MR. MARC FISHERWelcome back. I'm Marc Fisher of the Washington Post sitting in for Kojo Nnamdi. And we are talking now about a very unusual kind of story. For more than a decade the sunny islands of Antigua and Barbuda have waged a quiet trade war against the United States. The Caribbean Islands were once a haven for online gambling capturing nearly 60 percent of the global market. But the U.S. ban on internet gambling crushed their business. So now in a David-versus-Goliath moment the Islands filed a complaint with the world Trade Organization and won. And the ruling demanded that the United States either legalize online gambling or pay billions in compensation.

MR. MARC FISHERSo eight years after that ruling the United States has done neither of those things. And now with the approval from the World Trade Organization Antigua is retaliating with a plan to sell $21 million in pirated U.S. movies and media each year until the U.S. pays up. It's a case that has jaws dropping and fingers wagging on both sides of the issue. And people are calling this the clash in the Caribbean and the repercussions for international commerce and global trade are huge.

MR. MARC FISHERJoining us to talk about this, Lori Wallach is director of Global Trade Watch at Public Citizen, a nonprofit lobbying and litigation organization. And on the phone from Buffalo, N.Y., Mr. Joseph Kelly, professor of business law at the SUNY College at Buffalo. He's a former consultant to the islands of Antigua and Barbuda for the Catania Consulting Group. And perhaps we can start with Joe Kelly. Before we get into this case, give us an idea of how big the online betting business was for Antigua and what happened to it.

MR. JOSEPH KELLYWell, at one time Antigua had over 3,000, 4,000 employees and over 100 operators. When the United States took action against one of its operators who came back to the United States and wanted a trial by jury and was imprisoned, this had a killing effect on the Antiguan online gambling operation. Subsequently I was asked to update their laws, which I did, to make sure that all operators were suitable, solvent and engaged in socially responsible policies.

MR. JOSEPH KELLYBut any rate, they suffered very, very hard times. Then in 2003 they filed a complaint with the World Trade Organization, the General Agreement in Trade and Services. And at the first level they won a tremendous victory. The GATS said that United States did not exclude gambling when it joined the GATS. It was a very difficult question and tons and tons of pages in the decision were devoted to this issue.

MR. JOSEPH KELLYSecondly, the panel said that the United States was in violation of GATS, not because its free federal laws, the Wire Act, the Illegal Gambling Business Act and the Travel Act which go back 40 to 50 years were not justified in trying to minimize money laundering and compulsive gambling, but they failed first to consult with Antigua. And then a very bizarre movement, the panel found that eight state laws of the United States, including Utah, were in violation of the GATS So it was a tremendous victory. And then on to...

FISHERWell, wait. Let's step back for a moment. We're talking about a country of 89,000 people. I mean, this is a spec compared to the United States. And yet -- and the assumption behind all of this is that it's somehow okay for an island nation to have an enormous industry that is designed solely to circumvent another nation's laws. So, I mean, is that putting it too sharply or is that simply the case?

KELLYI would think so for this reason. At the time it was unclear whether the United States laws applied to offshore operators. For example, British law today, if you're an Antigua operator and you accept a customer from Great Britain, Britain would say the operation takes place in Antigua and not in Britain. As Jay Cohen found out the hard way, the United States court said gambling takes places both at the location of the operator and where the gambling takes place.

KELLYBut here's the crucial thing. On appeal the appellate panel reversed all the lower court's findings except for gambling being covered, and said that the federal laws are justifiable as there was no need to consult with Antigua. But the United States allowed interstate interactive horse racing as a result of a December, 2000 amendment to the law of horse racing and didn't allow Antigua access to the United States market. So it was a very, very purist victory.

KELLYAnd when the matter was then sent for the United States to bring its horse racing laws into conformity with the GATS ruling, the United States did not do so. And in fact, under the Unlawful Internet Gambling Enforcement Act of October, 2006, which is a masterpiece of double speak concerning interstate interactive horse racing, the law simply said we aren't going into the legality of interstate interactive horse racing. (unintelligible) ...

FISHERWell, good. And I don't want to go into it here either. But...

KELLYNo, no, no. You don't (unintelligible) for Antigua, they only got the next decision $21 million. They had asked for 3.44 billion but the only thing they got was the result of the loss of horse racing revenue.

