Antigua to the Panel. 460 Antigua submitted additional evidence in support of its reading of the IHA. See, for example, Panel Report, footnote 1061 to para. 6.599 and footnote 1062 to para. 6.600 (citing, inter alia, Congressional Record, House of Representatives Proceedings and Debates of the 106th Congress, Second Session (26 October 2000) 146 Cong. Rec. H 11230, 106th Cong. 2nd Sess. (2000), Exhibit AB-124 submitted by Antigua to the Panel); and United States General Accounting Office, Internet Gambling: An Overview of the Issues (December 2002), Appendix II, Exhibit AB-17 submitted by Antigua to the Panel. 461 Panel Report, para. 6.595 (quoting Antigua's statement at the first substantive panel meeting, para. 92). 462 The Wire Act, the Travel Act, and the IGBA prohibit a broad range of gambling and betting activities when they involve foreign or interstate commerce. (Panel Report, paras. 6.362, 6.367, and 6.375) 463 Panel Report, para. 6.597 (quoting United States' response to Question 21 posed by the Panel, Panel Report, p. C-50).
464 Panel Report, para. 6.595 (citing, inter alia, United
States' first written submission to the Panel, 465 United States' response to Question 21 posed by the Panel, Panel Report, p. C-50; United States' second written submission to the Panel, paras. 63-64. 466 Supra, para. 330. 467 Appellate Body Report, EC � Hormones, para. 133. See also Appellate Body Report, Japan � Apples, para. 222. 468 Panel Report, para. 6.589. 469 Supra, para. 357. 470 Panel Report, paras. 6.589 and 6.607. 471 Supra, para. 357. 472 Panel Report, para. 6.607. 473 Supra, paras. 364 and 366. 474 See also Panel Report, para. 6.608. 475 Ibid., para. 6.599. 476 Supra, para. 127. 477 Supra, paras. 128, 156, 333 and 365. 478 Supra, para. 256. |
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