Why Antigua Matters

Last August, the US lost an important decision before the WTO in which Antigua challenged American bans on on-line gambling. The WTO found that, in general, US bans on on-line gambling were illegal under WTO rules because the US allows significant amounts of domestic on-line gambling (e.g. on-line purchases of lottery tickets, Internet-based off-track betting). Antigua won the right to, if the US didn't comply with the WTO rule by either allowing on-line gambling or banning all on-line gambling, impose sanctions equivalent to $21 million (Antigua had asked for $3.4 billion) on the US through copyright violations. In response, the US withdrew from the part of the WTO dealing with on-line gambling, and is presently in negotiations with several countries over compensation for the US action. According to the previously referenced article:

Under WTO rules, a country may withdraw a service sector committed to WTO jurisdiction only with the authorization of other WTO signatory countries interested in the sector and only after compensating for future lost revenue a WTO signatory country might have earned were the commitment maintained. ... The U.S. is engaged in negotiations with the European Union, India, Costa Rica and Macao to determine how much it must pay them for withdrawing the gambling sector. These negotiations focus on what new service sectors the U.S. will submit to WTO jurisdiction in exchange for withdrawing gambling.

Yesterday, however, apparently dissatisfied with American offers of compensation, the European Union launched an investigation into American rules banning on-line gambling to determine whether those laws discriminated against EU-based companies. The investigation is seen as laying the groundwork for a potential suit in the WTO against the US.

US behavior in this case is absurd and barely explicable. The moral opprobrium argument holds no water, as gambling in the US is widespread and accepted. Is it really any different if someone buys lottery tickets, go to Vegas or Atlantic City, or gambles on-line? The only possible explanation is the US seeks to protect a small gambling industry, and is willing to undermine the global free trade regime to protect that industry. When it was Antigua challenging the US, the US was apparently willing to pay millions of dollars to avoid opening up (or banning altogether) gambling markets. But the entrance of the EU into this equation changes the parameters of the game quite drastically.

Since the dynamics of the US law haven't changed, it seems all but certain that the EU could win any suit filed in the WTO. It also seems certain that the EU would be granted far more than $21 million of damages. At which point the US would be faced with a real choice: Pay the EU billions of dollars in compensation (which would, in all likelihood be equated by some penalty against the EU for European protection) or lift the ban. The latter is, obviously, not preferred by the US domestic political arrangements. The former threatens to undermine the WTO. As I wrote when I initially blogged about this case:

It is very important that the US comply with the WTO's decision. The WTO is one of the cornerstones of the international order, and is vital for insuring the continued prosperity of this country, and nearly every other country in the world. Furthermore, the US has been trying to get smaller, developing countries to accept American intellectual property rights laws under the WTO. Why would they do so if the US refuses to play by the rules (of course, the American, European, Japanese, and Korean refusals to ease or cease agricultural subsidies are already driving this line of thought, but at least ag policy is not currently covered by the WTO)? Refusing to comply will fundamentally damage US credibility and interests to a degree that not even the invasion of Iraq was able to do. It is vital to the US that other countries commit themselves to the WTO and comply with its obligations; it is equally vital that the US do the same.

That was true when it was just Antigua. Now that the EU is involved, it's even more true.