Monday, March 06, 2006

The World Trade Organization, in its first decision on an Internet-related dispute, has ignited a political, cultural and legal tinderbox by ruling that the United States policy prohibiting online gambling violates international trade law.

The ruling, issued by a W.T.O. panel on Wednesday, is being hailed by operators of online casinos based overseas as a major victory that could force America to liberalize laws outlawing their business.

But the Bush administration vowed to appeal the decision, and several members of Congress said they would rather have an international trade war or withdraw from future rounds of the World Trade Organization than have American social policy dictated from abroad.

"It's appalling," said Representative Bob Goodlatte, a Virginia Republican. "It cannot be allowed to stand that another nation can impose its values on the U.S. and make it a trade issue."

The decision stems from a case brought to the W.T.O. in June 2003 by the tiny island nation of Antigua and Barbuda. The nation, which licenses 19 companies that offer sports betting and casino games like blackjack over the Internet, argued that United States trade policy does not prohibit cross-border gambling operations. Antigua and Barbuda further argued that the United States would be hypocritical to do otherwise since it wants to allow American casino operations to operate land-based and Internet-based units overseas.

It is not clear precisely why the dispute panel of the trade body ruled in favor of Antigua and Barbuda, since the specifics of its decision remain confidential. The ruling covers only online casinos based on the islands, near Puerto Rico, but other nations could seek similar rulings, legal experts said.

Sir Ronald Sanders, the islands' chief foreign affairs representative, said he thought it was clear from the decision that the United States must liberalize its online gambling regulations or risk being hypocritical about its stance on free trade.

"The U.S. says it wants open competition," he said. "But it only wants free trade when it suits the U.S."

The issue has emerged at the nexus of already complicated legal and social issues muddied further by the borderless reach of the Internet. Millions of Americans now gamble over the Internet, using credit cards or online payment services to wager on sports contests or at games like poker, blackjack and roulette.

Under federal law, it is illegal to offer sports bets over the Internet or to operate other gambling operations not otherwise allowed by individual states. State laws vary widely, with some allowing specific forms of gambling within their borders. Some states criminalize the placing of a bet, but others, like New York, do not make it a crime to bet online.

Online casinos are typically based in Costa Rica or the Caribbean, but also in Britain. Their business continues to grow, but not nearly as fast as industry experts once projected; the slower growth has come in part because many banks do not allow their credit cards to be used to place bets.

Also, the Justice Department has begun to crack down on American broadcasters and publishers that advertise on behalf of online casinos. The crackdown, based on an untested legal theory that American companies are aiding an illegal enterprise, has limited the ability of online casinos to reach Americans.

Sebastian Sinclair, a research analyst who studies the Internet gambling industry, said he doubted the W.T.O. decision would affect America's internal policies and instead could strengthen the resolve of policy makers who want to see the activity prohibited. At the same time, he said the decision showed the gulf in policy on the issue between America and much of the world.

"We're going down one path, and the rest of the world is going down a completely different path," said Mr. Sinclair, an analyst with Christiansen Capital Advisors.

Mr. Sinclair added that the ruling was as a "nonevent" for the Las Vegas casinos and other legal gambling operations in the United States because they risk losing their charters if they open a casino - online or otherwise - that in any way violates the licenses in states where they operate. Those state licenses could, for example, preclude legal casinos from offering wagers to Americans where gambling is not permitted.

Sir Ronald, the official from Antigua and Barbuda, said that two years ago the nation, which has population of less than 100,000, had 119 online casinos with 5,000 employees. Today, he said, its 30 operations have about 1,000 employees.

He argued that if the United States loses an appeal before the W.T.O. and then continues to prohibit online gambling, Antigua and Barbuda would be within its international rights to raise tariffs on American companies doing business there. Sir Ronald said that since 90 percent of what his country consumes it imports from the United States, the impact could be severe for American companies like AT&T.

He said America has frequently used the trade organization to further its interests, including forcing nations to make internal policies consistent with international law. He did not cite specific examples.

Mr. Goodlatte said that the United States did not expect to change its policy and that the people of Antigua and Barbuda "may have a mini-trade war on their hands."

The congressman, along with Senator John Kyl, a Republican from Arizona, said he would question America's participation in future agreements under the auspices of the World Trade Organization.

David Carruthers, chief executive of Betonsports.com, an Internet sports book operation and casino with headquarters in Costa Rica and back-office operations in Antigua and Barbuda, said he hoped the W.T.O. decision would lead to legalized online gambling in America.

In 2003, he said, his company took 33 million bets from people in North America, most of them in the United States. He said he had 1.2 million registered customers who are United States residents.

"This could be the straw that breaks the camel's back," he said. "It's a victory for the people of Antigua but also for consumers in the United States."