General Exceptions: Article XIV of the GATS

G.4.1 Relationship to Article XX of the GATT 1994   back to top

G.4.1.1 US — Gambling, para. 291
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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 provisions, notably the term “necessary” 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.

G.4.1.2 US — Gambling, para. 292
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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. 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”. 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.

G.4.2 Article XIV(a) — “public morals” and “public order”   back to top

G.4.2.1 US — Gambling, para. 296
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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”. 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”. 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.” 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)”.

G.4.2.2 US — Gambling, paras. 297–298
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

Antigua contests [the Panel’s finding under Article XIV(a)] 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:

[t]he public order exception may be invoked only where a genuine and sufficiently serious threat is posed to one of the fundamental interests of society.

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 acknowledges, 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”. Although “no further mention” 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’”, the Panel was not required, in addition, to make a separate, explicit determination that the standard of Footnote 5 had been met.

G.4.3 Article XIV(a) — Burden of proof   back to top

G.4.3.1 US — Gambling, paras. 309–310
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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. 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.

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’” — then a panel should find that challenged measure “necessary” within the terms of Article XIV(a) of the GATS.

G.4.3.2 US — Gambling, para. 311
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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.

G.4.3.3 US — Gambling, para. 323
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

… 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. …

G.4.4 Article XIV(a) — Necessity test — Reasonably available alternative. See also General Exceptions: Article XX of the GATT 1994, Article XX(a) and (b) — Necessity test (G.3.3A); General Exceptions: Article XX of the GATT 1994, Article XX(d) — Necessity test (G.3.6); TBT Agreement, Article 2.2 — Not more trade-restrictive than necessary to fulfill a legitimate objective (T.4.2B)   back to top

G.4.4.1 US — Gambling, para. 304
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

… 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 characterizations, 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.

G.4.4.2 US — Gambling, paras. 306–308
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

The process [of weighing and balancing a series of factors in order to determine “necessity”] begins with an assessment of the “relative importance” of the interests or values furthered by the challenged measure. 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. 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.

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”.

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.

G.4.4.3 US — Gambling, para. 315
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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. 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”. 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).

G.4.4.4 US — Gambling, paras. 317–320
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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.

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”. 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.

… Antigua claims that the Panel “erred in limiting” its search for alternatives to the universe of existing United States regulatory measures. …

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 statutes, 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. 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 above, 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. We therefore dismiss this aspect of Antigua’s appeal.

G.4.4.5 US — Gambling, para. 332
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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. 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.

G.4.5 Chapeau of Article XIV   back to top

G.4.5.1 US — Gambling, para. 339
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

… 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. By requiring that the measure be applied in a manner that does not … 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.

G.4.5.2 US — Gambling, paras. 342–344
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

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”. 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 were not provisionally justified.

… [the statement by the Appellate Body at paragraph 156 of Korea — Various Measures on Beef] 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.

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. 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 analysis, as, for example, in this case.

G.4.5.3 US — Gambling, paras. 349–351
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

The United States contends 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”.

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. 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.

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”. 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.

G.4.5.4 US — Gambling, para. 354
(WT/DS285/AB/R, WT/DS285/AB/R/Corr.1)

We observe, first, that none of the three federal statutes distinguishes, on its face, between domestic and foreign service suppliers. 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.

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