Could the future of Internet gambling in the US lie in Antigua?
Washington faces a messy showdown after the WTO rules against it, finding that island firms have the right to offer online betting on horse races

By Hiawatha Bray, Globe Staff, March 30, 2006

The tiny nation of Antigua and Barbuda has scored a technical knockout against the United States in an international trade dispute that could determine the future of Internet gambling in this country.

The World Trade Organization has given the United States until April 3 to allow Antigua-based online gambling companies to offer Internet horse-race betting, or face the threat of retaliatory trade sanctions. Sanctions levied by a country of only 70,000 people might have an imperceptible impact on the US economy. But the ruling offers a stark example of the challenge of regulating Internet commerce and could place the United States at odds with some larger allies that have embraced online gambling. So far, there's no sign that the United States will avoid the showdown. The US Justice Department says that Internet gambling is illegal, even though millions of Americans do it, and federal law has made an exception for horse racing.

''It looks like the US is just going to ignore the World Trade Organization opinion," said I. Nelson Rose, professor of law at Whittier Law School of Costa Mesa, Calif., and an expert on gambling law. ''Financially it's not going to be that big a deal for the United States . . . but politically, it's really a dangerous position."

Mark Mendel, the American 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," said Mendel, ''then they've kind of told the rest of the world what the WTO is really for."

Antigua is considering retaliatory moves that could enable the tiny nation to punch above its weight. There's no appetite for slapping trade sanctions on US goods; that would hurt Antiguan companies and consumers far more than Americans. Instead, the country may refuse to enforce American patents and trademarks. This would make it possible for Antiguan-based companies to produce knock-offs of American intellectual property, like video and music recordings or computer software. Such a tactic would get the attention of major US firms like Microsoft Corp. and entertainment titan Time Warner Inc. It would also put tiny Antigua's trade war against the United States on front pages around the world.

The showdown demonstrates the challenge of regulating an industry that can set up shop anywhere on the planet, thanks to the Internet. It also shows that America has yet to fully come to terms with legalized gambling, even though Americans spend more than $70 billion per year on games of chance. Even as Antigua presses its case, the US Congress is pushing for strict new limits on Internet gambling. The legislation and the US stance before the World Trade Organization could also cause trouble with Great Britain, one of America's closest allies. Britain already tolerates Internet gambling, and will begin formally licensing and regulating companies in 2007. An American ban on Internet gambling would lock Britain's huge online casinos out of the extremely rich US market.

According to the US Justice Department, a 1961 law against telephone and telegraph betting also covers the Internet, but some federal judges have rejected that claim. A bill introduced in February by US Representative Bob Goodlatte, a Virginia Republican, would clear up confusion by explicitly banning Internet betting.

Even so, a mere online gambling ban would be virtually unenforceable. According to the gambling research firm Christiansen Capital Advisors LLC of New Gloucester, Maine, Americans already make up one-third of the 23 million online bettors worldwide, despite the Justice Department's insistence that such betting violates US law.

Another piece of pending legislation, this one authored by Iowa Republican Representative Jim Leach, seeks to ban US financial institutions from providing payment services to online casinos. As a result, Americans would no longer be able to use their credit cards to place online bets.

The Antiguan government has denounced the Justice Department's stance and the 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, with backing from the European Union, Canada, Mexico, and Taiwan. In 2004, Antigua won a sweeping victory that would have required the United States to abandon virtually all restrictions on overseas Internet gambling companies. On appeal, the scope of the ruling was substantially reduced.

The US Trade Representative's Office hailed the ruling as a victory. ''The appellate body has affirmed that WTO members can protect the public from organized crime and other dangers associated with Internet gambling," said Peter F. Allgeier, the acting US trade representative, last April. Repeated efforts to reach the agency this week were unsuccessful.

But the World Trade Organization still found that the United States could not forbid all forms of offshore Internet gambling. Despite strong opposition from the Justice Department, Congress in 2000 passed a law that permits Internet horse-race gambling in states that allow wagering on horses. And the World Trade Organization held 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's legal representative Mark Mendel interprets the ruling to mean that his client should be able to offer all kinds of online gambling to American consumers, not just horse racing. ''In a general sense we want to have access to the American gaming market," Mendel said. In any case, he said that the United States hasn't taken steps to open even horse betting to overseas competitors.

''The US has violated its obligations," said Mendel. ''It is clear that it has done so."

Hiawatha Bray can be reached at bray@globe.com.
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