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Best of I. Nelson Rose
U.S. Ignores Deadline In W.T.O. Fight With Antigua9 September 2006
Once again, the United States federal government is not taking gambling seriously. And Americans are all going to pay for it.
The U.S. had won most of a dispute with the nation of Antigua and Barbuda in the World Trade Organization. Antigua asserted that the U.S. was violating its W.T.O. treaty obligations by preventing Antigua from taking bets from Americans over the Internet. But it is the parts that the U.S. lost that have to be fixed and that are now being ignored by the Bush Administration and Congress that are the problem.
Antigua first filed its formal complaint against the United States in 2004, after the federal government refused to even discuss the issue of Internet gaming with the islands nation. In 2004, after many briefs and hearings, a W.T.O. panel ruled in favor of Antigua, igniting worldwide speculation that the U.S. would soon have to let Americans bet with foreign online operators.
In 2005, the Appellate Body of the W.T.O. reversed. Antigua is claiming victory. The Report is 145 pages long, long enough to contain something for everyone.
But the truth is that this was a big win for the U.S., at least in the short run.
First, the W.T.O. decided not to look at U.S. state laws, which outlaw all unlicensed commercial gambling.
As for federal law, with just a little tweaking of the Interstate Horseracing Act, the U.S. would be in complete compliance with its W.T.O. treaty obligations.
The entire controversy can be traced back to a mistake the U.S. federal government keeps making: It does not take gambling seriously.
The W.T.O. is based on the idea that free trade between nations helps everyone. Often that is true. But sometimes, a country, for political, economic or social reasons, does not want to let in foreign products or services. So, countries have the right to agree, by treaty, how open their borders will be. The treaty in this case is the General Agreement on Trade in Services (GATS), which the U.S. signed in 1994. GATS tells countries to list the foreign services they will bar or admit.
One GATS category is "Recreational, Cultural & Sporting Services," which includes everything from circuses to news agencies. Some other countries expressly stated that they were not agreeing to open their doors to foreign gambling operations. But the U.S. agreed to let in every recreational service, "except sporting."
"Sporting" services were undoubtedly excluded to keep out foreign sports teams. Because the U.S. had not put "gambling" on the list of excluded services, it had to argue that "sporting" includes gambling. It didn't work.
The funny thing is that the U.S. did want to keep out gambling. And all it had to do was say so.
When the U.S. signed GATS in 1994, maybe the federal government did not know about Internet gaming, but it should have. It certainly did know that foreign operators were trying to gain patrons from the U.S. The federal government was seizing a million pieces of foreign lottery mail at the borders each year.
But the U.S. could still win the fight in the W.T.O. and keep out Internet gambling if it could show that this was "necessary to protect public morals or to maintain public order."
The first panel held the U.S. had failed to show this because the U.S. had refused to talk with Antigua about changing its laws against Internet gaming. On appeal the W.T.O. ruled that whether or not the U.S. had met with Antigua was irrelevant to the legal question of whether the anti-gambling laws were necessary.
The W.T.O. Appellate Body held that the federal laws prohibiting interstate and international betting were necessary. Specifically, it said that the U.S. had established "a specific connection between the remote supply of gambling services" and dangers to the American public. It found the U.S. had presented evidence showing "a link in relation to money laundering, fraud, compulsive gambling and underage gambling."
This does not mean that any of this is true. Only that the federal government was able to show that it had reason to be concerned about foreign operators taking bets from at-home Americans. It focused on Internet gambling's "volume, speed and international reach," "virtual anonymity," "low barriers to entry," and "isolated and anonymous environment."
The W.T.O. did reject the federal government's concern for organized crime, finding the U.S. had not submitted concrete evidence to show that remote gambling, as opposed to other forms of gambling, was particularly vulnerable to mob involvement.
This W.T.O. ruling was the first ever to discuss "public morals," but it follows established international law. The European Court of Justice has consistently ruled that the nations of the European Union cannot keep out trade from other members - except gambling. Even in the U.S., we have long had the concept of a state's Police Power, the state's right to do just about anything to protect the health, safety, welfare and morality of that state's citizens. Utah cannot keep out milk from California, but it does not have to allow in California State Lottery tickets.
The U.S. laws had to pass one more test. A nation can enact laws to protect its residents from the perceived evils of gambling, but it cannot discriminate against foreigners just to protect its local businesses. One federal law failed this test.
In December 2000, Congress had amended the Interstate Horseracing Act to allow parimutuel betting on horse races by phone or computer. But the law on its face is limited to states in the U.S. where it is legal to place and accept bets.
Since foreign operators were expressly excluded, the W.T.O. found the U.S. had failed to show there was no discrimination. The government lawyers did not help by making the silly argument that the Interstate Horseracing Act was only civil and that it did not repeal the federal criminal anti-gambling laws. Of course it did. That was why it was amended, so that off-track betting parlors would not be arrested under federal law for taking out-of-state bets. So, the W.T.O. held the U.S. had not shown that it applied its prohibition on remote wagering on horseraces in a nondiscriminatory manner.
Having made its decision, which is non-appealable, the W.T.O. now had to decide how to implement it. The W.T.O.'s Dispute Settlement Board met on May 19, 2005, and heard from the U.S. representative that the U.S. intended to comply with the opinion but needed reasonable time to do so. So, the W.T.O. gave the U.S. until April 3, 2006 to fix its federal laws to make things equal.
