#117 © Copyright 2006, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA

Once again, the federal government is not taking gambling seriously. And we are all going to pay for it.

The U.S. won most of a dispute with Antigua in the World Trade Organization over Antigua’s claim that it was prevented from taking bets from Americans over the Internet. But the parts the U.S. lost have to be fixed and are now being ignored by the Bush Administration and Congress.

The W.T.O. is based on the idea that free trade between nations helps everyone. But sometimes a country does not want to let in all foreign products or services. So, countries have the right to agree how open their borders will be. In 1994 the U.S. signed the General Agreement on Trade in Services (GATS) which lists what can be imported.

The U.S. agreed to let in all “Recreational, Cultural & Sporting Services” . . . “except sporting.” Other countries put “gambling” on their lists of excluded services. But the federal government consistently ignores the existence of legal gaming.

So, the U.S. was forced to argue that “sporting” meant gambling. It didn’t work.

The W.T.O. ruled that the U.S. had agreed to let in all Internet gambling from every country that signed GATS. The only way out of this treaty commitment is for the U.S. to prove that it has reasonable fears that remote gaming will bring in crime and corrupt the morals of America.

The reason the federal government is not taking the W.T.O. decision seriously is that the U.S. was able to show that it thought its few federal anti-gambling laws, such as the Wire Act, were necessary to protect American “public morals” and “public order.”

But even here, it lost one battle. In December 2000, Congress amended the Interstate Horseracing Act to permit Americans to bet from their homes by phone or computer with state licensed off-track betting operators. The W.T.O. held that there was no justification for discriminating against O.T.B.s licensed by other countries.

The W.T.O. gave the U.S. until April 3, 2006 to fix its federal laws to make things equal.

The fixes are easy and obvious. But, nothing has been done.

Outlawing all interstate horseracing bets is obviously not going to happen. But amending the Act to put foreign-licensed O.T.B.s on an equal footing turns out to be just as politically unpalatable.

Congress is not going to pass, and President Bush is not about to sign, a law that expands legal gambling and that would not directly raise one cent of tax revenue while hurting some U.S. businesses. Also, the Knownothings in Congress do not want to be seen as changing an American law to abide by a decision of foreign powers.

So, no one has even submitted a bill in Congress to fix the Antigua horseracing problem.

Congress and the Bush Administration figure there is not much the W.T.O. can do if the U.S. ignores the ruling. The W.T.O. will only hit the U.S. with penalties on its trade with Antigua. Although Antigua is busily granting new licenses and will claim that it is losing billions of dollars, the pay-off will be only in the tens of millions of dollars.

But the Clinton and Bush Administrations spent years convincing other countries to join the W.T.O. and abide by its decisions. How would we feel if China announced that it would not permit American car-makers to compete against its local manufacturers, and then blew off a ruling against it?

And what happens next time, when it is not Antigua but England and Australia that ask for trade penalties from the U.S. for not letting in their licensed Internet gaming operators?

The states recognize the dangers. The attorneys general of 29 states joined in requesting the U.S. amend its treaty agreement to include “gambling” on list of excluded services in GATS.

The W.T.O. only ruled on the impact of a few federal laws. The lawyers for Antigua made a small procedural error that prevented the issue of state laws from being considered in this particular case. The next country that brings the U.S. before the W.T.O. won’t make the same mistake.

The state most at risk is Nevada. How can it justify allowing its licensed sports books to take bets by phone and computer from people within the state while making it a crime for foreign licensed sports books to do exactly the same thing?

It is difficult to amend a GATS list. Otherwise, every nation that lost a fight in the W.T.O. would simply change its commitments. GATS negotiations literally take years. To add gambling to the excluded list, the U.S. would have to give up something else. And, again, the federal government does not feel legal gambling is worth considering, even if only to ban it. The Bush Administration has not even brought up the issue.

Where will the federal government find the money to pay off Antigua? My prediction is it will look to the industries that are benefitting from keeping Internet gambling illegal.

Expect proposals for new federal taxes on horseracing and casinos.

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© Copyright 2006. Professor I Nelson Rose will be teaching International Gaming Law as part of Whittier Law School’s Summer Abroad Program in France in July 2006. For more information, contact Prof. Rose through his website, www.GamblingAndTheLaw.com.