The Finch Formerly Known As Gold

26 August 2007

I bet this doesn't end well

The US has run afoul of the World Trade Organization, and the consequences may be direr than we think:

The tiny Caribbean nation of Antigua has taken the U.S. to court in the WTO over the U.S. prohibition of gambling on internet casinos hosted in Antigua. And Antigua has won its case! The WTO ruled that U.S. policies were discriminatory since the country does permit other forms of gambling online, such as "the purchase of lottery tickets, participation in Web-based pro sports fantasy leagues and off-track wagering on horse racing." Now the U.S. either has to rewrite its rules in a way that would de-legalize these forms of gambling as well, or offer compensation to Antigua.

Background in this New York Times article; you can also read the official WTO report.

The problem for Washington is twofold:

Complying with the WTO ruling ... 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.

But not complying with the decision presents big problems of its own for Washington. Thatís because Mr. [Mark E.] Mendel [representing Antigua], 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.

Dean Esmay notes:

The US is trying to say that it can allow all sorts of gambling services within its borders, based on state and local law, but can forbid foreign providers of gambling services. Which suggests that "free trade" somehow does not apply when it comes to gaming services.

Which is fine, so long as the treaty sets aside gaming services as outside the scope of the treaty. But if it doesn't, the US is in violation.

From that Times article:

The WTO allowed that Washington probably had not intended to include online gambling when it agreed to the inclusion of "recreational services" and other similar language in agreements reached during the early 1990s, when the WTO was first established. But the organization says it has no choice but to enforce the plain language of the pacts.

Which presumably lays the fault at the feet of the US trade representatives at the time. Ultimately, I have to agree with Dani Rodrik on this one:

When the system serves to enforce new restrictions on domestic policy autonomy that would be wildly unpopular at home, it is time to rethink the system. My solution would be to redress the balance by restoring the residual rights to the domestic polity, but to do so under multilaterally designed and monitored institutional safeguards (to minimize risks of protectionist capture).

Rodrik's paper How to save globalization from its cheerleaders [PDF file] makes this suggestion:

A broadened safeguard agreement — call it an agreement on social and developmental safeguards — would enable countries to opt out from their international obligations under specified circumstances. The process for obtaining such an exemption would be a domestic one, as in the case of AD and safeguards currently, but it would be subject to multilateral review to ensure procedural requirements are met. Any interested party would be allowed to seek an exemption or opt-out. One requirement would be for the plaintiff to make a compelling case that the international economic transactions in question are in conflict with a widely shared social or developmental norm at home. For example, an NGO may try to make the case that goods imported using child labor violate domestic views about what is an acceptable economic transaction. Or a consumer body may want to ban imports of certain goods from a country because of safety concerns.

The trick, of course, is trying to push for this enhancement to WTO rules without having it look like the US is trying to buy its way out of the proceedings.

(Via Dave Schuler.)

Posted at 10:38 AM to Political Science Fiction

TrackBack: 8:39 PM, 26 August 2007
» Controversy at the WTO from Sophistpundit
The political perils of free trade....[read more]