FISHEROkay. So let's skip ahead, Lori Wallach, the WTO then endorses this notion that Antigua would sell pirated movie in the United States and somehow this would be making them whole. I mean, how does an international organization condone illegal activity as a way of getting back at some country that it thinks has done something wrong?

MS. LORI WALLACHWell, this case is a veritable smorgasbord of unfortunate consequences of today's so called trade agreements, like the World Trade Organization, that reach so far beyond trade into behind the border policies to meddle in things you could never imagine would be in a trade agreement because I actually have to go back a few years.

MS. LORI WALLACHThis whole thing started actually in the '90s when the Clinton Administration used the WTO to attack a very successful Caribbean banana trade policy on behalf of Chiquita banana. They wiped out Antigua and a bunch of other countries' main economic machine causing chaos and social unrest. Different countries tried different things, some of them illegal, some of them legal, some of them, who knows. Antigua tried internet gambling.

MS. LORI WALLACHSo now fast forward, you have the World Trade Organization in 2005 announcing that Antigua who brought a case funded by the European gambling industry, which was using Antigua to use the WTO to sack the U.S. internet gambling ban to undo laws made by congress. Now one may ask, why does the WTO, a trade organization, get to decide what we do and don't do within the U.S.? I mean, we were treating domestic and foreign firms the same. We just didn't allow internet gambling.

MS. LORI WALLACHThe WTO could do that because the U.S. accidentally submitted gambling to its WTO commitments and therefore was -- had given up the right to regulate. Again invasive. Now what then happens is an attempt by the U.S. to solve this case by trying to offer other service sectors to get back the right -- because that's what you have to do at WTO to regulate a domestic service sector. They give up -- they try to give up LNG Liquid Natural Gas sector, something very dangerous you want to keep regulating and you don't want to give it up.

MS. LORI WALLACHSo they were trying to trade away the right to regulate cha-ching and give away the right to regulate kaboom, at which point in comes Antigua again and says, that's it. We're going to hit you with sanctions. The sanctions are allowed -- and this is the unintended consequences part of the story -- because the U.S. pharmaceutical industry, which also put into the WTO new monopoly patents. Yes, monopolies in a free trade agreement. Go figure. They wanted to be able to enforce these new monopoly rights to jack up medicine prices when developing countries weren't following them by cutting off their real trade.

MS. LORI WALLACHSo they start something called cross retaliation, cross sectoral retaliation. And what that meant is you break one part of the WTO agreement, services, and we can hit you in another section. They meant to do it to say Brazil, when Brazil was going to have generic AIDS drugs. Instead we're not the consequence. We are going to have $21 million of copyrighted goods sold in sanctions for violation for a different part of the WTO's obligations.

FISHEROkay. Well, so we -- so far we have pharmaceuticals, liquid natural gas...

WALLACH...bananas.

FISHER...bananas, cheap movies and a whole -- online gambling and a whole lot of confusion. If you can help settle this confusion you can call us at 1-800-433-8850 or email us at kojo@wamu.org. And -- but just -- I'm stuck on this question of how a foreign country can sell pirated movies legally or officially in a country where that's illegal. I mean, so does Antigua set up shops illegally here and sell stuff on the street? What happens?

KELLYWhat they would do is suspend intellectual property rights. Now they could have done this as early as 2007 when they got the award, but they've been trying to resolve the matter amicably with the United States, which has settled claims -- the United States wants to withdraw gambling from covered services. And the United States has settled claims with every other country other than Antigua. And when (unintelligible) ...

FISHERAll right. But leave the back and forth with the WTO out of it just for a second.

WALLACHPractically.

FISHERJust in a practical question, how does a foreign country go about selling pirated movies in our country?

WALLACHProbably what they'll do is set up and...

KELLYThey have said that this is a last resort. And, in fact, they're meeting tomorrow with the United States to see if they can resolve the matter. But this is an absolute last resort, and the United States in an official document says that if they do this, if they do set up an online site which allows pirated movies, let's say "Pirate of the Caribbean" or something, that this would be theft, and that's a pretty strong expression to use. But hopefully we can resolve this thing.

KELLYAnd it's interesting, there's a -- in the Reid-Kyl bill that was -- would have allowed only online poker and banned everything else, part of the bill emphasized the importance of the United States withdrawing gambling from GATS commitment. There's very specific language saying we must do this.

