TCS Daily


Time to Double Down on Online Gambling

By Sallie James - April 13, 2007 12:00 AM

Amid the recent hullabaloo over the United States' trade agreement with South Korea, the unveiling of the Democrats' plans for trade policy, and new legal cases on intellectual property rights and countervailing duties on goods from China, another important development in U.S. trade policy has gone largely unnoticed. On March 30, a World Trade Organization tribunal handed down a potentially significant finding against U.S. restrictions on internet gambling.

The panel was set up at the request of Antigua and Barbuda, who complained that the United States had not complied with the WTO's earlier decision that it must change the way it regulates gambling over the internet. The previous ruling, in April 2005, found that while the United States was within its rights to restrict the import of goods and services on "public morals" grounds, as it had argued in its defense, those rules must be applied in a non-discriminatory manner. If the United States finds online gambling offensive, it must be consistent in its restrictions and apply them equally to domestic and foreign providers.

And therein lies the rub: the United States allows interstate online betting on horseracing. The United States had also agreed during the Uruguay Round to open its markets to foreign suppliers of gambling and betting services, although the United States Trade Representative (through a spokesman) claimed in 2004 that the previous administration "clearly intended to exclude gambling from U.S. service commitments" when they signed the deal. Both of those inconsistencies lost it the original case.

The United States Congress passed the Unlawful Internet Gambling Enforcement Act in October 2006, ostensibly to bring its laws into conformity with the April 2005 ruling. But the compliance panel ruled that the United States has taken no satisfactory remedial action that would bring its laws into conformity with its previously-established obligations. Moreover, it appears that the United States applies its laws in a discriminatory manner, by prosecuting foreign gambling entities more than it does U.S. gaming firms. Game, set and match: Antigua and Barbuda.

There is still no official word from the USTR about whether the United States will appeal this latest decision. If they do not, though, the United States would need to change its Federal law either by closing the loopholes allowing domestic online gambling, or by freely allowing gambling online without any restrictions.

Of course, the United States could also choose to ignore the ruling, although it has a good record of complying with previous rulings against it. Antigua and Barbuda would in that case be entitled to retaliate against the United States, however their options appear limited. As a tiny island nation of 80,000 people, the normal recourse of WTO members who have had their rights infringed—the ability to increase tariffs on the perpetrating country's exports—will probably be ineffectual, not to mention economically damaging to Antiguans themselves. One option that has been suggested is for Antigua and Barbuda to ask for permission from the WTO to "cross-retaliate": to suspend its obligations to protect the intellectual property rights of U.S. companies.

Establishing a haven for software, music and movie piracy would presumably get the attention of the United States, although it may be an undesirable industry for Antigua and Barbuda to encourage if it leads to other more nefarious activities such as money-laundering, and may threaten Antigua and Barbuda's preferential access to the United States market under the Caribbean Basin Initiative. Presumably, though, the access granted to the United States under the CBI is less lucrative than would be a resolution to the gambling dispute in Antigua and Barbuda's favor.

If market expectations are any guide, though, the United States will likely end up allowing its citizens to gamble online. In the hours after the WTO ruling was announced, stocks in online gaming companies lifted. Investors clearly see the writing on the wall, even if the U.S. government does not.

Sallie James is a policy analyst with the Center for Trade Policy Studies at the Cato Institute and author of "U.S. Response to Gambling Dispute Reveals Weak Hand."


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15 Comments

gambling
It's just more examples of the bumbling, puritanical, indecisive, stupid government shooting its own wiener off again. I remember when they outlawed online gambling a while ago, a bunch of operators just moved over to Ireland and such. So like the equally stupid sorbens-oxley, the STATes just lose more business and make fools of themselves...again. But remember, these are the same guys who think you can stop people from taking drugs, and also brought you the prohibition fiasco some years ago. Looks like the default setting is; control people(except for illegal immigrants, they seem OK with that).

Horse racing
I may be missing something but couldn't the US just allow horse racing from trade partners and leave a restriction on other types of gambling that are not allowed across state lines.

If that doesn't work then I suspect we just have more evidence that the WTO is hostile to US interests and unfair playing field.

I am a little put off by the idea that the US is subject to dormant commerce clause style restrictions in international trade and then letting totalitarian anticapitalists have a say in who judges those disputes.
The first question is who are the actors the federal government or the states. Will the WTO continue to recognize state compared to federal law (assuming they do now) or will WTO decisions automatically force the federal governement to adopt the policies of any one state.
Second what is the WTO adopts a balancing standard for laws that are not facially protectionist. One of the elements of that standard is weighing the legitimate local benefit. I don't see international bodies recognizing some of our laws as legitimate benefits.
The goal of the dormant commerce clause is to foster political and economic union among the states. I don't know that I am ready to be politically bound to the despots and socialists out there.

I hope I am wrong on this please dispel my concerns. I admit I don't know how WTO judges are selected so if the US has a significant say in that and the US actually exercises that power then much of my concerns would not apply.

The internet want make it possible.
The structure of the interrnet just makes it impossible to stop this sort of gambling.

Gambling site and move from country to country by a few simple key strokes. So there is no wat to actually stop access to a particular web site.

This is dumb dumb dumb. It also show a basic lack of understanding of the internet.

Cutouts
the reason that the "cutouts" of horseracing and lotteries can't just be expanded to include foreign merchants is that the US's defense was one of "moral standing".


the WTO has simply pointed out that you can't argue for outlawing gambling due to moral issues, if you allow gambling.


i'm a poker player, so i want this decision to matter.

