Proponents of legal internet gambling had been closely watching several disputes working their way through the World Trade Organization. The most widely known case involved a trade dispute between Antigua and the United States.

In 2003, Antigua challenged the United States’ prohibition of internet gambling operators. As internet gambling has grown, the United States has criminalized the operation of internet gaming sites. The U.S. has arrested owners of gambling sites and electronic money services used by the sites as they travel through the United States. Last year it passed the “Anti-Internet gambling prohibition act,” which further restricted the flow of money to gambling sites. Due to clear U.S. discrimination against foreign gambling sites (it is legal to use Youbet.com, based in California), Antigua won round after round against the U.S. in the WTO court.

Antigua’s case came to a bittersweet closure. The WTO once again held that the U.S. was in violation of its trade agreements, and will allow Antigua to retaliate. The ruling fell short in that the trading losses were limited to $21 million per year (Antigua requested $3.4 billion per year). Key to this finding was that Antigua could only recover losses from internet horse racing, and not other forms of internet gambling. This was very close to my earlier estimate of $16 million pear year <LINK>.

In theory, Antigua can request the WTO’s permission to ignore U.S. copyrights and other intellectual property rights in order to recover the $21 million per year unless the U.S. complies with its free trade commitments. Given the minimal amount of the award, it is unlikely that it will affect the U.S. policy on internet gambling.

Gamblers had placed hopes that the European Union, Canada or Japan would succeed in opening our gambling markets. In December, these parties also resolved their trade disputes with the U.S. in exchange for concessions in warehousing services, technical testing services, research and development services, and international postal services. Consequently, there are no significant trade disputes on U.S. internet gambling pending.

If you are hoping for the legalization of internet gambling, do not count on the WTO changing U.S. policy any time soon. Your only hope rests with the U.S. congress, and not many representatives will advocate a reversal of the internet gambling ban.

© Copyright 2008

(NOTE: The following is a reprint of Elihu Feustel's article from last February on this issue.)

Ruling won’t help internet gamblers
by Elihu Feustel - 02/25/2007

The recent WTO ruling against the USA might recoup a little money for Antigua, but it won't help the regular Joe in the US trying to make an internet wager.
Much excitement has been made over a series of WTO rulings in favor of Antigua and Barbuda against the U.S. involving internet gambling.  A complaint was first brought before the WTO in 2003. Various US laws and actions were interfering with Antigua’s ability to export gaming services, notably the Interstate Wire Act, and US penalties on banks and credit card companies.

Of Antigua and Barbuda’s $800 Million GDP, roughly 10% of it was generated by the exporting of gambling services. A vast majority of that was generated in the U.S. If the U.S. continued its crackdown on internet gambling, it could cost Antigua in excess of $70 Million per year in lost exports.

In the January 2007 ruling, the WTO confirmed that the U.S. was unfairly competing against online horse-racing wagering, and that the U.S. had not brought its laws into compliance with the earlier 2005 ruling. Notably, the ruling excluded sports betting.

So what does that mean for average gamblers? Unfortunately, very little.

The current ruling is limited to horse racing, which is a small segment of online gambling, perhaps 20%. If the U.S. continues discriminating against foreign race books, Antigua could potentially lose about $16 Million in exports per year. Normally, the WTO allows an injured country to enact tariffs or penalties in the same industry where the discrimination occurred. As this is not practical - - the U.S. does not export gambling services - - Antigua has requested a different form of retaliation: consent to ignore certain U.S. intellectual property rights. If things played out most favorable to Antigua, they might be permitted to do so in a limited fashion. The objective would be the recovery of the lost exports, or about $16 Million per year.

How would the U.S. react to such a scenario? It would do nothing - allowing Antigua to recover its loss as dictated by the WTO, but maintaining the U.S. ban on internet gambling. This would not be the first time the U.S. has blatantly disregarded a WTO ruling and simply paid a penalty.

In 2001, the U.S. lost in a dispute versus Europe regarding anti-dumping laws (or the 'Byrd Amendment'). The history of that dispute is eerily similar to this one: the U.S. lost, asked for time to become compliant, and did absolutely nothing to become compliant with the WTO order. In the end, the U.S. paid $180 Million per year in retaliatory tariffs rather than change its laws.

While the recent WTO rulings in favor Antigua aren’t going to make internet gambling any easier, there is some hope for would-be gamblers. The European Union may file a WTO complaint, which could not be ignored as easily as the current one. A number of factors make this more likely now than in years past: Antigua’s partial victory; the burgeoning European sportsbook industry; and the U.S. abduction of executives of publicly traded companies (Neteller and BetOnSports).

But until this happens, gamblers will have to visit their favorite brick and mortar casino, or move to Canada.

© Copyright 2007