Deadline Looming for U.S. in W.T.O. Fight with Antigua

Once again, the federal government is not taking gambling seriously. And we are all going to pay for it.

The U.S. won most of a dispute with Antigua in the World Trade Organization over Antigua's claim that it could not be prevented from taking bets from Americans over the Internet. But it is the parts that the U.S. lost that have to be fixed and that are now being ignored by the Bush Administration and Congress.

The W.T.O. is based on the idea that free trade among nations helps everyone. Often that is true. But sometimes, a country, for political, economic or social reasons, does not want to let in foreign products or services. So, countries have the right to agree, by treaty, how open their borders will be. The treaty in this case is the General Agreement on Trade in Services (GATS), which the U.S. signed in 1994. GATS tells countries to list the foreign services they will bar or admit.

The U.S. agreed to let in all "Recreational, Cultural & Sporting Services" . . . "except sporting." Other countries put "gambling" on their lists of excluded services. But the federal government consistently ignores the existence of legal gaming.

So, the U.S. was forced to argue that "sporting" meant gambling. It didn't work.

The W.T.O. is based on the fundamental notion that when a country signs GATS, it will keep its promise.

The problem for the U.S. is that the W.T.O. ruled that the U.S. had agreed to let in all Internet gambling from every country that signed GATS. The only way out of this treaty commitment is for the U.S. to prove that it has reasonable fears that remote gaming will bring in crime and corrupt the morals of America.

The reason the federal government is not taking the W.T.O. decision seriously is that the U.S. was able to show that it thought its few federal anti-gambling laws, such as the Wire Act, were necessary to protect American "public morals" and "public order."

But even here, it lost one battle. In December 2000, Congress had amended the Interstate Horseracing Act to permit Americans to bet from their homes by phone or computer with state-licensed off-track betting operators. The W.T.O. held that there was no justification for discriminating against O.T.B.s licensed by other countries.

The W.T.O. gave the U.S. until April 3, 2006 to fix its federal laws to make things equal.

Spokesmen for the U.S. Trade Representative at first said, "No problem." The fixes are easy and obvious. But, nothing has been done.

Outlawing all interstate horseracing bets is obviously not going to happen. But amending the Act to put foreign-licensed O.T.B.s on an equal footing turns out to be just as politically unpalatable.

Antigua argued that the U.S. could implement changes quickly, by the president ordering the Department of Justice not to enforce the law. Impossible and illegal. The law would have to be changed, and only Congress can do that.

But Congress is not going to pass, and President Bush is not about to sign, a law that looks like it expands legal gambling. Worse, this would be an expansion that would not directly raise one cent of tax revenue and would even hurt some U.S. businesses. Worst of all, this would mean that the U.S. would have to change its laws to abide by a decision of foreign powers.

So, no one has even submitted a bill in Congress to fix the Antigua horseracing problem.

Congress and the Bush Administration figure there is not much the W.T.O. can do if the U.S. ignores the ruling. The W.T.O. will only hit the U.S. with penalties on its trade with Antigua. Although Antigua is busily granting new licenses and will claim that it is losing billions of dollars, the pay-off will be only in the tens of millions of dollars.

But the U.S. has always been a strong advocate of the W.T.O. The Clinton and Bush Administrations spent years convincing other countries to join and abide by its decisions. How would we feel if China announced that it would not permit American car-makers to compete against its local manufacturers, and then blew off a ruling against it by the W.T.O.?

And what happens next time, when it is not Antigua but England and Australia that ask for trade penalties from the U.S. for not letting in their licensed Internet gaming operators?

The states recognize the dangers. The attorneys general of 29 states joined in requesting the U.S. amend its treaty agreement to include "gambling" on list of excluded services in GATS.

The states are particularly concerned because the W.T.O. only ruled on the impact of a few federal laws. The W.T.O. probably would have held that many of the anti-gambling laws of the 50 states are wrongfully discriminating against foreign operators. The only reason it didn't was that the lawyers for Antigua made a small procedural error, almost a typo, that prevented the issue of state laws from being considered in this particular case.

The next country that brings the U.S. before the W.T.O. won't make the same mistake.

The state most at risk is Nevada, and it's not just horseracing that is at stake. Nevada would have to try to justify allowing its licensed sports books to take bets by phone and computer from people within the state while making it a crime for foreign licensed sports books to do exactly the same thing.

But even Utah is worried that its complete prohibition on all gambling would fall, since the federal government's treaty agreements are the supreme law of the land.

It is difficult to amend a GATS list. Otherwise, every nation that lost a fight in the W.T.O. would simply change its commitments. GATS negotiations literally take years. To add gambling to the excluded list, the U.S. would have to give up something else. And, again, the federal government does not feel legal gambling is worth considering, even if only to ban it. The Bush Administration has not even brought up the issue.

Where will the federal government find the money to pay off Antigua? My prediction is it will look to the industries that are benefiting from keeping Internet gambling illegal.

After April 3, expect proposals for new federal taxes on horseracing and casinos.

© Copyright 2006. Professor I Nelson Rose will be teaching International Gaming Law as part of Whittier Law School's Summer Abroad Program in France in July 2006. For more information, contact Prof. Rose through his website, www.GAMBLINGANDTHELAW.com.

© Copyright 2006, all rights reserved worldwide. GAMBLING AND THE LAW® is a registered trademark of Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA