Online Gaming May Recruit Costa Rica in its U.S. push
The international gaming industry is apparently eyeing Central America as a viable entry point to more freely expand Internet gambling in the lucrative U.S. market, including Utah, where such games are not legal.

The Office of the U.S. Trade Representative is assuring the various states that they can still regulate Internet gambling, despite a recent negative ruling by the World Trade Organization. But it now appears the online casinos that prompted the dispute between the United States and the tiny island nation of Antigua in the WTO case could be trying to sneak in through Costa Rica.

The focus of concern is language in — and not in — the Central American Free Trade Agreement. CAFTA contains numerous free-trade provisions, but, unlike the WTO agreement, it has no "public morals" exception to traded goods and services that would specifically allow the United States or any of the 50 states to regulate the online gaming industry.

"I don't know why it hasn't gotten more attention" in the Senate, where CAFTA is now being debated, "and I can only assume the folks there aren't aware of it," said Peter Riggs, director of the Forum on Democracy and Trade, a respected public policy think-tank that works closely with state lawmakers.
Sen. Orrin Hatch, R-Utah, also said Wednesday that Utah and the United States do need to be careful and vigilant.

"I think people are right to be concerned because of what happened before the WTO," he said. "The U.S. trade representative has assured me that CAFTA does not jeopardize any existing state laws, including Utah's anti-gambling laws. We will have to stay on top of this, though."

The U.S. trade representative is aware of potential problems, and Riggs said the office is clearly worried. The Center for Democracy and Trade obtained a letter exchanged between the Costa Rican and U.S. governments that "clarifies" the U.S. government's interest in regulating gaming, but the letter itself raises questions.

It is that letter that has Senate insiders saying gambling is non-issue with CAFTA. And they specifically point to language in the letter and in the trade agreement that specifies any laws in place prior to the agreement remain in effect under a grandfather clause.

That means Utah's total prohibition on gambling would likely remain intact.
However, legal experts at Georgetown University who examined the letter said it is questionable whether the letter would be legally binding in a dispute, and that it is therefore exceptionally weak.

The letter states there is nothing in the agreement that would prevent regulation of gambling.

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.

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."

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.

More problematic, Riggs said, is CAFTA, which is now being debated in the Senate. There is no morals exception in CAFTA.
But there is a provision calling for "investor protections" that allows private companies to bring actions against governments if they believe regulations impede their businesses or they are being treated unfairly.

The U.S. trade representative's CAFTA briefing book does not appear to address gambling specifically, but it does state that panels convened to resolve trade disputes have no authority to change U.S. laws or require the states to change their laws.

"CAFTA does not in any way pre-empt or invalidate federal, state or local laws that may be inconsistent with the agreement," the book states, adding that CAFTA "rules do not automatically override any domestic laws."

With Internet gaming booming in Costa Rica, Riggs said it is inevitable that the multibillion-dollar international industry will exploit the fact the WTO safeguards are not in the agreement. And the industry, not Costa Rica, will challenge the legality of any attempts to regulate online gaming.

On Wednesday, the Senate Finance Committee approved CAFTA but not without some reservations from Hatch about any trade agreement that impedes a state's self-determination.

"I have become increasingly concerned that greater opportunities for consultations need to be provided to the states during the consideration of free-trade agreements," said Hatch, who supports the agreement but is worried about the WTO ruling "that indicated that the United States cannot block other countries from offering Internet gambling to U.S. residents, even if they live in states, such as Utah, where gambling is illegal."

"I am greatly relieved, though, that the Office of the U.S. Trade Representative has interpreted the language in the WTO decision stating that gaming laws are 'necessary to protect public morals or to maintain public order' to mean that 'WTO members are entitled to maintain restrictions on Internet gaming' and U.S. restrictions on Internet gambling can stand," Hatch said.

Hatch's comments were sparked by a letter signed by 28 state attorneys general, including Utah's Mark Shurtleff, requesting greater consultation between the U.S. trade representative and the states on all issues affecting states' rights.
"We must remain vigilant and ensure that sovereignty not only of our nation but our states is maintained," Hatch said.