Mandelson met US Trade Representative Susan Schwab and Representative Barney Frank (D-MA), who has been leading so far abortive efforts in the Congress to modify the Unlawful Internet Gambling Enforcement Act, passed in 2006, which prohibits the use of payment instruments by financial institutions to handle the processing of any form of internet gambling that is illegal under US federal or state law.

It was this law which led to the collapse of many global gaming operations. When the US then withdrew from its WTO commitment after the WTO had ruled against it, Antigua and a number of other countries, including the EU, applied to the US for billions in compensation, due under WTO rules.

Under WTO procedures, and following two failed negotiations, the US now has until 14 December to respond to the compensation demands with an offer of its own. If the talks fail again, the EU and its allies, including India, Costa Rica, and Canada, can demand binding arbitration.

"When a member of the WTO defaults on its commitments, compensation is due," said Mandelson, European Union Trade Commissioner in an interview with Reuters. "That's the case of online gambling."

Barney Frank introduced legislation into the House of Representatives in April that would create an exemption to the ban on online gambling for properly licensed operators, allowing Americans to lawfully bet online. The Internet Gambling Regulation and Enforcement Act of 2007 would establish a federal regulatory and enforcement framework to license companies to accept bets and wagers online from individuals in the US, to the extent permitted by individual states, Indian tribes and sport leagues. All such licenses would include protections against underage gambling, compulsive gambling, money laundering and fraud.

“The existing legislation is an inappropriate interference on the personal freedom of Americans and this interference should be undone,” said. Rep. Frank, who is Chairman of the House Financial Services Committee.

"I think Representative Frank takes a fair-minded, common sense approach to this and we look forward to that being effective legislation," said Mandelson. But the bill has floundered so far.

The talks last week were said to have been constructive, but if there is to be a legislative solution to the problem, it will probably come about only because of the prospective tax winnings for the US Treasury from a regulated Internet betting sector, estimated to bring in tens of billions of dollars at a time when Democrats are desperately casting about for ways of financing abolition of the AMT which won't end up in George Bush's wastebin.