I'm also a soveign American, so I could easily support the U.S. telling the WTO to "go F itself". I don't believe any foreign body should tell us how to do business. I also don't think the federal government is right in it's prohibition.

especially when you consider the fact that Bill "Douche-bag" Frist snuck the UIGEA onto an unopposable bill after midnight with no debate. He put it on the Port Security bill so that in order to fight the unchecked abuse of federal power, you'd have to say you were against national security.

F bill Frist.

Hardly
What you have is a US gambling industry trying to protect Nevada and Atlantic City from offshore competition in the form of internet gambling. What WTO requires is that countries apply their trade law fairly and evenly.

Is it hostile to US interests? Yes and justifiably so because those domestic gambling interests wish to retain a closed market with restricted choices through state protection.

pair of ducks
this WTO announcement has me in a real Catch 22.

I hate the WTO and what it stands for, but I also hate when the federal government usurps citizens rights.

i don't know who i want to win or who i want to lose.


i do know that playing online poker isn't as fun as it used to be.

isn't that the definition of.....
fascism?

when industry remains private but is guided by the forceful arm of government.

It's actually the definition of socialism
not that there's much difference between the economic aspects of socialism and fascism.

To Mark and Gvi
Quite so, the gambling policy in the US is driven by the strong arm of government, hence the Antigua protest to the WTO. Whether you call it fascist or socialist, the protectionism of the US gambling industry cannot be justified (irrespective of whether or not you support or participate in gambling). Either it's legal or it's not. If it's legal then it's hypocritical to argue for exclusion of offshore competition.

All Extra-Super Government/World Government organzations are evil.
All Extra-Super Government/World Government organzations are even more evil than the worst totalitarian regimes they regulate. These organizations exist under the false clouds of democracy and consensus. The US should withdraw from all of them.

I guess that kind of says who I think should win.

As much as I hate the trade policies of the US Government, they are based somewhat on the US Constitution. If the US Government really respected the rights of its citizens to pursue happiness then they never would enact these laws in the first place.

socialism, fascism
They are basically the same, control of people. As a really old guy who has had the bad luck of having to live first under nazi style socialism, then east block style, I can tell you they're almost the same. Only eastern commies where even worse because they were totalitarian, rather than just authoritarian. At least the friggen nazzis let a butcher or baker own his won shop. Now I see western and especially american liberals are almost like those fascists, let them have a shop, but control pretty much everything else. It's disgusting how the States is going down that same mistake path.

Socialism, fascism
"Only eastern commies where even worse because they were totalitarian, rather than just authoritarian. At least the friggen nazzis let a butcher or baker own his won shop."

They weren't so keen on allowing Jewish butchers or bakers to keep their shops though were they? Or to retain their citizenship, right to marry who they wished, worship in their synagogues, practice law. But as long as the Aryans could retain their little businesses, the Naazis were merely authoritarian rather than totalitarian.

The definition of socialism
is "when industry remains private but is guided by the forceful arm of government"?

I guess that rules out the Soviet Union, Stalinist Eastern Europe, Mao's China, Vietnam etc etc as being socialist.

fascism..
Sure, everybody knows they didn't like the jews so issued the 'Vernichtungsbefehl' against them. But other than that, even in occupied lands they weren't as bad as the commies. Ask some old guys from France, Norway, holland, Greece, all places occupied; and it wasn't totalitarian like the soviets. This is not even controversial. There is much documentation from all those places testifying it; like people in denmark writing diaries and journals etc. It just hurts western leftie liberals to know that their cherised commies didn't really have a workers paradise.

Slogans tossed around like confetti
I suppose that begs the question what was so bad about the Naazis huh? What an amazing rewriting of history! Straight out of the Goebbels handbook. I suppose it hurts to have your old system of fascism being denigrated.

Since you were in Hungary, you'd know very well of the repression of the Arrow Cross and their collaboration with the Naazis so don't give me this BS about the quaint fascists leaving everybody to carry on with their business. Try telling that to the Poles, Yugoslavs, and everyone else living under the jackboot of the Third Reich.
No place for neighbourhood spies, the Hitler Youth, banning of all political parties, trade unions, concentration camps, persecution of religious and ethnic minorities in your reading of it. Well maybe, as in the words of Jean-Marie Le Pen, they were mere details of history eh?

As you should know, the Eastern Bloc was a chaotic economic system. Since planning was directed from the centre with input from the local enterprises limited to fulfilling what was expected of them in 'The Plan'. (Of course, these plans were rarely fulfilled, with bartering and creative accounting rampant.) This is what led to arbitrary repression. In the absence of effective control of the population and the economy, the bureaucracy used violence, or the threat of violence, to remain in control. On the occasions when the unspoken agreement that guaranteed work for the population (albeit in run-down factories making shoddy goods) in return for passivity towards the elite broke down, violence and mass arrests were unleashed. In time, this became unsustainable as the 'social contract' collapsed in the face of economic breakdown, and the powers of repression had less scope and usefulness than in the past.

What I'm trying to say is that the Eastern Bloc wasn't totalitarian only because 'totalitarianism' is a catch-all theory to explain the similarities of Naazi Germany and Soviet-style socialism in the Cold War era. What they both had in common was a repressive apparatus. As a basis for a theory of those societies, it is useless.

The market operated in Germany but with state assistance for large industry, public works' programmes and credit for smaller businesses. The market barely existed at all in the Soviet sphere since it was dominated by state enterprises and prevented from competing internationally by the state monopoly on foreign trade.
Thus not only is 'totalitarianism' redundant as a astudy of social systems, saying that Soviet-style socialism is identical to fascism is preposterous.

But you just carry on with your liberal-baiting ways, Dietmar, if that's what keeps you warm at night.

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