UPDATE 2-US online gambling crackdown a breach of WTO - EU
* EU Commission: U.S. Internet gambling laws hamper trade
* Commission seeks negotiated solution with U.S.
(Recasts, adds details)
BRUSSELS, March 26 (Reuters) - A U.S. Justice Department crackdown on European online gambling companies violates U.S. commitments under the World Trade Organization, the European Commission said on Thursday in a draft report.
But the European Union executive, which oversees trade policy for the 27-nation bloc, said it would seek a negotiated solution with the United States rather than file a groundbreaking complaint at the WTO.
A senior Democratic lawmaker in the House of Representatives welcomed the EU finding and said he planned to introduce legislation after the April 6-17 congressional break to overturn the U.S. ban on Internet gambling.
"I'm struck by the people who think we have to abide absolutely and religiously by the WTO ... but when it comes to banning gambling and the WTO, they ignore it," House Financial Services Committee Chairman Barney Frank said.
European online gambling firms lost billions of euros in market value after Congress passed legislation in 2006 making it illegal for banks and credit card companies to make payments to online gambling sites.
Republicans still controlled both the White House and Congress when the U.S. passed the law. Now, Democrats control those two branches of government, but it's unclear how hard the administration of President Barack Obama would push to make online gambling legal in the United States.
While European companies like PartyGaming (PRTY.L) and 888.com (888.L) subsequently withdrew from the United States, they still face possible U.S. criminal prosecution for their activities in the U.S. market prior to 2006.
"The report finds that U.S. laws on remote gambling and their enforcement against EU companies constitute a barrier to market access on EU economic interests," the EU said in a summary.
"Furthermore, EU companies are discriminated against: U.S. companies are allowed to freely operate online gambling on horse racing in the U.S., while European companies and individuals cannot and even face legal action," the EU said.
By formally accusing the U.S. Justice Department of acting in way that violates U.S. trade commitments, the EU has opened a new chapter in the long-running dispute, said Nao Matsukata, a lawyer with Alston and Bird.
The Justice Department and the U.S. Trade Representative's office said both agencies would review the report and discuss it with the EU.
EU Trade Commissioner Ashton said she hoped the two sides could quickly resolve the issue through negotiation.
"It is for the U.S. to decide how best to regulate Internet gambling in its market, but this must be done in a way that fully respects WTO obligations," Ashton said in a statement. (Reporting by Foo Yun Chee and Dale Hudson in Brussels and Doug Palmer and Patrick Rucker in Washington)
