Tuesday, May 6, 2008

Does the best interest of the child doctrine trump GATS agreements?

Copyright New York Law Journal and Marion TD Lewis. ALL RIGHTS RESERVED.

The Unlawful Internet Gambling Enforcement Act: a collision with the World Trade Organization, the Constitution, and the offshore Internet gambling practices of a tiny Caribbean nation (ORIGINALLY PUBLISHED IN THE NEW YORK LAW JOURNAL.)

In recent years, the “interest of children” or the “best interest of the child” rule was subtly used to flout the findings of the World Trade Organization (“WTO”) and the General Agreement on Trade in Services (“GATS”). At issue is a trade conflict between the United States and the tiny Caribbean nation of Antigua concerning the enactment of the Unlawful Internet Gambling Enforcement Act (“UIGEA”) and its impact on the island’s internet gambling services industry. Antigua appealed to the WTO, arguing that the UIGEA amounts to unfair trade practices, and that by enacting the legislation, the United States has failed to honor its GATS commitments. The United States’ position is that internet gambling harms under-aged children, among other evils, and for this reason the U.S. is under no obligation to honor its GATS commitments. The WTO sided with Antigua and found that the United States is guilty of trade discrimination. It is the collision of the United States with the WTO, the constitutional implications, and the economic consequences for the island nation that is the focus of this article.

Morality at the helm of a David vs. Goliath trade dispute
In 2003, the World Trade Organization was called in to settle a trade dispute between the United States and the Caribbean Nation of Antigua. Essentially what was at issue was whether the Federal Government could forbid American citizens from gambling in Antigua’s offshore casinos. Citing the Wire Act, Travel Act and Anti-Gambling Business Act,
[1] the Federal Government determined that permitting internet gambling casinos to remain active in Antigua would violate the criminal statutes in the United States “as prohibiting the interstate transmission of bets and wagers.” Further, the Justice Department determined that, from a moral perspective, internet casinos threatened the public order of the United States by encouraging underage gambling, among other evils.
The problem with this scenario, is, that while seeking to ban online gambling in Antigua, the United States allows gambling of various genres within its borders. On appeal, the WTO determined that because the United States allows gambling within its borders, the moral exception argument was unpersuasive. Rather, the WTO found that the United States had improperly discriminated against its trading cohorts by enacting legislation which asphyxiated the non-domestic internet gambling industry while allowing domestic providers to provide similar gambling services.
Antigua’s appeal to the WTO was on the premise that the actions of the United States had little to do with morality since gambling in various forms is allowed in the United States and more to do with “unfair trade practices.” In other words, the ban is about revenues and not about the virtue of underage children.

Antigua’s sling shot
Before David pulled out his sling and Goliath put up his shield, e-commerce arrived on the pristine shores of Antigua in the form of over 100 internet gambling casinos. For the former British colony (the country is a “constitutional monarchy with a British-style parliamentary system of government”), the internet gambling industry was an attempt to develop a new sector in its economy—financial services—and move away from its total reliance on tourism for economic survival.
The internet gaming industry accounts for more than $80 billion dollars in annual revenues worldwide. Antigua enjoyed a small portion of that in the form of registration fees and other regulatory fees and this trickled down into the country’s GDP, helping the government to provide for the health, education and other core needs of its citizens. Since the enactment of the UIGEA there are about 30 online casinos left on the island and a corresponding precipitous drop in their GDP. Antigua cried foul.

History repeats itself
This dispute, between humorously mismatched trading adversaries, is not unlike that which the Johnson Act, 15 U.S.C. §§ 1171-1178 (subsequently amended in 1962, 1992, and 1996) created. Under the Johnson scenario, “foreign flag ships were permitted to offer gambling on the high seas while American vessels were forbidden to do so.” Congress equalized the playing field by amending the Johnson Act. “The amendments sought to put an end to discriminatory treatment of the United States flag vessels under federal law.”
The Antigua/U.S. altercation is the opposite side of the same Johnson coin. The ban on internet gambling puts foreign nations at a clear competitive disadvantage in the lucrative online gambling industry while giving American gaming businesses a clear advantage. However, instead of conceding the issue, the United States expressed that it would simply withdraw the United States’ commitment under the GATS rubric to certain trade services, like gaming. This sets a troubling precedent according to some analysts. In America’s defense, however, the United States has never really agreed to be bound by the WTO’s decisions, especially if such decisions are “inconsistent with any law of the United States.”

