Online gaming may recruit Costa Rica in its U.S. push

But how legally untenable is it? "The letter provoked a lot of mirth" among the legal scholars, Riggs said. "It is clear that Costa Rica realized it had a winning hand, and it agreed with the United States only to a point."

Even if the letter of agreement between Costa Rica and the United States is binding, there is no evidence that other countries participating in CAFTA have signed a similar letter — and that could mean Internet gaming companies might simply move their operations to neighboring Central American countries like Panama or Nicaragua.

Lax oversight

Riggs believes the relationship of gaming interests to CAFTA has been soft-pedaled by free-trade advocates who are worried that the agreement could implode under the weight of the gambling dispute.

But the issue should be taken seriously, he said. Many of the online casinos that once operated out of Antigua have now set up shop in Costa Rica, where regulatory oversight is more lax. And within the past 12 months, some of those casinos have been acquired for huge sums of money by European companies with eyes on the potentially large U.S. market.

Those companies would not have invested hundreds of millions of dollars if they had reason to believe they would be denied access to the United States, Riggs contends.

The dispute over Internet gambling arose in the mid-1990s when online casinos set up shop in Antigua and began marketing their services to U.S. residents. The U.S. government attempted to shut down the casinos, even filing criminal charges.

As the casinos began fleeing to Costa Rica, Antigua filed a grievance with the World Trade Organization, saying the United States had signed off on gambling, and that state and federal attempts to regulate it were in violation of international treaty. Utah's outright ban on gambling was a major part of Antigua's argument.

In a ruling earlier this year, the WTO sided with Antigua, but it muddied the water by saying the United States could invoke a morals exception. Under WTO law, countries are exempted from free-trade provisions for morals reasons and for non-renewable natural resources.

"It is correct to say the U.S. dodged a bullet," Riggs said. "But Internet gambling is not a single shot. They have lots of bullets, and this was only the opening shot."

'Investor protections'

It is not clear that the morals exception applies across the board in the WTO case, as evidenced by the fact that stock prices in international gaming companies with a stake in the ruling have actually gone up since the ruling, he said.