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News Analysis: Online gambling only real loser in WTO case

26 December 2007

News Analysis

In the end, Antigua's WTO case against the U.S. over online gambling had nothing to 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 future 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 one of the world's major economic powers – and that grabbed the attention of the entire world. 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 compensation in lieu of opening the markets. Meanwhile, large countries and organizations with large economies – like the U.S. and EU – were worried the Antigua case could set a dangerous precedent and result 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 markets 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 problem. They were seeking permission from the WTO to lift intellectual property rights protections 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, the Antigua case would become legal precedent that other small nations could follow in trade disputes.

Needless to say, the world's largest countries were not happy with the prospect of Antigua succeeding. If WTO members could use the lifting of intellectual property rights as sanctions to resolve trade disputes, "developed" economies could easily 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, negating their advantages in size and power. This was something to be avoided at all costs, and part of the reason why the EU settled its secondary WTO online gambling dispute with the U.S. by accepting minor trade concessions. The EU wanted to tweak the U.S. a little bit, but it didn't want a substantial victory.

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 world's largest 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 comprise 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 economies) to claim victory. The WTO refined its original ruling by narrowing the focus 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 betting 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 collect 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 until 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 recording company for that matter – will allow Antigua to impose these sanctions, so the tiny Caribbean island is due for a pretty nice pay day. 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 either repeal the UIGEA or create a regulated an environment for online gambling in the near future.

News Analysis: Online gambling only real loser in WTO case is republished from Online.CasinoCity.com.
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Best of Vin Narayanan
Vin Narayanan

Vin Narayanan is the managing editor at Casino City. When he's not writing or editing stories, he likes to play Chinese Poker, Badugi, Razz and any other "non-traditional" poker game. He also thinks blackjack is his best game and loves game theory.

Before joining Casino City, Vin covered (not all at the same time) sports, politics and elections, wars, technology, celebrities and the Census for USATODAY.com, USA WEEKEND and CNN.

A proud graduate of Michigan State University, Vin can be found on most nights and weekends trying to find a way to watch the Spartans play football or basketball.

Vin Narayanan
Vin Narayanan is the managing editor at Casino City. When he's not writing or editing stories, he likes to play Chinese Poker, Badugi, Razz and any other "non-traditional" poker game. He also thinks blackjack is his best game and loves game theory.

Before joining Casino City, Vin covered (not all at the same time) sports, politics and elections, wars, technology, celebrities and the Census for USATODAY.com, USA WEEKEND and CNN.

A proud graduate of Michigan State University, Vin can be found on most nights and weekends trying to find a way to watch the Spartans play football or basketball.