The Constitution as Ground Zero
The UIGEA makes it a federal crime for banks and credit card companies to pay gambling debts incurred online.
[4] Is this law constitutional? Even assuming, arguendo, that the law passes scrutiny, is it a “good” law?
The constitution obviously gives Congress the power to regulate interstate, intrastate and foreign commerce.
[5] The Constitution also empowers Congress to enact any laws which are necessary and proper for “carrying into execution…all other powers vested by this Constitution in the government of the United States.”[6] The Constitution also makes clear that Federal law is the supreme law of the land and that where there is a conflict with state law, that federal law will preempt state law.
It is true that the federal government has always had an uneasy relationship with gambling. The case law and statues are replete with cases indicating the Federal government’s disdain for the industry, describing it at various junctures as, among other things, “evil” “ill” “illicit” “criminal” and “immoral.”
The Federal government was well within its right to enact the UIGEA under the Commerce Clause, the Necessary and Proper Clause and the Supremacy Clause. This fact cannot be argued. But the United States employs a “federalist structure of government,” comprised of individual states, which are considered “sovereign,” and it has been widely held that the Federal government is forbidden to commandeer the states.
The Supreme Court has indicated “‘that when a State’s exercise of its police power is challenged under the Supremacy Clause, ‘we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Acts unless that was the clear and manifest purpose of Congress.’”
[8] It has historically been the province of the state to provide for the core needs of its citizens. “States have long possessed primary responsibility in our federal system to protect the health, welfare, safety, and morals of our citizens.”[9] The core needs include family matters and moral issues such as gambling. It has been held that “gambling is not a field subject to exclusive federal control, but rather federal law in this field respects both system of dual sovereignty and important regulatory interests of the states.”[10]
The UIGEA arguably infringes on the states’ sovereignty and places the states in the glare of the global spotlight, when, had Congress not acted, this might not have been so. By enacting the UIGEA, the federal government essentially federalized an issue which should have remained the province of each state. In doing so, Congress has made it exceptionally difficult for the “United States” to make a convincing argument before the WTO’s global trade forum that, pursuant to the Tenth Amendment, the “federalist structure” of its government forbids the federal government from obligating the states to give full faith and credit to federal GATS commitments that include gambling. Some argue that this legislation puts the federal government in a commandeering position. There is some sense that with enough international pressure Congress will be forced to repeal or amend the UIGEA. If that happens, states which may have outlawed online gambling within their borders may be forced to legalize it. Conversely, states which would have been inclined to allow online gambling, pursuant to its police powers, are now prevented from allowing its citizens to gamble online while the UIGEA remains good law.
[11] It could hardly have been the intent of Congress to place itself or the states in this “constitutional purgatory” when it enacted the UIGEA.
Ironically, the Federal government can probably do little to stop consenting adults from gambling in the privacy of their homes on their computers if that is what they are bent on doing—perhaps that is why the UIGEA does not expressly outlaw online gambling, per se, but, rather, “chokes off the flow of payment for gambling transactions.” There is some merit to the argument that, from a constitutional perspective, the Federal government should not even want to impose on individual freedoms to this extent.
This artful legislation amounts to “Prohibition.” It unreasonably imposes on privacy rights of citizens. It is certainly true that some individuals abuse certain privileges to the point of compulsion (this includes their use of alcohol and certain drugs, and their sexual behavior, among other things). But attempting to limit the freedom of all to save the errant few (including the minority of under-aged children who might use their parents’ credits cards and lie about their age to gamble online) seems futile, and may even be “irrational” on the part of the Federal government.
Further, if morality and child safety are the impetuses, then there seems to be no rational basis for allowing state lotteries, gambling on U.S. flag cruise ships, Indian gaming, state casinos and online horse betting in the United States, while banning online betting in offshore casinos.
[12] Further, if morality and child safety are the impetuses, might the Federal government not have made better use of its powers under the Necessary and Proper Clause by enacting legislation which holds parents to a higher degree of accountability for the care and supervision of their children—particularly with respect to their internet/computer activities? Naturally, some federal policing of the internet is appropriate. The Children’s Online Privacy Act of 1998 is a Federal law designed to prevent the exploitation of children on the internet. Surely using this law as a paradigm, there are more narrowly tailored means to achieve the Congressional objectives of protecting under-aged youngsters from underage gambling—including mandating the use of “adult zones in cyberspace”[13]—without arbitrarily discriminating against foreign trade cohorts.

