he World Trade Organization, in its first decision on an
Internet-related dispute, has ignited a political, cultural and
legal tinderbox by ruling that the United States policy prohibiting
online gambling violates international trade law.
The ruling, issued by a W.T.O. panel on Wednesday, is being
hailed by operators of online casinos based overseas as a major
victory that could force America to liberalize laws outlawing their
But the Bush administration vowed to appeal the decision, and
several members of Congress said they would rather have an
international trade war or withdraw from future rounds of the World
Trade Organization than have American social policy dictated from
"It's appalling," said Representative Bob Goodlatte, a Virginia
Republican. "It cannot be allowed to stand that another nation can
impose its values on the U.S. and make it a trade issue."
The decision stems from a case brought to the W.T.O. in June 2003
by the tiny island nation of Antigua and Barbuda. The nation, which
licenses 19 companies that offer sports betting and casino games
like blackjack over the Internet, argued that United States trade
policy does not prohibit cross-border gambling operations.
Antigua and Barbuda further argued that the United States would
be hypocritical to do otherwise since it wants to allow American
casino operations to operate land-based and Internet-based units
It is not clear precisely why the dispute panel of the trade body
ruled in favor of Antigua and Barbuda, since the specifics of its
decision remain confidential. The ruling covers only online casinos
based on the islands, near Puerto Rico, but other nations could seek
similar rulings, legal experts said.
Sir Ronald Sanders, the islands' chief foreign affairs
representative, said he thought it was clear from the decision that
the United States must liberalize its online gambling regulations or
risk being hypocritical about its stance on free trade.
"The U.S. says it wants open competition," he said. "But it only
wants free trade when it suits the U.S."
The issue has emerged at the nexus of already complicated legal
and social issues muddied further by the borderless reach of the
Internet. Millions of Americans now gamble over the Internet, using
credit cards or online payment services to wager on sports contests
or at games like poker, blackjack and roulette.
Under federal law, it is illegal to offer sports bets over the
Internet or to operate other gambling operations not otherwise
allowed by individual states. State laws vary widely, with some
allowing specific forms of gambling within their borders. Some
states criminalize the placing of a bet, but others, like New York,
do not make it a crime to bet online.
Online casinos are typically based in Costa Rica or the
Caribbean, but also in Britain. Their business continues to grow,
but not nearly as fast as industry experts once projected; the
slower growth has come in part because many banks do not allow their
credit cards to be used to place bets.
Also, the Justice Department has begun to crack down on American
broadcasters and publishers that advertise on behalf of online
casinos. The crackdown, based on an untested legal theory that
American companies are aiding an illegal enterprise, has limited the
ability of online casinos to reach Americans.
Sebastian Sinclair, a research analyst who studies the Internet
gambling industry, said he doubted the W.T.O. decision would affect
America's internal policies and instead could strengthen the resolve
of policy makers who want to see the activity prohibited. At the
same time, he said the decision showed the gulf in policy on the
issue between America and much of the world.
"We're going down one path, and the rest of the world is going
down a completely different path," said Mr. Sinclair, an analyst
with Christiansen Capital Advisors.
Mr. Sinclair added that the ruling was as a "nonevent" for the
Las Vegas casinos and other legal gambling operations in the United
States because they risk losing their charters if they open a casino
- online or otherwise - that in any way violates the licenses in
states where they operate. Those state licenses could, for example,
preclude legal casinos from offering wagers to Americans where
gambling is not permitted.
Sir Ronald, the official from Antigua and Barbuda, said that two
years ago the nation, which has a population of less than 100,000,
had 119 online casinos with 5,000 employees. Today, he said, its 30
operations have about 1,000 employees.
He argued that if the United States loses an appeal before the
W.T.O. and then continues to prohibit online gambling, Antigua and
Barbuda would be within its international rights to raise tariffs on
American companies doing business there. Sir Ronald said that since
90 percent of what his country consumes it imports from the United
States, the impact could be severe for American companies like
He said America has frequently used the trade organization to
further its interests, including forcing nations to make internal
policies consistent with international law. He did not cite specific
Mr. Goodlatte said that the United States did not expect to
change its policy and that the people of Antigua and Barbuda "may
have a mini-trade war on their hands."
The congressman, along with Senator John Kyl, a Republican from
Arizona, said he would question America's participation in future
agreements under the auspices of the World Trade Organization.
David Carruthers, chief executive of Betonsports.com, an Internet
sports book operation and casino with headquarters in Costa Rica and
back-office operations in Antigua and Barbuda, said he hoped the
W.T.O. decision would lead to legalized online gambling in
In 2003, he said, his company took 33 million bets from people in
North America, most of them in the United States. He said he had 1.2
million registered customers who are United States residents.
"This could be the straw that breaks the camel's back," he said.
"It's a victory for the people of Antigua but also for consumers in
the United States."