Gambling Dispute Puts United States in a Bind

Mark E. Mandel, a Texan Attorney has been waging against his own government before the WTO, which in Geneva sets the ground rules for global trade. Challenging Washington’s effort to prohibit online gambling, and at the same time testing the ability of the WTO to enforce its own standards.

Mr. Mandel goes back as far as 2003, when he first persuaded officials in Antiqua and Barbuda to instigate a trade complaint against the United States, claiming its ban against Americans gambling over the Internet violated Antiqua and Barbuda’s rights as a member of the WTO. The dozens of online casinos based in Antiqua are very vital to t he Island’s economy, serving as its second largest employer.

The WTO panel ruled against the United States in 2004, and upheld that decision one year later.  In March with another ruling for a second time that declared Washington out of compliance with its rules.

John H. Jackson, a professor at Georgetown University Law Center, specializes in international trade law, said “this has placed the United States in a quandary. Professor Jackson also said “complying with the WTO ruling would require Congress and the Bush administration either to reverse course and permit Americans to place bets online legally with offshore casinos, or equally unlikely, impose an across the board ban on all forms of Internet Gambling, including the online purchase of lottery tickets, off track wagering on horse racing, and Web based pro sports fantasy leagues.”

Not complying with the decision presents a big problem of its own for Washington. Because Mr. Mendel is claiming $3.4 billion in damages on behalf of Antiqua, and has asked t he WTO to grant a form of compensation if the American government refuses to accept t he ruling, which is permission for Antiquans to violate intellectual property laws by allowing them to distribute copies of American music, software products, and movies, along with many others.

If the WTO can not back down due to the fact it would undermine its credibility with the rest of the world.  If it carries out the penalties, it means it risk a political backlash with the United States, which is the most powerful force for free flowing global trade as well as the WTO biggest backer.  Charles R. Nesson, a professor at Harvard Law School said “Think of this from the WTO’s point of view” “They are this fledgling organization dominated by a huge monster in the United States.  People there must be scare out of their wits at the prospects of enforcing a ruling that would instantly galvanize public opinion in the United States against the WTO.”

In April of 2005, the trade body gave the United States one year to comply with its ruling and that deadline passed with little more than a statement from Washington that it had reviewed its laws, and decided it has been in compliance all along. The case is now before an arbutration body charged with assessing damages.

Professor Nesson said “The stakes here are enormous”.

The Bush administration raised those stakes in May when it announced it was removing gambling services from existing trade agreements.  John K. Veroneau, a deputy trade representative said “The federal government was only clarifying our view” “and that it had never meant to include online gambling in any free trade agreements. Mr. Veroneau also said “It is truly untenable to think that we would knowingly bargain away something that has been illegal for decade upon decade in this country” “Washington is not defying the WTO, but simply pursuing its case through all legal channels.

The WTO allowed that Washington probably had not intended to include online gambling when it agreed to the inclusion of recreational services, and that other similar language in agreements reached during the early 1990s, when the WTO was first established. The organization says it has no choice but to enforce the plain language of the pacts.

Lode Van Den Hende, an international trade lawyer with the firm of Herbert Smith in Brussels said “Geneva is certainly buzzing about this case”.

Mr. Van Den Hende also said “One reason the fraternity of trade lawyers and experts are so closely watching the case is the fact that the US is not behaving as one would expect”. He also said ” One day they are out there saying how scandalous it is that China doesn’t respect WTO decisions, but then the next day there is a dispute that doesn’t go their way and their attitude is””The decision is completely wrong, these judges don’t know what they are doing, why should we comply?”

Mr. Mendel seems to be enjoying the attention from this case. Although it is not clear he knew what a hornet’s nest he would stir with it.  In 2002, Mr. Mendel, who does not gamble, and knew about international trade, was little more than a corporate lawyer in El Paso specializing in securities law. Jay Cohen, a friend of Mendel’s law partner, and an operator of an offshore sports betting operation in Antiqua who had been sentenced to 21 months in prison for taking bets over the Internet from Americans.  Mr. Cohen asked his friend to see if t here was anything his firm could do.  Mr. Mendel said “I had not done any trade law whatsoever, but for whatever reason this issue really struck my curiosity.” This case also offered the prospect of a set of deep pocketed clients, the online casinos doing business out of Antiqua. Mr. Mendel, 51 who just moved his family and his practice to Ireland to be closer to Geneva, jumped in enthusiastically to take the case.

Washington responded to Antiqua’s complaint by claiming it was within its rights to seek to block online gambling on moral grounds and used the example, just as any Muslim country would be within its rights under international trade agreements to ban the import of alcoholic beverages. The WTO rejected this argument as inconsistent with American policy.

The general rule in the world of international trade agreements is that a country must treat foreign goods and services in the same manner as it treats domestic ones.  The US, the trade body found, permits online wagering through sites like Youbet, a publicly traded company that allows visitors to place bets at horse racing tracks around the globe.  And, of course, some form of casino gambling is legal in more than 30 states, and even local governments advertise gambling services when states encourage people to buy a lottery ticket.

Mr. Mendel said “This isn’t t he case of forcing gambling on a population that has decided they don’t like it, this is the world’s biggest consumer and exporter of gambling services trying to prohibit a small country from developing its economy by offering these same services, and we find that deeply hypocritical.”

Despite all the obstacles Washington has imposed, including making it a crime for banks and credit card companies to handle Internet gambling payments, millions of Americans still manage to play poker and place sports bets online. Several would do the same if the obstacles were removed.

The United States has exhausted its appeals. Mr. Mendel and lawyers for the United States are arguing over the extent of damages that Antiqua has suffered. Antiqua presents a particularly thorny challenge.  To balance the scales, a country that wins a WTO case typically demands trade penalties equal to its losses as compensation, but Aniqua is so small that any ordinary trade sanctions would barely register in the US.

Professor Jackson said “Compensation is not a check in the mail”, “It’s the right to raise trade barriers against the country in violation.” “Whatever trade barriers Antiqua imposed, would feel like a pin prick.”  To get around that limitation, Antiqua is seeking the right under international law to violate American intellectual property laws.

Simon Lester, who worked in the appeals unit of the WTO before helping found WorldTradeLaw.net, which provides legal analysis of trade law disputes, said “This is all new territory.”  Mr. Lester expects Hollywood, the music industry and software makers like Microsoft to press Washington to work things out with Antiqua. He said “But the question is whether that would be enough to make Congress do something.”