U.S. dismisses "exaggerated" claims in gambling case

WASHINGTON Thu Sep 27, 2007 2:07pm EDT

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WASHINGTON (Reuters) - The United States brushed off suggestions on Thursday that it may have to provide $100 billion in compensation to the European Union and other trading partners because of its restrictions on Internet gambling.

A U.S. trade official, speaking on the condition she not be identified, said she could not reveal how much compensation -- in the form of increased foreign company access to the U.S. market -- trading partners were demanding in the talks.

"We can say that some of the numbers being put forward are based on faulty and exaggerated assumptions," she said.

Lawyers for European online gaming firms -- among the biggest in the world -- said on Wednesday the EU should press for as much as $100 billion in compensation, given the plunge in market value of publicly-traded firms after Congress tightened Internet gambling restrictions last year.

"This is by far the most significant WTO case ever and its implications for both the U.S. and the EU are enormous," Naotaka Matsukata, a senior policy advisor with the international law firm Alston & Bird, said in a statement. "Given the size of the U.S. gaming market, both the potential benefit for European industry and the corresponding damage to U.S. companies is unprecedented."

The case dates back to at least 2003, when the tiny Caribbean nation Antigua and Barbuda challenged U.S. Internet gambling restrictions at the World Trade Organization.

A WTO panel ruled two years later that a U.S. law allowing domestic companies to provide online horse race gambling services discriminated against foreign providers.

But it also said WTO members could restrict Internet gambling for public policy reasons, so long as they treated foreign and domestic companies the same way.

The United States has argued it never intended to include gambling as part of the market-opening commitments it made in the 1994 Uruguay Round trade pact.

But having lost the case, it announced in May it would exercise a rarely used right under WTO rules to clarify that its commitments did not extend to gambling.

Making that change opened the door for trading partners to demand compensation in the form of increased access to some other U.S. services sector.

U.S. officials initially said they did not believe compensation was warranted, but have been in talks with seven WTO members -- India, the European Union, Japan, Costa Rica, Macao, Canada and Australia -- on a compensation package.

Antigua is pressing for the right to slap $3.4 billion in "cross retaliation" on the United States by suspending copyright protections on American movies, music and software.

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