I've featured commentary [1, 2] on this story of Antigua claiming compensation from the US at the WTO over lost online gaming revenues as it very much concerns the idea--and ideal--of free trade. If the WTO truly is a "rule-based" and not a "golden rule-based" (he who hath the gold maketh the rules) institution as those Bretton Woods bodies are accused of being, then Antigua should have had its day of celebration a long time ago. However, the US, with nearly limitless legal firepower at its disposal (if there's one thing the US has a lot of, it's lawyers!), has been stalling the definitive resolution of this matter. The International Herald Tribune lays out the importance of this case for the future of free trade, a rules-based WTO, and inequities in the global political economy. It's simple, really: How is the US supposed to sell its free trade agenda elsewhere when it flouts the idea when doing so is convenient?:
With long blond hair reaching his shoulders and dozens of cloth bracelets peeking out from under his sleeves, Mark Mendel hardly conjures up the image of a typical lawyer.
But then there is nothing run-of-the-mill about the case that Mendel, a Texan who was born and reared in Southern California, has been waging against his own government before the World Trade Organization.
It is a clash that at once challenges Washington's attempt to prohibit online gambling while simultaneously testing the ability of the WTO to enforce its own standards.
The dispute stretches back to 2003, when Mendel, 51, first persuaded officials in Antigua and Barbuda, a tiny nation in the Caribbean with a population of about 70,000, to make a trade complaint against the United States, claiming that its ban against Americans' gambling over the Internet violated Antigua's rights as a member of the WTO
Antigua is best known to Americans for its pristine beaches. But the dozens of online casinos based there are vital to the island's economy, serving as a major employer.
More than a few people in Washington initially dismissed as absurd the idea that the trade organization could claim jurisdiction over something as basic as a country's own policies toward gambling. Various states and the federal government, after all, have been deeply engaged for decades in where and when to allow casinos, Indian gambling halls, race tracks, lotteries and the like to operate.
But a WTO panel ruled against the United States in 2004, and an appellate body upheld that decision one year later. In March, the organization upheld that ruling for a second time and declared Washington out of compliance with its rules. That has placed the United States in a quandary, said John Jackson, a professor at Georgetown University Law Center who specializes in international trade law.
Complying with the WTO ruling, Jackson said, would require Congress and the Bush administration either to reverse course and permit Americans to legally place bets online from 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.
But not complying with the decision presents big problems of its own for Washington. That is because 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 U.S. government refuses to accept the ruling: permission for Antiguans to legally violate intellectual property laws by allowing them to distribute copies of U.S. music, movie and software products, among others.
For the WTO 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 WTO's biggest backer.
"Think of this from the W.T.O's point of view," said Charles Nesson, a professor at Harvard Law School and a founder of Harvard's Berkman Center for Internet & Society. "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 WTO"
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 that it had been in compliance all along. The case is now before an arbitration body charged with assessing damages.
"The stakes here are enormous," Nesson added.
If anything, the Bush administration raised those stakes in May when it announced that it was removing gambling services from existing trade agreements. John Veroneau, a deputy trade representative, said that the federal government was only "clarifying our view" that it never meant to include online gambling in any free trade agreements.
"It is truly untenable to think that we would knowingly bargain away something that has been illegal for decade upon decade in this country," Veroneau said.
He added that Washington was not defying the WTO but simply pursuing its case through all legal channels.
The WTO allowed that Washington probably did not intend to include online gambling when it agreed to the inclusion of "recreational services" and other similar language in agreements reached during the early 1990s. But the organization says it has no choice but to enforce the plain language of the pacts.
One reason for all the interest is the David-and-Goliath aspect of the case. Another is that the dispute, as the WTO's first to deal with the Internet, is likely to serve as a major precedent in establishing rules of commerce in an online age and dealing with such prickly issues as China's attempts to block online content it finds offensive.
Yet another reason the fraternity of trade lawyers and experts is so closely watching the case, said Lode Van Den Hende, an international trade lawyer with the firm of Herbert Smith in Brussels, 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 WTO decisions," Van Den Hende 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?"
It is not clear that Mendel knew just how much of a hornet's nest he would stir up with this case. But he certainly seems to be enjoying the attention.
In 2002, Mendel - who does not gamble and knew little about international trade - was little more than an ordinary corporate lawyer in El Paso specializing in securities law. His law partner, though, was friends with Jay Cohen, the operator of an offshore sports book in Antigua, who had been sentenced to 21 months in prison for taking bets over the Internet from Americans. Mr. Cohen asked his old friend to see if there was anything his firm could do.
"I had not done any trade law whatsoever but for whatever reason this issue really struck my curiosity," Mendel said. Beyond the intellectual challenge, the case also offered the prospect of a set of deep-pocketed clients in the online casinos doing business out of Antigua.
So Mendel, who recently moved his family and his practice to Ireland to be closer to Geneva, jumped in enthusiastically.
Washington responded to Antigua's complaint by claiming it was within its rights to seek to block online gambling on moral grounds, just as any Muslim country would be within its rights under international trade agreements to ban the import of alcoholic beverages. The WTO rejected this argument as inconsistent with U.S. policy.
The general rule in the world of international trade agreements is that a country must treat foreign goods and services in the same manner as it treats domestic ones [that's "national treatment"]. The United States, the trade body found, permits online wagering through sites like Youbet.com, a publicly-traded company that allows visitors to place bets at horse racing tracks around the globe.
And of course some form of casino gambling is legal in more than 30 states and even local governments advertise gambling services when states run ads encouraging people to buy a lottery ticket.
"This isn't a case of forcing gambling on a population that has decided they don't like it," Mendel said. "This is the world's biggest consumer and exporter of gambling services trying to prohibit a small country from developing its economy by offering these same services. And we find that deeply hypocritical."
Indeed, despite all the obstacles Washington has imposed, including making it a crime for banks and credit card companies to handle Internet gambling payments, millions of Americans still manage to play poker and place sports bets online. Many more would certainly do so if the obstacles were removed.
The United States has exhausted its appeals, so now Mendel and trade lawyers for the United States are arguing over the extent of damages that Antigua has suffered.
Antigua presents a particularly thorny challenge. To balance the scales, a country that wins a WTO case typically demands trade penalties equal to its losses as compensation. But Antigua is so small that any ordinary trade sanctions would barely register in the United States.
"Compensation is not a check in the mail," said Jackson, the Georgetown professor. "It's the right to raise trade barriers against the country in violation." Whatever trade barriers Antigua constructed, he said, "would feel like a pin prick."
Antigua is seeking the right under international law to violate American intellectual property laws.
Only once has the trade organization done so, with Ecuador, though it never actually took advantage of that power. It was used instead as a cudgel to force its opponent to back down.
"This is all new territory," said Simon Lester, who worked in the appeals division of the WTO before co-founding WorldTradeLaw.net, which provides legal analysis of trade law disputes [fantastic site, BTW, and an excellent resource on trade disputes].
Lester said he expected Hollywood, the music industry and software makers like Microsoft to press Washington to work things out with Antigua.
"But the question" he said, "is whether that would be enough to make Congress do something."