On Friday, August 7, 2009, Dr. Andrew F. Cooper, distinguished fellow and CIGI’s associate director, presented his current research on the ongoing World Trade Organization (WTO) dispute between Antigua and the United States over Internet gambling as part of the CIGI Research Lunch seminar series. Having grown out of Dr. Cooper’s work on innovative diplomatic practices, the use of niches in international governance, and his recent research with regard to the diplomatic practices of small states, his research on this international trade dispute has been a result of a convergence of these noted issues and interests.

The term “offshore” conjures images of tax havens and financial institutions located in the small island states of the Caribbean or microstates of Europe. Yet, offshore activities are more accurately defined as a commercialization of sovereignty -- states that, out of an absence of natural resources and small geographical stature, are forced to find alternative niches for development and rent-seeking. The small twin-island state of Antigua and Barbuda, located in the Eastern Caribbean, has pursued this course through the sale of Internet gambling licenses. As with offshore finance in the Cayman Islands or Bahamas, Internet gambling has proven to be a lucrative form of development for Antigua, yet its controversial nature has led to a protracted international debate and trade conflict with the United States before the WTO.

Rooted in this debate is the context of offshore finance and its straddling position between the worlds of legality and illegality. Mired in controversy due to the extraterritorial nature of this financial sector, many developed western states argue against the flight of taxable income to these island states. There are also issues surrounding the regulative structures, or lack thereof, within the offshore economy. Like Offshore Financial Centres (OFCs), Internet gambling in the Caribbean is a by-product of, what the industry views as, over-taxation and regulation, or in the case of the United States, a lack of legitimacy and legality. Antigua’s proposal to defend the interests of the industry internationally, while seeking a modest licensing fee with little taxation, presents a capitalistic alternative to the more expensive onshore options.

Antigua’s niche benefits of securing the Internet gambling industry as a form of economic development have been met with hostility, however, as the United States has sought to remove the industry’s capacity to solicit for and acquire customers within the US. Yet due to the home-grown gambling industry within the US, as well as its use of the Internet (specifically in the case of off-track horse betting), Antigua, funded by the gambling industry, has been able to mount a successful campaign within the WTO, pointing out inconsistencies in the American position and overcoming its small stature and lack of resources. Resisting the trap which many small states find themselves in when facing off in asymmetrical disputes, Antigua was able to mount a campaign against the United States through the resource assistance of the vested gambling interests within the state who also seek the legitimacy of their business as well as access to the United States market, the world’s largest gambling population.

Yet it is the characteristics which differentiate Internet gambling from OFCs that stand out in Dr. Cooper’s research. Unlike the culture of secrecy which dominates offshore finance, the survival of online gambling requires an increased public presence, including transparency and greater regulation. Indeed, it is to Antigua’s advantage to have as regulated a system as possible, akin to other gambling regulatory bodies. Many of the companies operating out of Antigua are publicly traded on various exchanges, specifically the London Stock Exchange (FTSE). Antigua has even met British regulatory standards (the “white list”), which allows licensed Antiguan companies to advertise in the UK. These are practices which contrast with the classic images of OFCs. There is an acknowledgement within the industry itself,  with a few exceptions, that if it is to ever permeate the barriers it currently faces internationally, then regulation serves the industry’s own best interests.

Indeed, it is a case with numerous complexities which revolve around the practice of diplomacy, international trade and illicit international activity. Stigmatized for their offshore nature, Antigua and the industry have sought to legitimize online gambling for long-term benefits. Dr. Cooper’s research and presentation clearly demonstrates the intricacies and particularities that come with small states expanding their economic reach through somewhat unorthodox means.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.