The short-term fixes are easy and obvious. But, the deadline has now come and gone and 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.
Antigua argued that the U.S. could implement changes quickly, by the President ordering the Department of Justice not to enforce the law. Impossible and illegal. The President does not have the power to unilaterally ignore a law enacted by Congress. And only Congress can change its statutes.
But, Congress is not going to pass, and President Bush is not about to sign, a law that looks like it expands legal gambling. Worse, this would be an expansion that would not directly raise one cent of tax revenue and would even hurt some U.S. businesses. Worst of all, the Know-Nothings in Congress do not want to be seen as having to change an American law to abide by a decision of foreign powers.
On February 16, 2006, Senator Max Baucus (D.-Mont.) introduced S 2317 in the U.S. Senate to require the U.S. Trade Representative "to take actions with respect to priority foreign country trade practices..." The bill has a revealing section titled "Sense of Congress Regarding Sovereignty":
...(3) Another primary responsibility of the United States Government is to ensure that Federal and State laws are not usurped by foreign governments or organizations.
(4) A World Trade Organization (WTO) panel recently concluded that United States prohibitions on Internet gambling violate the United States commitments under the WTO...
(b) Sense of Congress --
(1)... the United States policy should be to prevent the loss of Federal and State sovereignty...
(2) laws that State and local governments have validly adopted... should not be overridden by provisions in trade agreements.
So, no one has even submitted a bill in Congress to fix the Antigua horseracing problem.
Once again, the government did not bother to talk to anyone in the business. If it had, it would have learned that international betting on horseracing has been around for decades. Betting on the Kentucky Derby is very big in Canada and France, and I personally saw Hollywood Park taking bets on races in Hong Kong.
In fact, allowing foreign racebooks to take bets from the U.S. will have virtually no impact. First, are patrons really going to bet with an unknown operator from Antigua as opposed to a well-known U.S. racetrack brandname? Second, the U.S. does not have to agree to let every foreign operator in. Government negotiators can insist that only racebooks that are licensed and meet the high standards of the U.S. regulated industry will be allowed to take wagers. And one of those standards is that no license can be given to an operator who has been involved in illegal gambling. This means that all of the present Antiguan and other foreign bookies who are now taking bets by phone and online from Americans will be permanently barred from competing in the U.S. market.
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 ignoring this ruling has important political ramifications. This was apparently the first time that a small nation took on a large one in the W.T.O. The U.S. did not need another excuse to be called arrogant in its handling of world affairs and compliance with international law.
Ironically, the U.S. has always been a strong advocate of the W.T.O. The Clinton and Bush Administrations spent years convincing other countries to join 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 by the W.T.O.?
And what happens next time, when it is not Antigua but the United Kingdom 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. Immediately before the April deadline, 49 of the 50 state A.G.s (all except Nevada) wrote a letter to Congress requesting help in outlawing illegal Internet gambling; no mention was made of changing the law on remote wagering on horse races.
The states are particularly concerned because the W.T.O. only ruled on the impact of a few federal laws. The W.T.O. probably would have held that many of the anti-gambling laws of the 50 states are wrongfully discriminating against foreign operators. The only reason it didn't was that the lawyers for Antigua made a small procedural error, almost a typo, 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, and it's not just horseracing that is at stake. Nevada would have to try to 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.
But even Utah is worried that its complete prohibition on all gambling would fall, since the federal government's treaty agreements are the supreme law of the land.
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, other than a few members of Congress, 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.
© 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
© Copyright 2006. Professor I Nelson Rose is recognized as one of the world's leading authorities on gambling law. His latest books, Gaming Law: Cases and Materials and Internet Gaming Law, are available through his website, www.GamblingAndTheLaw.com.
Professor I. Nelson Rose is recognized as one of the world's leading experts on gambling law. A tenured full Professor at Whittier Law School in Costa Mesa, California, Prof. Rose is also an internationally known scholar, author and public speaker.
Professor Rose is best known for his internationally syndicated column, "Gambling and the Law®" and his landmark 1986 book with the same name. The author of more than 1,000 published works, including Gambling and the Law and Blackjack and the Law. He wrote the chapter on Internet gambling for the first casebook on gaming law, Gaming Law: Cases and Materials, and in 2005 co-authored Internet Gaming Law (available at www.liebertpub.com/igl).
Harvard Law School educated, Prof. Rose is a consultant to governments and industry. He has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, including the first NAFTA tribunal on gaming issues, and has acted as a consultant to major law firms, international corporations, racetracks, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas, the province of Ontario, and the federal governments of Canada, Mexico and the United States.
With the rising interest in gambling throughout the world, Prof. Rose has addressed such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe and the National Academy of Sciences. He has taught classes on gaming law to the F.B.I., at the University of Ljubljana in Slovenia, Sun Yat-sen University in China and the Universidad de Cantabria in Spain, and as a Visiting Scholar for the University of Nevada-Reno's Institute for the Study of Gambling and Commercial Gaming. Prof. Rose has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.
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Best of I. Nelson Rose
I. Nelson Rose
I. Nelson Rose