FISHERSo, Lori Wallach, what -- I'm still stuck on this question of how they would do...

WALLACHPractically.

FISHERSo if Antigua sets up a website...

WALLACHThat's it.

FISHER...and sells pirated movies to American consumers who want to get the latest movie for next to nothing, presumably the United States government could go after those sites just as they go after any pirate site.

WALLACHExcept, and this is the lunacy of these agreements, like the World Trade Organization, or there's one even more crazy, the Transpacific Partnership that the Obama administration is now negotiating. The binding rule of these agreements is countries shall ensure conformity of all domestic laws, regulations, and procedures with the agreements. If you don't, another country can hit you with any kind of penalty, including a penalty that crosses into another chapter.

FISHERIncluding an illegal one.

WALLACHSo the agreement has a chapter giving intellectual property rights. Countries have to trade that with each other, respect those rights. As a legal-technical matter, what Antigua is doing is suspending $21 million of guaranteed WTO intellectual property benefits it committed to the United States in retaliation for the United States withdrawing, says the WTO, $21 in gambling rights that the WTO required the U.S. to provide.

FISHERWhen we come back after a short break, we're going to get to the core of this, and look at the status of online gaming and how that got twisted into this very strange story. You can join us at 1-800-433-8850. We'll continue our conversation after this break. I'm Marc Fisher and this is "The Kojo Nnamdi Show."

FISHERWelcome back. I'm Marc Fisher of the Washington Post sitting in for Kojo Nnamdi, and we are talking about the clash in the Caribbean, how the sunny islands of Antigua and Barbuda have waged a quiet trade war against the United States. If you'd like to join our conversation, the number is 1-800-433-8850. Would you download cheap or free movies from a foreign-run website, or perhaps one from Antigua, and should all countries, regardless of size, play by the same international trade rules? Give us a call, 1-800-433-8850.

FISHERI'm joined by Lori Wallach, director of Global Trade Watch at Public Citizen, and Joseph Kelly, a business law professor who worked for the islands of Antigua and Barbuda in working out some of these arrangements. And Joe Kelly, is -- tell us what the current status of online gaming is. Is it -- it's illegal in our country, but are other countries allowed to pedal their internet gaming operations in the United States?

KELLYWell, a number of operators do so, but here's the thing. The Justice Department did crack down on overseas operators targeting American customers. But on December 23, 2011, the Justice Department said the major law we used on prosecuting online operators is incorrect, the Wire Act. The Wire Act only applies to sports wagering and nothing else. This has almost given the green light to every state to go ahead and set up online gambling laws on an intrastate basis now, but it soon will be interstate. I'm thinking of Nevada, Delaware, New Jersey, and I'm working for the U.S. Virgin Islands which wants to accept customers from those places in the United States where it is legal.

KELLYPrior to this, in 2004, the Justice Department told the Virgin Islands don't you dare accept interstate customers. In 2005, North Dakota tried to set of interstate Internet poker and was told by the Justice Department, don't you dare.

FISHERSo but in those states that you mentioned in New Jersey and Nevada and so on, if I live in Trenton I can go online and engage internet gaming with this company in the Virgin Islands or perhaps one...

KELLYNot yet.

FISHERBut I will be able to.

KELLYNot yet. Right now we're talking only about intrastate. But the law of Nevada, just signed told, and Delaware, provides an opportunity to allow for interstate agreements between state where it is legal. Of course, you would still exclude a player from a state such as Utah where all gambling is illegal.

FISHERSo if I'm...

KELLYBasically, you want keep of money within the United States as opposed to seeing it go offshore.

FISHERSo if I'm sitting in Newark, I can go online and gamble courtesy of a casino in Vegas?

KELLYNo. Right now...

WALLACHAtlantic City.

KELLYAs soon as Governor Christie signs the bill, which should be very soon, then you can gamble on -- within New Jersey...

FISHERSo Mr. Trump can take my money is Atlantic City.

KELLYYeah. You have to do it intrastate for the time being.

FISHERAnd so where, Lori Wallach, where do these offshore operators come into play? Are they strictly forbidden although still operating?

WALLACHThe way that the law works, the trade law, is in trade terms this is considered provision of a service across a border, and we have ostensibly in the areas where we didn't give away the rights to regulate to WTO, rights to decide that. The problem is the WTO decided that even though U.S. officials said they had not, we had given away the entire realm of gambling and gaming as an area where we maintain the right to regulate. I know that sounds crazy that we have given away the right to regulate to a quote "trade organization," but that sort of gets to the overreach.

