EU and US at odds over internet gambling

SAN FRANCISCO — The European Union recently took a shot at the United States in little-noticed trade war over internet gambling, charging that the United States unfairly interferes with internet gambling in ways that run contrary to World Trade Organization rules.

The EU is not the only WTO player at odds with the United States over online gambling. China, Canada, Japan, Mexico and the Caribbean island nation of Antigua are also using trade rules to either force the U.S. to ease its prohibitions against internet gambling — which seems unlikely though there is a bill to that effect in Congress — or else get compensation in the form of trade concessions if they can't.

The stakes are considerable. The EU report that raised the charges estimated that “remote gambling and betting” was a $14 billion industry in 2007, headed for $22 billion in 2010. “The EU has established a worldwide lead” in this market, according to the report, which said 15,000 Europeans were already employed by remote gambling firms based mainly in the United Kingdom, Malta, Gibraltar and Ireland.

“Internet gambling is a complex and delicate area, and we do not want to dictate how the U.S. should regulate its market,” said EU Trade Commissioner Catherine Ashton in a statement. “However, the U.S. must respect its WTO obligations. I hope that we will be able to reach an amicable solution to this issue.”

A spokeswoman for the U.S. trade representative said her office was studying the EU report and was already in discussions with European officials over the gambling issue.

“The United States has really bungled this,” said Professor I. Nelson Rose, who teaches at Whittier Law School in California and is an expert on international gambling.

Rose said the roots of the dispute go back to 1994 when the United States signed the General Agreement on Trade in Services (GATS) — but failed to put gambling on the list of services it planned to exclude from the free trade provisions. “Had we done that we wouldn't have this problem now,” Rose said.

The subsequent rise of the internet led to the creation of cross-border gambling sites aimed at the United States, where gambling is regulated by a patchwork of federal and states laws. Rose said U.S. authorities at both the state and federal level have generally sought to discourage internet gambling using every tool at their disposal.

The issue came before the World Trade Organization in 2003 when Antigua, which hosts internet gambling sites, complained that these various U.S. efforts to restrict online gaming constituted an unfair trade practice.

The WTO ruling handed down in 2005 was a victory for Antigua but on very narrow grounds, Rose said. Antigua had wanted the trade group to declare that all U.S. restrictions on internet gambling were trade barriers. That, the WTO declined to do, accepting the U.S. argument that its laws were designed to protect its citizens from predation and were applied to domestic as well as international firms. But the WTO noted that the United States allowed long-distance horse betting under the Interstate Horseracing Act and ruled that it was unfair to disallow international gambling on horse racing as a result.

Rose said the Bush administration could have ended the dispute by asking Congress to make the horseracing act international. Instead, the administration issued a statement in May 2007 informing the WTO that it intended to, belatedly, put internet gambling on the list of exceptions. Rose said that, under the WTO process, this allowed treaty members with internet gambling industries to file claims against the United States seeking compensation, which the EU and others did.

Those claims are still winding their way through the slow WTO process and the ultimate consequences for the United States remain unclear.

The U.S. continues to take a hard line on internet gambling. Shortly before the EU report was released in June, federal attorneys in the Southern District of New York ordered four American banks to freeze more than $30 million in payments to thousands of online poker players who used sites like pokerstars.com, which is based in the Isle of Man in the U.K.

Congressman Barney Frank, a Democrat from Massachusetts, has introduced legislation to legalize and regulate internet gambling. How the bill will fare in a U.S. Congress preoccupied with broader economic issues is anyone's guess.

Meanwhile the online gambling controversy continues to fly just under the radar of public opinion.

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