WTO LAST CHANCE FOR INTERNET GAMBLING IN US

BLOOMBERG (www.bloomberg.com)
By Warren Giles

Nov. 2 (Bloomberg) — Antigua, the Caribbean island nation accounting for a quarter of online betting, says its effort to overturn a U.S. ban on Internet gambling through the World Trade Organization is a last chance for the industry.

WTO arbitrators first backed Antigua’s claim that the U.S. illegally discriminated against foreign Internet betting companies two years ago. Last month, President George W. Bush signed a law making it a criminal act for credit-card companies to collect payments for online gambling. The WTO may authorize retaliatory sanctions to the value of Antigua’s losses if it finds that the U.S. hasn’t complied with its decision.

In response to the new U.S. law, gambling companies including PartyGaming Plc and Gibralter-based 888 Holdings Plc have said they started merger talks after the industry lost $7 billion of market value in a day after Congress passed the legislation Sept. 30. U.S.-based gamblers accounted for half of the $12 billion Internet market worldwide last year.

“The U.S. has done absolutely nothing to comply,” Mark Mendel, chief legal counsel for the Antiguan government, said in a phone interview from London yesterday. “In fact, they’ve gone the other way. It’s just bald-faced protectionism. Somebody had to take the fight, and this is really all there is left. If we lose this case then the U.S. is free to do what it wants.”

Antigua, a nation of 70,000 people and the smallest government ever to lodge a WTO complaint, scored its initial victory against U.S. online gambling restrictions in November 2004, when the WTO said the U.S. had pledged to open the industry in 1995.
Means

The U.S. has said it’s now conforming with the WTO rulings and that “it is up to each member to decide what means it chooses to comply.” Clarifying existing laws on interstate horseracing or federal criminal laws “was a possible means, but not the only means, for compliance,” the U.S. said, according to a document submitted to WTO arbitrators.

The U.S. says the prohibitions pre-dating last month’s law apply to both foreign and American betting services, and the WTO’s decision only applies to gambling on horseracing, which is allowed to discriminate against foreign companies.

WTO judges found that a U.S. argument in favor of a ban in the interests of “public morals” can stand only as long as the prohibitions don’t allow American companies to carry bets while banning foreign rivals.

Black Market

U.K. Culture Secretary Tessa Jowell has compared the new U.S. law to the American alcohol ban of the 1920s, which created a black market. The alternative and most effective way of combating crime, she said, is for governments to regulate the activity.

“The enormous risk of prohibition which we saw in the U.S. in the 1920s is you force the industry underground,” Jowell told a press conference Oct. 31. “There is a very substantial appetite for international cooperation.”

She hosted a conference of 32 nations this week at which governments agreed to cooperate in writing the first international code of conduct for online gaming companies to shape regulation outside the U.S.

Jowell’s department estimates there are 2,300 gambling Web sites across the world, with Antigua topping the league of host nations. The Caribbean islands developed online gambling to boost a tourism-dependent economy after several hurricanes in the late 1990s.

“Ultimately the Americans are going to have to do something about it because the U.S. really is in an untenable position,” Mendel said.

The WTO is expected to rule on whether the U.S. has respected its ruling in the first half of next year. Unless the U.S. wins the case, Antigua will seek sanctions in the form of withdrawing intellectual property protection for U.S. trademarks or copyright, Mendel said.

Such sanctions, known as “cross-retaliation,” are legal at the WTO when an economy can’t afford to impose sanctions in the form of higher customs duties. “It’s the only possibility we have” to retaliate, he said.

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net