WALLACHAnd in fact, the big question that strikes me is when Antigua, in its WTO rights, starts to allow purchase of pirated U.S. copyrighted goods, what is the U.S. going to do given this whole idea of cross retaliation...

FISHERSo the United States...

WALLACH...was the U. S.'s idea?

FISHERSo the United States, under these treaties is not allowed to enforce its own laws against someone who is peddling pirated movies to American citizens, but what's to prevent, say, Warner Brothers from suing the Antiguan company that sets up an internet site to sell pirated movies?

FISHERThat's a very interesting question. Also at this very moment the world Trade Organization has ordered the U.S. to get rid of our domestic country of origin meat labels, what we see in the grocery store that says where our chicken or beef or pork came from, to get rid of our dolphin-safe tuna fish labels, and to get rid of the ban on sweet flavored cigarettes used to attract teen smokers. The U.S. faces trade sanctions on those cases if we haven't dumped those laws within -- basically by July they all come due.

WALLACHSo it is -- the WTO and this proposed TransPacific Partnership, the number of ways it meddles into both other individuals copyrights, I mean, the WTO is creating a problem for Warner Brothers, the way it meddles with our rights as consumers to know what's going on, and the way fundamentally it messes with Congress and state legislatures rights to make our domestic trade laws fairly stunning. If this sounds totally overwhelming, I send folks to our website, tradewatch.org, where you can read it over a couple of times, because it is a tangled tale.

FISHERWell, here's a...

KELLYIf I were a betting person, and I'm not, I would say Antigua is not going to set up an online site where you can get copyrighted material. It's the threat of this. They could have done this since 2007, and they haven't. What they want is compensation, the $21 million that the U.S. owes, and trade negotiations just haven't worked out. But the threat is there. I just don't think it's going to happen.

FISHEROkay.

KELLYAnd they're enforcing this under an Orwellian-sounding name, the Trade-Related Intellectual Property Rights, the TRIPS. It's a totally separate type of thing, and it's very, very complicated.

WALLACHIt's actually -- it's part of the WTO, and again, in the perverse world of so-called today's trade agreements, it's a whole agreement that would make Adam Smith and David Ricardo roll in their graves. It's a whole agreement that sets up new monopolies for patents, copyrights, et cetera, in a free trade agreement. It's one of the 17 non-trade chapters of rules that the WTO enforces on the U.S.

FISHERSo why is that, I mean, you know, it's this tiny speck of a nation, 89,000 people going up against 310 million Americans. You would think that the United States government with all of its might would be able to get a handle on this. Joe Kelly, what -- the battle between the U.S. and Antigua has gotten pretty nasty. Why doesn't the United States take other action against other Antiguan operations, whether tourism and other businesses, to retaliate and get their way?

KELLYWouldn't it be much simpler just to pay the $21 million and then the matter is resolved.

FISHERWhy should we pay $21 million? Why should they give them anything? If...

KELLYBecause that's what the World Trade Organization has assessed. And if we're not going to follow the $21 million assessment, later on, if somebody has to pay the United States a huge amount of money, they could point to the United States and say, well, if you're not going to pay off Antigua, why should we pay you. But I want to stress this. If the United States had no legal gambling, then of course Antigua would have no cause of action. But the United States...

WALLACHThat's not true.

KELLY...has increased drastically the amount of legal online gambling.

FISHERWell, but as you said -- you said earlier, it's a handful of states that have done that, not the federal government. The federal government has been fighting against online gambling, whether that's right or not, so why should a country pay off another country when that second country is doing something that is contrary to the laws and values of the first country?

WALLACHWell, and, in addition, just...

KELLYBecause you're denying access of these countries with regulated system to the American customer, and the European Union is having the same battle as each state tries to exclude its citizens from gambling on other European Union states. We're not the only ones with this problem.

WALLACHJust for the record thought, what the WTO's ruling said is that we submitted the entire gambling sector to the WTO and lost our right to do a variety of things, including banning it, which is considered a zero quota, regulating the number of and type of gambling institutions, the legal entity through which they can be offered. Those are all the constraints a country submits to if they submit a sector to the WTO. So in fact, the reason we try to compensate for the right to regulate cha-ching by giving away regulating ka-boom, liquid natural gas, was because we're trying to withdraw and regain our entire right to have any gambling regulation, which right now under WTO we're ostensibly not allowed to do, including for hard casinos.

