By Paul Blustein
Washington Post Staff Writer
Friday, August 4, 2006
Locked in a federal prison in the Nevada desert, tortured by the distant lights of the Las Vegas strip, Jay Cohen couldn't stop thinking about getting even with the government that had put him away -- and his revenge fantasy had a unique twist.
U.S. prosecutors put Cohen behind bars in 2002 for running an Internet gambling site in the Caribbean country of Antigua and Barbuda. Not long before the prison gates clanged shut, he had learned that the federal crackdown on online betting might violate global trade rules.
So he got Antigua and Barbuda to instigate a complaint at the World Trade Organization. "It kind of helped keep my spirits up," he said.
Fast forward: Antigua and Barbuda, population 69,000, is winning. The case has become an embarrassment to Washington, one that could result in economic pain. It isn't quite over, but the world's only superpower may have to capitulate to a country whose entire population could easily fit into the Rose Bowl.
Never has such a tiny nation brought a WTO complaint against the United States, which is one reason the dispute has implications well beyond the issue of gambling.
A frequent irritant in international relations is that small, weak countries such as Antigua feel run over by big, rich countries such as the United States. That's especially true in global trade. For instance, developing countries say their destitute farmers get the short end of the stick because of the subsidies and protections that rich governments give their farmers. Just last week, negotiations to redress such grievances collapsed.
The WTO, the body that referees global commerce from its offices in Geneva, claims to play equalizer: Its Web site notes that small countries have beaten bigger ones in its trade courts. A win for Antigua would improve the WTO's image of requiring all nations, Davids and Goliaths alike, to follow the rules.
At the same time, global institutions such as the WTO sometimes seem to infringe on national sovereignty, forcing countries to defy the will of their own people. An Antiguan victory could inflame such feelings in Congress. Sentiment against online gambling remains strong there; the House recently voted to bolster the U.S. ban on it.
Far as it may be from the central debates of world trade, the curious tale of Internet gambling in Antigua reveals a lot about the perceptions of fairness that fuel those debates.
Setting global precedents wasn't what Cohen, now 38, had in mind a decade ago when he quit his job as a floor trader at the Pacific Stock Exchange and moved to Antigua with a couple of friends.
Gambling was legal in Antigua, so Cohen and his buddies figured they would have no problem operating a business that took sports bets from people in the United States. Between golf rounds and fishing trips, they built World Sports Exchange Ltd., one of several dozen Internet betting parlors then springing up in Antigua and elsewhere.
They booked millions of dollars in wagers, mostly on football games and other sporting events in the United States. The industry boomed, becoming Antigua's second-largest employer, after tourism. "Life was fine," Cohen recalled.
Back in the States, though, many leaders grew alarmed, citing a risk that computer betting would lure teenagers and fuel gambling addiction. A crackdown ensued. "You can't go offshore and hide. You can't go online and hide," said Janet Reno, the attorney general at the time.
In 1998, federal prosecutors charged several operators, including Cohen, with violating a 1960s-era law forbidding the use of phone wires for gambling. Convinced that the law didn't apply in Antigua, Cohen returned voluntarily to U.S. soil.
"No judge is going to let this stand," he recalled thinking. But a jury convicted him, the judge gave him 21 months, and the Supreme Court refused to hear the appeal.
Out of the blue, not long before Cohen entered prison in Nevada, a strange letter arrived. He has since lost it. The writer suggested that the U.S. government's position left it vulnerable to a trade complaint.
"Is there anything to this?" he asked a lawyer friend.
Turned out there might be: Several years earlier, Washington had pledged in a trade treaty to open the U.S. market in "recreational, cultural and sporting services" to global competition.
Cohen alerted the Antiguans. They hesitated to file a case, citing one of the biggest inequities in the WTO system: a dearth of funds and legal expertise that often shuts out small countries. Antigua's budget is $145 million a year, and a trade case promised to cost at least $1 million.
The gambling industry finally agreed to foot the bill. Antigua filed. "Did we not have a duty to our citizens to protect their jobs?" said Sir Ronald Sanders, who was then Antigua's ambassador to Britain and the WTO.
The United States had a seemingly strong defense -- the need to protect "public morals and public order." WTO member countries can ban goods and services that might harm their social fabric, a classic case being the prohibition of liquor imports in Muslim countries.
"Gambling in general, and remote supply of gambling in particular, raises grave law-enforcement and consumer-protection concerns," the U.S. trade representative's office said in a legal filing. Attorneys for the trade representative declined to make additional public comments.
There was, however, a hole in the U.S. position: The government tolerates Internet betting on horse races and, in some states, lotteries and other games. Numerous U.S. sites, including Youbet.com and Xpressbet.com, let users wager on races from the New Jersey Meadowlands to the Louisiana Downs.
This was blatant hypocrisy, the Antiguans claimed, contending that the U.S. position violated a trade principle called "national treatment." The principle essentially requires a government to treat foreign goods and services the same as domestic ones. To outlaw liquor imports, a Muslim country must ban domestic brewing, too.
Likewise, the Antiguans contended, the United States can bar citizens from using overseas gambling sites only if it bans domestic sites. Yet Congress has refused to enact a comprehensive ban -- in part because horse racing depends on phone and Internet wagers.
Gambling "preys on lower income classes," said Gary C. Hufbauer, a trade specialist at the Institute for International Economics, who opposes it. "But here we've had all this tolerance toward gambling -- Indian gambling, for example, in my native state of New Mexico. So if the U.S. is going to tolerate this amount of vice, while ruling out a foreign supplier of vice, it does seem to be . . . inconsistent" with trade rules.
WTO judges bought that argument. Antigua won a slam-dunk ruling in 2004, and though an appeals panel scaled it back, Washington was still in a tough spot. The final ruling essentially said that the United States must outlaw all forms of online gambling, including on horse racing, or Antigua wins.
The U.S. government has refused to concede defeat.
The Bush administration first vowed to secure legislation "clarifying" that all forms of online betting are illegal. But the horse racing industry has blocked such efforts on Capitol Hill.
Next, the administration cited testimony by the Justice Department in April claiming that all Internet wagering across state lines, including that on horses, violates existing laws. That was news to the horse racing industry, and it seems to have had little effect. Even so, the administration has pointed to the statement as evidence that the United States treats all online gambling the same.
Scoffing, the Antiguans are asking the WTO to declare that Washington is defying its ruling. Many experts expect Antigua to win again, after months of delay.
Then comes the hard part for Antigua.
The WTO cannot force a country to do anything. Even if found guilty, a country can refuse to change its trade practices. The WTO largely enforces its rulings by giving the victorious country the right to impose punitive duties on the loser's products.
That enforcement mechanism works for big, rich countries such as the United States because other nations fear losing the vast U.S. market. But Antigua's economy is so tiny that few U.S. companies would notice.
"The WTO gives the little guys clout, but it cannot guarantee symmetry of justice," said Claude Barfield, a trade expert at the American Enterprise Institute.
So the Antiguans plan to ask the WTO for the right to impose sanctions that would hurt -- namely, permission to copy and export U.S.-made DVDs, CDs and similar material. Hollywood is not amused.
It's unclear whether the WTO will allow Antigua to exact such a pound of flesh. For now, the Antiguans are trying shame, accusing the United States of being a scofflaw. If Washington refuses to obey WTO rulings, the Antiguans say, other countries may follow suit, undermining global trade.
Cohen, the convicted gambling tycoon, has finished his probation but will not say what he's doing. He has nothing but scorn for U.S. trade policymakers.
"They're so stubborn," he said. "They want all these commitments from other countries, and tell them, 'Oh yeah, we're all equal.' But when they lose, they run away."