Beating the odds

The WTO has just handed down a “preliminary ruling”:http://news.bbc.co.uk/2/hi/business/3568281.stm that Internet policy wonks like myself have been waiting for with considerable impatience. Last June, the Caribbean island state of Antigua and Barbuda took a WTO case against the US for restrictions of trade. The issue: various US laws that have been applied to stamp out Internet gambling, with unpleasant consequences for the Antiguan economy. Antigua has just won in this first stage of the process.

The case is interesting because of what it says about the ways in which Internet regulation is changing. It used to be that people thought that the Internet would allow private actors to displace states, and create a libertarian utopia. What’s happening today is quite different – states, far from giving way to private actors, are pressing them into service. This is leading to a variety of secondary disputes about extraterritorial action.

A few years ago, the conventional wisdom was that the Internet was going to undermine the power of states, and empower private actors (firms, individuals) in their stead. “Sometime Conspirator”:http://volokh.com/ David Post co-wrote a “classic paper”:http://www.temple.edu/lawschool/dpost/Borders.html arguing that because the Internet crossed national borders, it would be very hard to apply traditional nation-state based law to it. Instead, we’d likely see individuals creating their own forms of law-like order on the Internet, through self-regulating groups and the like. This isn’t a very popular argument these days – critics (including “Dan Drezner”:http://www.danieldrezner.com/research/egovernance.pd and “I”:http://www.utsc.utoronto.ca/~farrell/IO.pdf) point to an abundance of evidence that states are still in the driving seat.

Still, the jurisdictional problems that David Post and others talked about haven’t gone away. States still have problems in regulating certain Internet activities, because they disagree on fundamental issues of regulation. In the case at hand, the US banned its citizens from Internet gambling. However, because Antigua and other countries didn’t join the US in banning it (they saw it as a way to make lots of money), US citizens with access to the WWW could evade the law by gambling at offshore locations. For various reasons, it’s exceedingly difficult for the US directly to block access to these sites.

Faced with this problem, certain authorities within the US decided on an unorthodox solution. They couldn’t shut down offshore gambling sites or prevent US citizens from accessing them. What they could do was to hold credit card companies and banks – which had been a crucial intermediary between gambers and offshore gambling sites – responsible as accessories. The New York state attorney-general’s office was especially zealous in prosecuting financial intermediaries, although in fairness, many banks and credit card agencies were happy to comply for their own reasons. US credit card companies started to refuse transactions with offshore gambling websites. This sent Antigua’s gambling industry, which relied heavily on US customers, into a tailspin. Hence Antigua’s successful WTO action against the US (which is about to be appealed to a disputes panel).

It’s a nice case-study in the modern politics of the Internet. Private actors – in this case, the online gambling providers in Antigua – were able to cock a snook at US laws, raking money in from US gamblers while remaining outside the jurisdiction of US law enforcement authorities. US authorities responded, not by direct action, but by using their influence over other private actors to get results. Antigua responded in turn by invoking multilateral trading agreements, and complaining to the WTO. In a world where jurisdictions are increasingly messy and contradictory, some states are able to extend their reach extraterritorially, by using key private actors (banks, Internet Service Providers and others) as what Jonathan Zittrain calls ‘points of control.’ Other states, which don’t have this kind of clout, are invoking multilateral rules which weren’t designed to deal with these kinds of issues. In this case at least, the weaker party has won. One can safely predict that there’ll be many similar disputes over the next several years. It’s good grist for the mills of IR scholars; we’re really only beginning to come to terms with the complexities of state-private actor relations, and disputes like this one provide us with interesting and important evidence.