Dispatches from the Creation Wars

Update on Antigua WTO Gambling Dispute

The NY Times had an excellent article the other day about the ongoing dispute between Antigua and the US over online gambling. Quick background: Antigua, which is home to several online gambling companies, filed a WTO complaint against the US and won. The US appealed and Antigua won again. Now the US is refusing to comply with the ruling, despite the fact that we complain when any other country doesn’t comply with WTO rules. And this has led to something of a standoff. Here’s what compliance would require:

Complying with the W.T.O. ruling, Professor Jackson said, would require Congress and the Bush administration either to reverse course and permit Americans to place bets online legally with offshore casinos or, equally unlikely, impose an across-the-board ban on all forms of Internet gambling — including the online purchase of lottery tickets, participation in Web-based pro sports fantasy leagues and off-track wagering on horse racing.

And here’s what it could mean if we don’t comply:

But not complying with the decision presents big problems of its own for Washington. That’s because Mr. Mendel, who is claiming $3.4 billion in damages on behalf of Antigua, has asked the trade organization to grant a rare form of compensation if the American government refuses to accept the ruling: permission for Antiguans to violate intellectual property laws by allowing them to distribute copies of American music, movie and software products, among others.

The WTO has only done this once, with Equador, who didn’t actually violate any such laws but merely used the threat to get what they wanted from their adversary; that, of course, is exactly what Antigua wants to do as well. But the WTO is in a bit of a bind on how to proceed, for fairly obvious reasons:

For the W.T.O. itself, the decision is equally fraught with peril. It cannot back down because that would undermine its credibility with the rest of the world. But if it actually carries out the penalties, it risks a political backlash in the United States, the most powerful force for free-flowing global trade and the W.T.O.’s biggest backer.

“Think of this from the W.T.O.’s point of view,” said Charles R. Nesson, a professor at Harvard Law School. “They’re this fledgling organization dominated by a huge monster in the United States. People there must be scared out of their wits at the prospects of enforcing a ruling that would instantly galvanize public opinion in the United States against the W.T.O.”

In April 2005, the trade body gave the United States one year to comply with its ruling, but that deadline passed with little more than a statement from Washington that it had reviewed its laws and decided it has been in compliance all along. The case is now before an arbitration body charged with assessing damages.

“The stakes here are enormous,” Professor Nesson said.

The only part of the article I find questionable is this:

Yet another reason the fraternity of trade lawyers and experts are so closely watching the case, Mr. Van Den Hende said, is “that the U.S. is not behaving as one would expect.”

“One day they’re out there saying how scandalous it is that China doesn’t respect W.T.O. decisions,” he said. “But then the next day there’s a dispute that doesn’t go their way and their attitude is: The decision is completely wrong, these judges don’t know what they’re doing, why should we comply?”

I can’t imagine why they would not expect such behavior from the US government. All governments engage in such behavior, using loopholes to gain financial and political advantage. Anyone surprised by that behavior just doesn’t understand the nature of governments (or human beings) very well. If the WTO does approve retaliatory sanctions, that’s when things will start to change here. As Greg Raymer pointed out during our radio interview the other day, the anti-gambling lobby may have pull, but Microsoft and Hollywood have a lot more. If their profits are threatened by massive violations of its copyrights coming from Antigua, they’ll put major pressure on Congress to fix the problem.