Beating the odds

by Henry Farrell on March 26, 2004

The WTO has just handed down a “preliminary ruling”: 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”: David Post co-wrote a “classic paper”: 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”: and “I”: 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.



John Quiggin 03.26.04 at 9:34 am

It’s a fascinating case on a range of levels.

One is that , however the WTO lawyers may parse it, this is yet another case where the WTO has sought to override domestic policy decisions in the name of free trade. There was clearly no protection or discriminatory intent here – the activities attacked in Antigua were also banned in the US (see also GM foods, dolphin-safe tuna, etc).

If a case of this kind can be brought successfully, why not one on behalf of tax-evaders and money-launderers (both very beneficial activities for certain island economies)?


Doug 03.26.04 at 9:41 am

Is there any sort of useful parallel to be drawn with overlapping jurisdictions and types of law in early modern Europe? Where you had canon law, guild law, feudal law, possibly common or customary law and maybe vestiges of Roman law? That is, maybe the nation-state’s monopoly on law is a transitory thing, and not as universal as might have been thought (see sharia). So now at the intersection of law, technology and IR, things are coming unbundled again. Leavening leviathan, as it were. I’ve been wondering since the late 90s (though, sadly, not in any coherent written form) about the unbundling of citizenship: American for security, EU for work, maybe Swiss for residence. How would such a thing work, and is there a way that it could work to benefit individuals, rather than the institutions setting the rules?


john b 03.26.04 at 11:02 am

I’ve posted about this… I think the decision is excellent in principle, and I’m not convinced that overriding domestic policy decisions in the name of free trade is *inherently* bad.

However, given the strength of feeling against gambling in the US, it could create a backlash against free trade agreements in general – which would be far worse than banning Americans from playing the gee-gees…


Steve Carr 03.26.04 at 1:42 pm

I think John’s right that anti-gambling politicians are going to play the “foreigners infringing on our sovereignty” card for all it’s worth, and it will contribute to the current backlash against free trade. On the other hand, I’m not convinced that the strength of feeling against gambling in the U.S. is all that strong. The number of people who gamble in the U.S. every year — even setting aside in the lottery — is in the high tens of millions at least. More and more states have made gambling legal. And I’m thoroughly unconvinced that most Americans want the government to keep people from betting in, as it were, the privacy of their own homes.


Henry 03.26.04 at 3:31 pm

John – the main dispute in this case turned on whether the US had, or had not, specifically exempted gambling from its WTO accession. The preliminary judgement isn’t officially available yet – the WTO has released it to the participants (who of course have leaked the results immediately) but doesn’t make its opinions available to the likes of us for another month. However, I presume that it’s a narrowly crafted enough decision and won’t have implications for taxation etc. I think you’re absolutely right on the domestic policy implications – but another, equally valid interpretation of the decision could be that the WTO has stepped in to stop a big bullying state from strangling a perfectly legitimate industry in another country. In other words, the WTO was in a ‘damned if you do, damned if you don’t’ situation. And it’s going to find itself in more and more and more of these dilemmas, having to choose whether to privilege the domestic policy choices of one, or another, country in situations where the two clash with consequences for international trade.


Maria 03.26.04 at 3:36 pm

I think we can expect to see more states using private actors to enforce internet related policies/laws. At a recent OECD workshop on spam, the most common call from public and private sector participants on finding spammers was ‘follow the money’.

Credit card companies are an obvious chokepoint for tracing and punishing spammers (or the people who pay spammers to send their messages). No matter how they disguise where the email came from, they still want the recipient to be able to send them money.

What would be really interesting, though, would be to know more about the pressure state actors put on the credit card companies to act as policemen. i.e. what are governments offering/threatening that makes cutting off a relatively lucrative flow of business weem worthwhile?

For a more sinister example of states implementing questionable policies through private actors, see traffic data retention and airline passenger data transfers. In the EU, companies are being bullied into making transfers of personal data to state actors even though it is in clear breach of data protection law. The least governments can offer is reduction or removal of liability, but they refuse to. So the companies are caught between a rock and a hard place.


w 03.26.04 at 4:13 pm

Steve, I think you will find gambling is like smoking: lots of people do it, but they think of it as a vice and are vaguely ashamed, so they won’t fight back via open political activity against regulation that restricts the activity.


james 03.26.04 at 4:20 pm

How will this rulling effect European speech laws? Both France and Germany have laws against anything with Nazi content. France has even attempted to limit content from US based internet providers.


Ross 03.26.04 at 6:49 pm


Thanks for your outstanding post on this issue. I have published on the lack of clear international policy/enforcement power in regard to internet practice of medicine and international pharmaceutical trade, and have suggested that, should the US government truly wish to choke off the reimportation debate, they would have squeezed the credit card vendors and PayPals of the world, much the same way they have done in the case of Internet gambling.

This ruling appears to throw a small monkey wrench into the system, although there are significantly different qualitative differences between online medical practice and online gaming (spurious attempts in the gambling arena to invoke the PATRIOT Act notwithstanding).

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