Federal efforts to curb offshore
Internet gambling were dealt a modest setback Thursday after the
World Trade Organization ruled some restrictions violated
international trade agreements.
A WTO appeals board sided in part with the small island nation of
Antigua and Barbuda, home to gambling Web sites that provide local
jobs, by upholding portions of an earlier decision from a dispute
The WTO's decision now poses a perplexing political problem for
the Bush administration, which must try to balance its support for
international free trade rules with its desire to defend federal
restrictions relating to Internet gambling.
Complicating that process are the intricacies of the WTO's
complex ruling, which weighed in at 146 pages (PDF) and spurred both
sides to claim victory. The WTO board agreed with the United States
in key areas, saying that some disputed laws were "necessary to
protect public morals" and that it would not consider whether state
laws in Louisiana, Massachusetts, South Dakota and Utah violated
Even though the Justice Department believes that Internet
gambling is illegal, it's become wildly popular in the last few
years. The industry was expected to collect revenues of between $4.2
billion and $5 billion in 2003, according to a Government
Accountability Office study.
The lack of an unambiguous defeat or victory at the WTO may
embolden the Bush administration to suggest only modest changes to
federal gambling laws, said David Gantz, the director of the
international trade law program at the University of Arizona.
"They may well be able to come up with a package that either
satisfies Antigua, or even if it doesn't satisfy Antigua, satisfies
the appellate body" at the WTO, Gantz said. "It's very hard at this
stage to predict."
The Bush administration indicated it would take the fewest steps
possible. "U.S. restrictions on Internet gambling can be
maintained," Acting U.S. Trade Representative Peter Allgeier said in
a statement. "This report essentially says that if we clarify U.S.
Internet gambling restrictions in certain ways, we'll be fine."
Antigua's lead attorney, Mark Mendel, acknowledged the
possibility of the United States merely tweaking federal laws and
said his client was willing to start the "whole process" over if the
changes were insufficient. "But we'd like to see a negotiated
compromise that allows Antiguan operators to provide limited
services in the U.S. that are subject to supervision," said Mendel,
a partner at the Texas law firm of Mendel Blumenfeld.
In a 2003 complaint with the WTO, Antigua argued that federal and
state laws restricting online gambling amounted to an illegal trade
restriction that violated obligations that America had made in a
free trade pact. A dispute resolution panel sided with Antigua, and
the Bush administration appealed in January. No further appeals are
Antigua and Barbuda are two flyspecks of land east of Puerto Rico
that, combined, boast only two or three times the area of
Washington, DC. Because the islands have scant arable land and a
limited water supply, the government has come to view Internet
gambling as an attractive source of revenue.
A sore point: Horse racing
One U.S. law that the WTO appeals
board singled out for criticism was a federal law called the
Interstate Horseracing Act. The wording appears to permit only
out-of-state bets made domestically rather than internationally.
That amounts to a type of trade protectionism, Antigua argued,
and the appeals board agreed. The U.S. failed to demonstrate "that
the prohibitions embodied in those measures are applied to both
foreign and domestic service suppliers of remote betting services
for horse racing" and the law was illegal under WTO rules, the board
A spokesman for the U.S. trade representative said Congress may
have to act but left open what might happen next. "We need to
clarify one narrow issue, which is Internet gambling and
horseracing," spokesman Richard Mills said. "It doesn't necessarily
mean loosening restrictions. It could also mean tightening them."
The broader effects of Thursday's ruling remain unclear. They
depend in part on what changes to U.S. law conservative Republicans
can be persuaded to make--and whether America is willing to ignore
portions of the WTO ruling, risking sanctions and a perception of
the United States as hostile to an international trade regime it
One possible outcome, according to Antigua's interpretation of
the ruling, is that virtual casinos could begin to advertise on U.S.
search engines and Web sites. The Justice Department has tried to
discourage that. In addition, credit card companies such as Visa and
MasterCard could be permitted to process gambling-related
"If advising a client, I would urge caution," said Joseph Kelly,
a law professor at SUNY College Buffalo and editor of the Gaming Law
Review. "This is not going to be clear cut. There are going to be
further proceedings on both sides."
Kelly said the United States may be able to ignore Antigua, but
probably not other nations that are eagerly moving forward in
legalizing and regulating online casinos. "How are you going to stop
a British-licensed casino in the United Kingdom from taking wagers
from American citizens?" Kelly asked. "You just can't."