GPWA Times Magazine - Issue 3 - January 2008

Online gambling the only real loser in WTO case | GPWA TIMES 41 NEWS ANALYSIS Online gambling the only real loser in WTO case By Vin Narayanan In the end, Antigua’s WTO case against the U.S. over online gambling had noth- ing to do with gambling on the Internet. Instead, it became a proxy war pitting the politics of trade against fair trade. And predictably, the politics won. It had to win because nothing short of the fu- ture of the WTO was at stake. Big vs. small – the politics of trade Antigua was just the second country of its size to successfully litigate a WTO case against a major economic power – and that grabbed the world’s attention. Countries with small economies were watching to see if Antigua could force a large nation like the U.S. to either open its markets or receive substantial com- pensation in lieu of opening the markets. Meanwhile, large countries and organi- zations with large economies – like the U.S. and EU – were worried the case could set a dangerous precedent and re- sult in a blueprint for other countries to attack them on trade practices. This case was especially important to small nations because the first small country to win a substantial WTO case, Ecuador, wasn’t able to enforce its 2000 ruling against the EU in a banana mar- kets case because the options – primarily trade sanctions – they had available to them would have destroyed their own economy. But Antigua, and its attorney Mark Mendel, found a way around this prob- lem. They were seeking WTO permission to lift intellectual property rights protec- tions from U.S. goods and services. The threat of making movies, software and music available for pennies in Antigua would give the country an incredible amount of leverage in its negotiations with the U.S. And if the WTO allowed the lifting of intellectual property rights, this case would set a historical legal precedent in favor of small nations. Needless to say, the world’s larg- est countries were not happy with the prospect of Antigua succeeding. If WTO members could use the lifting of intel- lectual property rights as sanc- tions in trade disputes, “de- veloped” economies could lose billions of dollars if they ever lost a trade dispute. And from a negotiations standpoint, this would put them on relatively equal footing with smaller countries. This was something to be avoided at all costs, and part of the reason why the EU settled its secondary WTO online gam- bling dispute with the U.S. by accepting minor trade concessions. WTO chooses survival Somehow, a simple online gambling case had morphed into a survival battle for the WTO. If the WTO issued a substantial ruling in favor of Antigua, there was a significant chance that the world’s larg- est nations would pull out of the treaty rather than face the potential loss of billions of dollars down the road. If the WTO issued a substantial ruling in favor of the U.S., small nations, which com- prise the bulk of the WTO, would have pulled out of the WTO because they were participating in a system in which they couldn’t win. So facing extinction, the WTO invented a third option – a ruling that allowed both Antigua (and its small-country brethren) and the U.S. (and its fellow large econo- mies) to claim victory. The WTO refined its original ruling by narrowing the fo- cus to just horse racing. The organization found that the U.S. had violated WTO rules by allowing domestic organizations to offer interstate online horse race bet- ting while excluding foreign competition from horse racing ONLY. Because the U.S. trade violations were restricted to horse racing, Antigua would not get the $3.4 billion in compensation they had sought. Instead, they would receive $21 million annually AND permission to lift intellectual property protections to col- lect the damages. In essence, the WTO split the baby. The ruling capped damages that could be extracted via the lifting of intellectual property rights, which makes the U.S. and other large nations happy. But it also gave Antigua – and in the future, other small countries – the leverage they need to negotiate a larger settlement from the U.S. In fact, that is what appears to be happening right now. The U.S. has asked Antigua not to impose the sanctions un- til the two nations have had a chance to negotiate a deal. And there’s no way the U.S. – or Disney or Microsoft or any re- cording company for that matter – will allow Antigua to impose these sanctions, so the tiny Caribbean island is due for a pretty nice payday. Just not the $3.4 billion they had been asking for. The only real loser in this deal is the online gambling industry. Without the threat of a significant WTO decision against the U.S., it’s highly unlikely that Congress will pass any legislation to ei- ther repeal the UIGEA or create a regu- lated environment for online gambling in the near future. Mark Mendel