FISHERWell, how did this mortgaging of authority to an international organization take place in the first place?

WALLACHThis is the underlying core question. So at the time the World Trade Organization went into effect, the voting Congress in 1994, I was working with Ralph Nader directory, and he offered $10,000 to the charity of choice of any U.S. Congressman or Senator who would simply sign an attestation that they had read the World Trade Organization agreement and had any uncanny idea of what the heck they were getting the U.S. into. He waited five months.

WALLACHOne guy, a very pro free trade Republican from Colorado, Hank Brown, finally took the deal. He went home and read the darn agreement. He came back with his hair on fire, and live on national television announced how he would oppose it. Not because he didn't love free trade and open markets, but because it was a sneak attack on American democracy rewriting vast swaths of law that would not be subject to change, but for compensation or agreement with other countries.

WALLACHAnd now we're in this exact same scenario with an agreement that's being negotiated now called the TPP, TransPacific Partnership, except this one we can find out ahead of time.

FISHERSo did Ralph Nader pay him the $10,000?

WALLACHIn fact, the guy said he didn't want the money. Instead he asked Ralph if he'd work with him to teach other Senators about what was really in the TWO, and that Senator then had Ralph Nader walking around to a lot of very conservative Republicans, walking them through the WTO text to explain, you can like free markets, but you don't like an attack on federalism and democracy, and a lot of Republicans voted no.

FISHERWell, speaking of strange...

KELLYCan I just very quickly say that this is the only thing where the Pat Buchananites and the Ralph Naderites would agree on. What I find fascinating is how far down the food chain of the democratic leadership, President Clinton had to go in order to find a Democrat leader to champion the WTO movement. But it's a very, very interesting procedure how it got through, and the GAT are a part of the World Trade Organization.

FISHERJoe Kelly, speaking of strange bedfellows, there was also a bill introduced late last year by Senate Majority Leader Harry Reid, and by Senator John Kyl that would legalize online poker. Now, but this bill was actually a slap against Antigua. What was going on there?

KELLYYeah. Well, they -- they wanted to withdraw the WTO commitments, and I think I read part of it earlier that they -- the last section of the bill, Section 403, would withdraw the commitments. What this bill would do was basically set up an Orwellian sounding organization, (word?) , where the online poker oversight panel would oversee poker, a federal thing, work with the states, and basically ban any state online gambling except for Nevada and a daily intrastate lottery. And the frightening thing here is, would you really want the federal government to oversee gambling?

KELLYThe federal government has a unique ability to screw up a two-car parade, and I would think that gambling has been regulated very successfully at the state level, Nevada, New Jersey, have managed to keep organized crime out. Bu the Reid-Kyl bill was never introduced into the Senate. It was something that was supposed to pass in the lame duck session of Congress, and I don't think anybody would have had a chance to mark it up, so it died fortunately a natural death. There are rumors that the equivalent of the bill will be introduced by Congressman Barton sometime this spring.

FISHERAnd Lori Wallach, will this fight, very quickly, this fight in the WTO possibly spur Congress to drop the federal ban on online gambling? Are we going to see any wholesale change to online gaming as a result of all this?

WALLACHI think it's less likely to have that effect as to make even more members of Congress join their constituents in being suspicious about these agreements like the world trade organization that are so invasive of our democratic policy space.

FISHERLori Wallach is director of Global Trade Watch at Public Citizen, a non-profit lobbying and litigation organization, and Joseph Kelly, is professor of business law at SUNY College at Buffalo. He's also a former consultant to the islands of Antigua and Barbuda for the Catania Consulting Group. Thanks very much for joining me. I'm Marc Fisher of the Washington Post.

FISHER"The Kojo Nnamdi Show" is produced by Brendan Sweeney, Michael Martinez, Ingalisa Schrobsdorff, Tayla Burney, Kathy Goldgeier and Elizabeth Weinstein, with help with Stephannie Stokes. The engineer today is Natalie Yuravlivker, she's on the phones, and Tobey Schreiner is the engineer. Podcasts of all shows, audio archives, and free transcripts are available at our website kojoshow.org. I'm Marc Fisher. Thanks so much for being with us.