Dispatches from the Creation Wars

Of course, the temporary injunction and the permanent injunction are two different issues. Whether they get a temporary injunction or not, they will press forward for a permanent one. The lawsuit also argues that the WTO ruling against the US makes the law unenforceable and I think they're right. The WTO treaty is as much Federal law as any legislation passed by Congress and the law violates that treaty, as the WTO has now twice ruled. And there is news on that front as well.

After the US lost its appeal of a WTO ruling declaring American efforts to eliminate online gambling to be a violation of the treaty, the government decided not to appeal the ruling; instead, they decided to amend the treaty to make an exception for online gambling:

Instead of trying to comply with the WTO ruling by opening its borders to offshore Internet gambling firms or closing down US-based Internet gambling firms, the U.S. announced that it would take the unprecedented step of amending its original 1994 WTO trade agreement obligations by removing online gambling.

But this may backfire in a major way, as it opened the door for Antigua to ask all WTO nations to impose retaliatory trade sanctions against the US:

As a result of the amendment, other WTO members can now file compensatory claims against the USA, a clause its Trade Representative is trying to evade.

If it were only the tiny Caribbean island nation comprised of Antigua and Barbuda making claims against the USA, it would hardly make a difference to Washington. But any WTO member can file claims for future losses their country may incur as a result of USA's violation.

Since many countries are either already regulating or about to regulate online gambling, the chances increase that the U.S. will have to compensate fellow WTO members. The United Kingdom immediately comes to mind since it is the biggest and most powerful country whose registered gaming corporations lost billions in value when the US blocked access to US customers by passing the UIGEA. And UK online gambling is about to expand with the roll out its 2005 Gambling Act this September.

Ambassador John Ashe of Antigua informed the WTO dispute panel in Geneva, Switzerland last week that his country may target U.S. trademarks, copyrights and telecommunications companies as compensation.

He told fellow WTO delegates that claims are not enough, saying, "Not only do we think that members should press claims for compensatory adjustments as a matter of economic self-interest, but we also believe it is important that the process is made as difficult as possible for the United States."

In a statement to members, Dr Ashe said, "There is something clearly wrong with the concept that after a long, difficult struggle covering years of dispute resolution at the WTO an offending member could ultimately avoid the consequences of its loss by withdrawing the commitment that gave rise to the claim in the first place. As far as we are concerned, our dispute has been resolved and the United States remains obligated to comply."

And it appears that other WTO nations are taking this very seriously and are quite angry at the US for this unprecedented step:

The United States' decision to modify its original World Trade Organization (WTO) commitments to remove online gambling from its services agreement is a slight to the WTO and has "evoked a storm of outrage and concern," according to Tuesday's article from respected daily worldwide tax news service Tax-News.com.

The critique comes after the US announced it decided to withdraw from one of its WTO commitments after it lost its final appeal in the drawn-out battle with Antigua and Barbuda over US discriminatory practices towards foreign online gaming firms

In their announcement, US Trade Representative John Veroneau said, "We did not intend and do not intend to have gambling as part of our services agreement. What we are doing is just clarifying our commitments"

Jeremy Hetherington-Gore of Tax-News.com explains that the WTO treaty allows a country to withdraw commitments to open its services market to foreign investors, but because the original GATS treaty was negotiated multilaterally (as with all WTO treaties) the US will now have to negotiate with any of the other 149 member countries that raises objection to the move and wants to renegotiate any of their own commitments in return.

Heatherington-Gore said. "To call this opening Pandora's box must surely be an understatement."

He went on to describe reactions saying, "Adjectives used by commentators over the weekend to describe the US action included 'absurd' and 'disingenuous'. Said one anonymous spokesman: "This action is more surprising to me than had President Bush announced he was coming out of the closet today regarding his sexual preference.""

James Jochum, a former Bush administration official and partner at the law firm of Mayer, Brown, Rowe & Maw LLP in Washington who represents the Antigua Online Gaming Association, was quoted in the article as saying, "I am disappointed to see our country lead a degradation of the system. The implications are so serious because of the precedent it sets."

This could get really ugly. But the WTO dispute may well be the issue that ends up bringing down the UIGEA. We can only hope so.