America’s unyielding approach to Internet gaming may lead to more wide reaching complications with the World Trade Organization (WTO).
It went hardly noticed in 2003 when the small island nation of Antigua and Barbuda started to complain about constrictions resulting from the United States gambling laws. The concern was the limitations at the time, and now the subsequent elimination of legal online gambling. The result for Antigua, jobs have been lost, and money has diminished, hurting their largest workforce.
Four brief years later, this complaint has grown into a major concern for more and more of America’s Top Trading Partners. Starting in May of 2007 the United States government unilaterally decided to exclude online gambling from the list of services monitored by the World Trade Organization. In doing so, the United States evoked an escape clause in the WTO treaty, permitting countries to modify, withdraw or adjust any commitment made in providing open access. The unprecedented choice came after the WTO ruled the US is violating trade rules when it blocked the imports from other countries gambling services.
The dispute could be a lose-lose circumstance for free trade. The U.S. may have legitimized use of a big loophole in the WTO, however the already intense American backlash is gaining global support, exacerbated by the step sanctions to be imposed.
The escape clause used by the United States permits reparations from any WTO member injured in the modification of the agreement. The clause was written in a way to intentionally discourage use, thus the country imposing the trade restrictions would have to provide ‘compensatory adjustment’ to other countries affected by the agreement modification. This term in the agreement is vague enough to cover potentially enormous claims.
Antigua is the first to utilize this recompense requirement. They are requiring the United States to provide them with a minimum of 3.4 billion dollars a year in concessions, to in theory cover the lost gambling revenues. Seven additional World Trade Organization members are seeking unspecified amounts, including Japan, India, the European Union, Canada, Australia, Costa Rica and Macao. Many of the involved nations have previously had gambling operations that had a customer base in the United States, and are thus in a position to require massive sums from the United States.
The U.S. has been disinclined to back away from its aggressive stance on Internet gambling. A primary reason is that it’s a atypical area in which many Republicans and Democrats agree, on both moral and law enforcement grounds. The case is based on it being far too easy for minors to gamble online and for criminals, terrorists to use Web gambling to launder money. That’s why the U.S. significantly increased online enforcement in recent years and banned the use of credit cards to place online bets. The United States maintains that during the negotiation for the trade agreement in 1994, the World Wide Web, and online gambling were not remotely envisioned. In May of 2007, Deputy US Trade Representative John K Veroneau told reporters “It never occurred to us that our schedule could be interpreted as including gambling until Antigua-Barbuda brought this case,”
In the end it could fall to the WTO to come to a decision regarding what, if any, economic sanctions the U.S. would sustain. Major trading partners such as Europe and Japan could use the state of affairs to prevail in other disputes. Smaller nations, such as Antigua, Costa Rica, and Macau, are likely to solicit the WTO to allow them ignore copyright protections on software and entertainment. This would essentially allow or give permission for these nations to pirate the work done by American engineers.
On a larger level, the U.S. move, should it be successful, could encourage other member nations to purchase their way out of other important trade commitments. One area of concern pertaining to China or India or Russia is the possibility they may chose to withdraw concession on intellectual property and aircraft. The impact for the United States and many other countries would be irrevocable.
An amazing step in the right direction is the beginning of formal arbitration between the United States and Antigua. The proceedings began on July 24th, and are continuing along with bilateral discussions, between a number of other trading partners. Along with the benefit of the arbitration, the offshore betting operators are trying to generate congressional support for legalizing web based gambling. The case is being intensely watched by many around the world, in hope that reasonable negotiations will be the final outcome in this case.
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