Will America Allow Online Gaming by the WTO’s April 3rd Deadline?

by Lou on March 31, 2006

If you’ve been reading this blog, you know by now that the World Trade Organization gave the United States until April 3 to allow Antigua online gaming operators to offer Internet horse-race betting, or face the threat of retaliatory trade sanctions.

Antigua brought its case to the WTO out of concern that US policy was putting the kibosh on Antiguan efforts to grow their economy through online gaming.

Although sanctions employed by a country of 70,000 people won’t hurt the US economy at all, the WTO’s ruling might put the United States at odds with its larger trading partners, allies, and friends that permit and regulate online gambling. With the April deadline only a few days away, the US has taken no steps to avoid a showdown.

According to the Justice Department, Internet gambling is illegal — although millions of us do it — and horseracing, after all, is gambling, no matter how many exemptions are carved out for it in our own (hypocritical) laws.

Mark Mendel, the attorney representing Antigua, said “Failing to resolve the dispute would leave the United States in the embarrassing position of appearing to bully a small nation that is playing by the rules. That could damage the authority of the World Trade Organization, the global trade body that the United States worked so hard to establish. If they undermine its strength and its credibility by basically refusing to adhere to a decision, then they’ve kind of told the rest of the world what the WTO is really for.”

While Antigua would probably not impose trade sanctions on US goods, they could refuse to enforce American patents and trademarks. This would allow Antiguan-based companies to knock-off American intellectual property, like recorded music or computer software, while gaining world wide attention for their trade war; never mind the fact that action of this sort on the part of Antigua would quickly get the attention of economic giants such as Microsoft and Time-Warner.

Although we Americans spend $70 billion per year on gaming, our government still seeks to prohibit it — which will likely prove as ineffectual as Prohibition and extremely costly too — rather than license and regulate the industry. America’s position on online gaming might even cause a problem with our British allies. The Brits, who have taken an entirely different approach to Internet gaming will begin licensing and regulating this activity in 2007. An American ban on Internet gambling will prevent British casinos from entering the US market, while driving capital from the US. A ban would also preclude Internet gaming sites, which do most of their business in the US although they are all located offshore, from access to US capital markets and from raising cash through IPOs on Wall Street.

It seems everyone is dancing to the sound of different drummers. While the US Justice Department believes the 1961 law against telephone and telegraph betting also covers the Internet, federal judges have rejected that claim. US Representative Bob Goodlatte’s (R- VA) bill proposes to end the confusion by explicitly banning Internet betting.

But a ban on Internet gaming is unenforceable, at least it is in the eyes of research firm Christiansen Capital Advisors LLC of New Gloucester, Maine, who have shown that Americans already make up one-third of the 23 million online bettors worldwide, regardless of the Justice Department’s assertion that such betting is in violation of US law.

The government of Antigua denounced the Justice Department’s stance along with proposed antigambling regulations, saying they would be an unfair hindrance to a small country that’s counting on online wagering as a major revenue source.

Antigua brought its case against the United States to the World Trade Organization in March 2003, and won a decision stating that the United States could not forbid all forms of offshore Internet gambling. Opposition from the Justice Department notwithstanding, Congress enacted legislation in 2000 permitting Internet horse race gambling in states that allow wagering on horses.

Because legislation that exempted horseracing from the provisions of Internet wagering in place, the WTO determined that the United States could not prohibit Antigua from offering such services to American gamblers if they can be legally provided by US firms.

Antigua believes they should be able to offer online gambling of any type to American consumers, not just horse racing, even though the United States hasn’t even taken steps to open horse betting to overseas competitors.

So what’s going to happen April 3rd, the date given by the WTO to the US to conform to its ruling? I don’t expect the US to make any effort to comply. When they fail to adhere to the WTO order, the cards will be in the air and the real poker game is slated to begin. Antigua can bet as big as they want to in an attempt to compel the United States to comply.

Although everyone realizes trade sanctions won’t work, Antigua can wield a bigger club if they refuse to enforce patents and trademarks. Whether they will go that far remains to be seen. But this poker game will be played out in front of the entire world, and may of us will be watching closely.

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