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What led to Antigua's WTO claim on gambling?

Gambling laws are a closely-held state prerogative.  Different states--even those that share common borders like Nevada and Utah--may have very different approaches to gambling.  Nevada has casinos, lotteries, bingo, slot machines--every manner of gambling under the sun.  Right next door, Utah has a total prohibition on all wagering. 

In some states, casinos and lotteries are important parts of the overall state revenue base.  In New Jersey, earmarked revenues from casino taxes have helped fund urban redevelopment in the Atlantic City area.  Money from lotteries enriches a number of state education funds.  Some other states feel however that the 'public morals' hazards of gambling--historical association with organized crime, 'problem' gamblers--outweigh the benefits accruing from increased revenues. 

But no Las Vegas casino--and no US-based business at all--can legally participate in the emerging on-line gambling market.  The federal Department of Justice has taken a clear position on internet casinos.  They are against the law, and Americans who place bets on-line are breaking the law. 

Now, the FBI isn't prosecuting individuals who from their own homes and PCs place bets over the internet.  But the Department of Justice has gone after the owners of on-line casinos, and those who provide them with banking and credit-card services.  Cracking down on illegal operators in the United States has been pretty straightforward; but policing the terrain of cyberspace is a different matter. 

And on-line gambling is now big business.  The National Gambling Impact Study Commission estimated that in 1998 there were 190 gambling websites.  Six years later, according to figures sited in The Economist magazine, there were 1500 such sites, and total revenues looked to approach $10 BILLION annually by the end of the decade.

The story of the on-line casino is the classic American tale of entrepreneurial zeal hitched to technological change.  But this time it has a hitch.  Because of the concerns about federal prohibitions against on-line gambling, internet casinos were mostly 'located'--for business purposes--offshore, even through the major customer base was the United States itself.  (Perhaps 50% of all internet gamblers were in the United States, according to industry and law-enforcement sources, despite the standing prohibition against on-line wagers from the United States.)

At the same time, some of the smaller Caribbean nations were looking to diversify their economies, particularly in the area of services where the start-up costs and scale of enterprises were more modest.  For those island countries whose economies relied almost exclusively on unstable revenue sources like tourism or banana exports, the ability to exploit a newly-emerging technology like the worldwide web for revenue purposes was a godsend. 

By 2005, three Caribbean-region countries-- Antigua, and Barbuda, Costa Rica, and Curacao--had together issued over a thousand on-line gambling licenses.  Today,  there are almost four hundred on-line casinos still operating from those jurisdictions.   Meanwhile the United Kingdom has become the biggest home to on-line casino operators in Europe--which has chosen to tax and regulate this business as opposed to banning it, as is the case in the United States.

As this new on-line industry expanded and continued targeting Americans to set up on-line betting accounts, law enforcement personnel stepped in.  They pursued intermediaries like credit-card companies and the clearing-houses that facilitate on-line wagers.

To Antigua and others, this seemed like discrimination.  In the United States, citizens could buy lottery tickets on-line.  They could place bets on horse-racing over phone lines, and watch the results on closed-circuit television.  Yet on-line casinos abroad were singled out for prosecution and prohibition.  (A U.S. citizen operating an on-line casino from Costa Rica was hauled off an airplane and prosecuted--sending quite a chill through the market and outraging those Europeans who argued that internet casinos were a legitimate business.)  

After pursuing back-channel conversations with the Justice Department and the FBI--negotiations that they eventually concluded were fruitless--the government of Antigua and Barbuda formally decided to litigate this complaint at the World Trade Organization.

They pointed to a commitment made by the United States during the Uruguay Round of trade negotiations.  The U.S. had made an 'unbound' commitment in the General Agreement on Trade in Services (GATS) with respect to 'other recreational services.'  Antigua was reasonably sure that category included gambling.  A GATS commitment meant that the United States had promised to provide 'national treatment' to service suppliers in this sector. 

The complaint brought by Antigua to the WTO, then, alleged that US laws prohibiting internet gambling violate U.S. trade obligations under the General Agreement on Trade in Services (GATS).  The United States claimed it specifically excluded gambling by carving out “sporting” from the recreation commitment.  The stage was set for a showdown at the WTO.

The US-Antigua Gambling Case

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