The interest of children: sword or shield?
By enacting the UIGEA, the Federal Government arguably used the “vulnerability of children” as a shield against fulfilling obligations made under GATS. One might argue that the “the interest of children” was used as artillery in a trade war to prevent one’s lesser equipped opponents from gaining equal footing. In other words, under the color of morality, and the Constitution, the interest of children was used to put up trade barriers that effectively decreased trading opportunities for lesser developed countries and denied market access to lesser developed and “less favored” nations while giving “favored nations” a clear advantage. Thus, using the concern for underage children to justify a refusal to allow “trade” seems to have turned on the government’s view that, in protecting the interest of children, any action is justifiable—including legislating morality, commandeering the states, discriminating arbitrarily against foreign nations, and jeopardizing the integrity of established multilateral trade systems like the WTO. While the Constitution allows the Federal government to act in this context, it seems non-action might have been more effective in achieving its aims.

Even though Antigua prevailed before the Dispute Settlement Body (“DSB”) of the WTO, the country can do little to enforce the favorable ruling if the United States refuses to be bound by the ruling. Normally if a member country of the WTO refuses to be bound by rulings, the DSB can authorize the member country who obtained a favorable ruling to retaliate against the non-compliant country. But how does a tiny dot on most maps, like Antigua, population 70,000, “retaliate” against a hegemonic behemoth like the United States?
The United States can ignore the WTO’s ruling without consequence, and can arbitrarily crush trading partners like Antigua like a bug. Antigua, after all, is not China. But perhaps restraint should be exercised; and not only because doing otherwise may cause other nations to accuse us of “hegemonic tyranny.” Antigua’s finance minister, Dr. Erol Cort puts it well. He demurs that Antigua is ultimately less concerned with the realities of what the ban does to its GDP and more concerned that the World Trade Organization and its multilateral trade agreements remain a legitimate global trade forum which equalizes nations and provides increased (though not preferential) market access for developing countries as well as favored nations alike, in the interest of all. Further, he asserts that if the aim of the United States is to protect under-age children, there are many ways to accomplish this without resorting to protectionism, trade discrimination and infringement on personal liberties.

Marion T.D. Lewis, a dual citizen of Antigua and the United States, is in private practice in New York City. Ms. Lewis expresses thanks to Jacqueline Cantwell of the Kings County Law Library for her assistance with research.

[1] See, Travel Act 18 USCS 1952 which prohibits the use of any facility in interstate commerce with intent to promote certain unlawful activity, including any business enterprise involving gambling in violation of state law. See, also The Wire Act 18 USC 1084 which prohibits the use of telephone lines to place bets and wagers in interstate commerce.
[2] See Casino Ventures v. Stewart 183 F.3d 307 (1999)
[3] See Section 3512 of the Uruguay Round Agreements; See, also, Corus v. Dept. of Commerce, CA.Fed. 2005, 395 F. 3d 1343
[4] See The Unlawful Internet Gambling Enforcement Act of 2006 (Enacted as Title VIII of the Security and Accountability for Every Port Act of 2006 or SAFE port Act. 31 USC § 5363 (§ 802 of the SAFE Act)
[5] See U.S Constitution Article 1 Section 8
[6] See U.S. Constitution Article 1 Section 8
[7] See U.S. Constitution Amendment 10; see also, New York v. U.S. 505 U.S. 144
[8] See Casino Ventures v. Stewart 183 F.3d 307 (1999)
[9] Id.
[10] Id.
[11] The UIGEA allows states to determine whether its citizens can gamble online so long as the activity is restricted to the State’s borders and does not infringe on other states.
[12] See 2000 amendment to the Interstate Horseracing Act of 1978
[13] See Kids and the Internet: Promise and Perils An NCLIS Hearing in Arlington Virginia Nov. 10, 1998

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