While Congress was pushing the gambling ban, which was really aimed at clarifying and strengthening a ban many in the federal government believed already existed, the tiny nation of Antigua was challenging the pre-2006, less clear incarnation of the ban in the WTO. Antigua is home to several Internet gambling companies.
In fact, Antigua had already won. The WTO permits countries to ban goods or services for "moral" reasons, but forbids such prohibitions if they give exemptions to domestic companies to provide the same goods and services. U.S. law -- both before and after the Unlawful Internet Gambling Act -- does exactly that. And so the WTO ruled in favor of Antigua.
The U.S. decided to simply ignore the WTO's ruling. That means Antigua will be permitted to retaliate. And because a move like slapping tariffs on U.S. goods will hurt Antiguans more than Americans, the plucky little country is considering a far more potent tactic: Ignoring U.S. copyright law. Imagine Antigua as the one-stop spot for knock-off designer fashions, music dowloads, pirated software, and bootlegged movies. Imagine also the delicious spectacle of Microsoft, Hollywood, and and RIAA doing battle with moral blowhards like Sen. John Kyl and Rep. Bob Goodlatte.
But it may not stop with Antigua. The significant new provision in the UIGA is the deputization financial institutions to block transactions between U.S. customers and gaming websites. Depending on how the Justice and Treasury departments write the regulations, that may include s banning all offshore web payment services like Neteller and Firepay. These companies are direct competitors to the U.S.-based service, Paypal, which long ago buckled to regulators and banned its customers to use the service for gaming (which is why Paypal's parent company, eBay, publicly supported the gambling ban). Neteller and Firepay are both traded on the London Stock Exchange.
If the tiny country of Antigua is proving to give the U.S. a major headache in its quest to enforce moral online habits, imgaine what a challenge from Britain or Canada might do.
Cato trade analyst Sallie James has more a more thorough analysis.