Oct. 5, 2006
COMMENTARY: U.S. Bill on Internet Gambling: Morality or Protectionism?
By Sir Ronald Sanders
Special to Huntington News Network
The value of publicly-traded Internet gaming companies in Britain and their
subsidiaries in the Caribbean has been savaged by a Bill adopted in late
September by the US Congress making it illegal for banks and credit card
companies to make payment to foreign online gambling sites. Over US$7
billion was wiped off the market value of companies that were worth US$12
billion.
Revenues to the UK government – and more significantly to governments of
Caribbean countries such as Antigua and Barbuda, Belize and Costa Rica -
will be reduced immediately and employment will be adversely affected.
If the United States was not the main centre of the world for gambling, the
Bill, ostensibly adopted on the basis of morality, may have been acceptable.
But, the fact is that the US is the major centre in the world for gambling.
Five years ago, spending in US land-based casinos alone reached almost US$26
billion. It is much more today. And, there is no effort in Congress to
close down US casinos on any moral basis.
To the contrary, Nevada Congressman Jon Porter introduced a Bill last May to
study whether on line gambling sites, run by US companies, could be
regulated effectively. Mr Porter’s Bill is backed by casinos whose lobby,
the American Gaming Association, is on record as saying that US based
casinos would like to open on line.
Further, the Bill, passed by Congress in September, expressly makes legal
bets through the Internet on US horse racing, US Internet lotteries, US
fantasy sports and, more critically, allows states and Native American
tribes to authorise Internet-gaming of almost any kind that occurs wholly
within the borders of the state in which they are located.
So, even though the moral argument is being touted, and the religious right
in the US has welcomed the Bill, it has little to do with morals and more to
do with stopping Internet gaming companies from outside the US providing
services to US customers.
Bob Goodlatte, the Congressman from Virginia, summed up this protectionist
position when he declared that the Bill would stop “US $6 billion from being
sucked out of the economy” annually.
It is this very protectionist position that caused successive governments of
the small Caribbean Island, Antigua and Barbuda, to bring a case against the
US to the World Trade Organization (WTO), complaining that in its
commitments under the General Agreement on Trade in Services (GATS), the US
bound itself to provide market access and national treatment to the
cross-border supply of foreign services that come within the category of
‘other recreational services’ which includes gambling and betting services.
Antigua and Barbuda pointed out to a WTO Panel back in 2003 that while many
US operators are allowed to offer gambling services in the US, US
authorities take the view that all gaming services offered on a cross-border
basis from abroad are unlawful. Up to then, the US had enforced its claims
administratively by blocking credit card transactions and penalising credit
card companies and banks that facilitate them, and by punishing US persons
who own gaming entities that provide services to US residents.
Since then, US authorities have arrested officials of UK-based on line
gaming companies, and now Congress has adopted the Unlawful Internet
Gambling Enforcement Act which effectively turns into law the administrative
action they have been taking.
But, the law – just like the administrative actions – adds up to a violation
by the US of its GATS commitment.
A WTO Panel has already ruled that the US has to bring its laws into
conformity with its international obligations. This new Bill, which
specifically permits a whole host of domestic Internet betting
opportunities, is even more blatantly discriminatory against the supply of
gaming services to the US from other countries than US law was before
Antigua and Barbuda won its ruling from the WTO.
Therefore, the WTO should take a very dim view of this very protectionist
development once Antigua and Barbuda draws it to their attention.
It does appear that some Congressmen, especially Representative Jim Leach of
Iowa and Senator Bill Frist who piloted the Bill in the House and Senate,
had their eyes on the upcoming mid-term elections in the US where they hoped
to drum up votes from the religious right.
Significantly, the very people that the US Congress supposedly voted to
protect from Internet gambling have expressed outrage at the Bill. Michael
Bolcerek, the President of the US Poker Players Association, is reported as
stating that “allowing the Bill to become law would run contrary to public
opinion” and “the millions of Americans who enjoy playing this great game
will have the last voice in the debate comes Election day”.
The context of the Bill’s passage also raises serious questions of just how
much study Senators gave to it, and the extent to which they really
understood that it was also a trade issue with implications for the US in
the WTO.
The Senate adopted the Bill in a late night pre-recess session of Congress.
It was tagged on at the last minute to the Safe Port Act that was designed
to stop companies from other countries (such as almost happened with a Dubai
company earlier this year) having security rights at a US port. Many of
those who voted for the Bill to cramp Internet gambling were really
concerned about the security of US ports.
Sharp teeth will be given to the Bill after the President signs it into law.
Then, the US Treasury Department, the Federal Reserve and the Department
of Justice will write the regulations to enforce the law.
It looks, therefore, as if the battlefield for this issue is where Antigua
and Barbuda took it in the first place – the WTO. If not, a sad precedent
will be accepted by which the ill-advised domestic legislation of countries,
even if it is passed by legislators without full understanding of its
implications, will prevail over international trade rules to the detriment
of business and employment.
Sir Ronald Sanders is a business executive and former Caribbean Ambassador to the World Trade Organisation who publishes widely on Small States in the global community. Responses to: ronaldsanders29@hotmail.com
