Antigua v. U.S.: Online Gaming Dispute

Antigua is better known for beaches than trade disputes. But next month this tiny Caribbean resort could begin using a World Trade Organization ruling to compel the United States to legalize online gaming—an industry the Bush administration has long been trying to eradicate.

Enforcement of the WTO ruling would oblige America to overhaul its prohibitive stance on online casinos, not just in relation to Antigua but the EU, Japan and others. That could quickly double the size of the $15 billion-a-year online industry.

The dispute goes back to 2003, when Antigua sued America at the WTO over U.S. prohibition of online casinos, which is Antigua's second largest industry after tourism. The United States allows domestic betting companies, like the horse-racing Web site, to offer online gambling to Americans (these are thrown into the odd basket of legal gaming operations that include Native American-run casinos and riverboat gambling). But foreign firms are prohibited from offering exactly the same type of service to American citizens: foreign sites are supposed to block U.S. users. But the rule has been widely disregarded and Americans represent about 60 percent of online gaming revenue worldwide. A year ago a new U.S. law began preventing banks and credit-card companies from processing payments by U.S. users of overseas gambling sites. The result: companies like Gibraltar's Partygaming (once worth $8.4 billion) saw the value of their stock sliced in half.

In March, the WTO decided the U.S. approach was illegal. "I was laughed at when I brought the case," says Mark Mendel, the Texas lawyer who is representing Antigua. It may be that the United States underestimated the power even tiny countries wield in today's digitized global economy. Usually, when trade laws are broken, the WTO allows export sanctions to be imposed on the violating nation. But since Antigua can hardly bring any meaningful sanctions against the United States, experts expect the WTO to take another approach: allowing Antigua to flout intellectual-property laws. That kind of retaliation—say, Antiguans selling legally pirated copies of Microsoft software and Disney movies—would get the attention of Hollywood and Silicon Valley. Their lobbyists are already pushing Capitol Hill for a deal. Stay tuned.