CAFTA's Impact on I-Gaming Debated

7 July 2005

Free trade advocates and interactive gaming insiders are hoping that a purposed bill making its way through the U.S. Congress could open the doors to the U.S. market for online casino and sports book operators.

Last week, the U.S. Senate passed the Central American Free Trade Agreement after a vote or 54-45. The bill passed the House Ways and Means Committee after a 24-11 vote and the full House is expected to take up the bill after the July 4 congressional recess and before Congress adjourns for its summer break in August.

Under CAFTA, a free trade agreement would be established between the U.S. and Central American countries similar to the one setup in 1993 between Canada, Mexico and the U.S. when NAFTA (North American Free Trade Agreement) was passed.

One of the countries that would be included in CAFTA, Costa Rica, is also one of the leading jurisdictions for offshore interactive gambling companies.

A contingent of I-gaming industry leaders and Costa Rican government officials are pulling hard for CAFTA in hopes that the agreement will pave the way for online gambling operators based in Costa Rica to accept play from U.S. users without catching the scorn of the U.S. government.

WTO Fallout

But not everyone supporting the bill agrees with their stance.

CAFTA made it through the Senate only after heavy lobbying efforts from the White House, and Congressional leaders said the U.S. trade representative told them that CAFTA wouldn't jeopardize states that wish to outlaw the gambling industry.

"I think people are right to be concerned because of what happened before the WTO," Sen. Orrin Hatch, R-Utah, told the Desert News of Utah. " 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 hope for those in Costa Rica is that CAFTA could open up the U.S. market for the industry by using a similar argument that was made by the government of Antigua in its World Trade Organization dispute with the U.S. that it brought forward in 2003.

The WTO ultimately ruled in favor of Antigua, essentially saying that the U.S. couldn't restrict Antiguan-based operators from accepting play from U.S. users because it was violating WTO policies regarding free trade and commerce.

The WTO ruling created some debate in legal circles and the U.S. has until July of next year to decide how to implement the ruling, but the WTO defeat has caused many to take notice of other trade agreements.

"I don't know why it hasn't gotten more attention and I can only assume the folks aren't aware of it," said Peter Riggs, director of the Forum on Democracy and Trade, a public policy think-tank that works closely with state lawmakers.

At the center of the WTO debate is language in the final ruling saying that countries can restrict trade under "moral exceptions." But if one form of an industry is allowed, online horse wagering for example, then all sectors should be allowed, the ruling went on to say.

CAFTA & I-Gaming

U.S. Trade Representative Rob Portman released a statement regarding CAFTA after the Senate Finance Committee passed the bill on June 29 implying that the U.S. was making sure that all of its interests were protected before the bill would be passed.

"Step by step, we're making good progress and building momentum for its successful passage," he said in his statement.

Despite Portman's public statements, Riggs indicated to the Desert News that the U.S. is acutely aware of the implications CAFTA could have on the interactive gaming industry.

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 prohibiting gaming.

Costa Rican officials have argued the letter shows a blatant disregard by the U.S. to not abide by the impending language in CAFTA. Riggs said it was clear that "Costa Rica realized it had a winning hand, and only agreed with the U.S. to a point."

Attempts by IGN to reach officials with the Center for Democracy and Trade as well as the Costa Rican government this week have been unsuccessful and the exact contents of the letter remain in doubt.

A Washington insider did tell IGN that CAFTA does include language that would keep in place any laws that were on the books prior to its passage, meaning a state like Utah that has a total prohibition on gambling, will be able to keep its legal stance in tack.

Opening the U.S. Market?

But CAFTA doesn't include language for moral exceptions, so in theory the entire U.S. market could be opened to Costa Rican operators under the agreement.

Riggs said the WTO ruling could have been devastating for those in the U.S. who wish to prohibit the industry, but the battle is far from over.

"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."

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.

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.

CAFTA is still a long way from becoming law, as many House Democrats have voiced concern over the bill, citing its poor labor standards. Some Republicans are concerned with the bill after issues were raised by the U.S. sugar industry.

Other opponents, such as the Stop CAFTA Coalition, comprised of environmental, religious and trade justice groups, claim that they will use the recess to spread the word about the damaging effects they say the trade deal will have on U.S., Central American and Dominican workers.

Supporters of the bill argue that the six Central American countries in the agreement, along with the Dominican Republic, represent the second-largest export market for the United States in Latin America.

While imports from these countries arrive duty-free, CAFTA would eliminate trade barriers for U.S. exports to Central America.

CAFTA was signed last year with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The White House submitted CAFTA to Congress on June 23, as the Bush administration took time to build support for it.

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