The Caribbean Hold 'Em.(The World According to Alan Greenspan)(Business)

Byline: Emily Flynn Vencat

An unlikely trade dispute between the U.S. and Antigua over online gaming has turned into a David-and-Goliath battle, proving small nations can wield large digital sticks.

Antigua is better known for sandy beaches than international trade disputes. But next month this tiny Caribbean resort destination could compel the United States to legalize an industry that the Bush administration has been trying to eradicate since the beginning of the president's first term. Antigua -- with a population of just 70,000 and a GDP of under $1 billion -- could force the United States to embrace online gambling.

The ruling, which the WTO is expected to begin enforcing next month, could oblige America to overhaul its prohibitive stance on online casinos, not just in relation to Antigua but to a host of others -- including the EU, Japan and Australia. That would double the size of the $15 billion-a-year online gaming industry almost overnight, says the Safe and Secure Internet Gambling Initiative, a pro-gaming consultancy. And since the WTO might allow nations that have been hurt by U.S. gaming laws to flout American intellectual-property law in response, the dispute is already spreading to Hollywood, Silicon Valley and beyond.

The story dates back to 2003, when Antigua sued the United States at the WTO over America's prohibition of online casinos, which is the island's second largest industry, after tourism. The United States allows a number of domestic betting companies, like the horse-racing Web site YouBet.com, to offer online gambling to Americans (these are thrown into the odd basket of legal gaming operations that include Native American-run casinos and riverboat gambling). But foreign firms are prohibited from offering exactly the same type of service to U.S. citizens.

The American government requires foreign sites to block U.S. users by checking the Internet protocol addresses of their computers, a requirement that has been honored mainly in the breach, given that Americans represent some 60 percent of world online-gaming revenue. Last October, President George W. Bush upped the ante by signing a new bill preventing banks and credit-card companies from processing payments by American users of overseas sites. The result: top companies like Gibraltar-based PartyGaming (once worth $8.4 billion) saw the value of their stock sliced in half, and their revenues plunge by 70 percent. The U.S. government has arrested a number of foreign online-gaming execs, charging them with gambling-related offenses. In March, the London-based Web site Sportingbet.com was forced to pay the state of Louisiana $400,000 to settle charges levied against its chairman, Peter Dicks.

But that same month, the WTO decided that the U.S. approach was an illegal form of trade protectionism. The ruling may be enforced as early as next month. "I was laughed at when I first brought the case," says Mark Mendel, the long-haired, 51-year-old Texas lawyer who represented Antigua. "They totally underestimated me."