WASHINGTON The World Trade Organization ruled Thursday that the United States cannot block other countries from offering Internet gambling to U.S. residents, even if they live in states like Utah and Hawaii where gambling is illegal.
And under terms of an international trade agreement, Utah could now find itself legally defenseless to stop Internet gaming within its borders.
"This WTO ruling opens a box of Pandoras, but it is not that surprising given the scope of the WTO's invasion into domestic spheres of policy making," said Lori Wallach, director of Public Citizens Global Trade Watch.
At issue is a legal dispute between the United States and the tiny island nation of Antigua, which replaced its sugar and banana economy with Internet gambling targeted primarily at Americans.
When the United States cracked down and Antigua casinos began fleeing to other nations with even fewer restrictions, Antigua went to the WTO claiming the Americans were in violation of a trade agreement where the United States had in 1993 signed off on cross-border supply of gambling and betting services.
And Utah's prohibition against gambling was a central part of Antigua's argument.
A WTO dispute panel ruled last November that the Antiguans were correct. On Thursday, the WTO's appellate body rejected the United States' appeal.
"Justice has been served and potential compliance issues facing various U.S. corporations and the U.S. Department of Justice will now be resolved in a manner favorable to fair and responsible international commerce," said Mark Mendel, lead counsel for Antigua.
The WTO ruling is expected to end threats of prosecution from the U.S. Justice Department, which according to the Antiguans, had intimidated U.S. companies seeking to do business with offshore gaming companies, Mendel said.
The WTO decision, in general terms, means that laws used by particular states to limit or forbid gambling are seen as a violation of "market access" principles of the WTO's General Agreement on Trade in Services.
"In trade-speak, Utah's prohibition amounts to the use of a zero-quota on the supply of Internet gambling services, and that's a violation of market access," said Peter Riggs, director of the Forum on Democracy and Trade.
Wallach said the ruling has far-reaching ramifications for all states by imposing WTO rules on gambling. For example, it would prohibit states from having exclusive arrangements with Indian tribes for casinos, and it would eliminate the monopolies many states have on state lotteries to support education.
If there is a silver lining to the WTO ruling, and Wallach says it is a fleeting one, it is that a clerical error by attorneys for Antigua failed to spell out Utah's law in the legal paperwork. So the WTO refused to rule directly on the Utah law, even though it left open the possibility that Utah's prohibition could be wrapped into the larger WTO ruling.
"This is the place where federalism and the WTO go head-on in a record collision," she said.
The bottom line of the ruling, Wallach said, is that the United States lost and must now change its law prohibiting Internet gambling or face trade sanctions.
That could have implications down the road should foreign casinos, racetracks or other gaming operations seek to set up shop in the United States, even in states where gaming is not currently allowed.
The WTO ruled that the United States is seen as having made a commitment on gambling, Riggs said. Another part of the GATS agreement indicates the United States also made commitments to a "commercial presence.""It's that commercial presence category which would allow foreign gambling companies to argue that they have a right to establish casinos," Riggs said.