The European Commission has launched a formal investigation into the stance being taken by the US in the trade dispute over internet gambling.

The Commission has submitted a list of questions to US officials related to alleged discriminatory trade practices against European online gambling companies.

"The cumulative effect of US World Trade Organisation [WTO] related actions over the past year have forced the European Union to take this dramatic step," said Naotaka Matsukata, a senior advisor at law firm Alston & Bird.

"The line of inquiry opened by the questionnaire could reveal that the US is engaging in unfair, discriminatory and selective prosecution of European online gaming operators."

Matsukata believes that, if the EU takes the "nuclear option" and brings the US to the WTO, "serious damage" would be inflicted on the bilateral relationship at a delicate time in transatlantic relations.

"Rather than taking this risk, the US Trade Representative should work with Congress, as the US Constitution instructs, to resolve the dispute by adopting Congressman Barney Frank's Internet Gambling Regulation and Enforcement Act to bring the US into WTO compliance. "

Frank's bill, known as HR 2046, would resolve the trade dispute by regulating internet gambling and creating a level playing field among domestic and foreign operators.

EU Trade Commissioner Peter Mandelson has expressed interest in settling the trade violation, but argued that "discrimination against EU companies cannot be part of the policy mix".

Mandelson has already stated that US Congress should consider opening its market to overseas operators as a solution to the trade dispute. "[Frank's bill] takes a fair-minded, common sense approach," he said.

Jeffrey Sandman, a spokesman for the Safe and Secure Internet Gambling Initiative, added: "The Commission's investigation further highlights the reckless manner in which the US Trade Representative has sought a protectionist trade policy.

"This sets a precedent that threatens to expand beyond online gambling into other areas of trade.

"Congress should not sit on the sidelines as the Trade Representative unilaterally grants trade concessions and hypocritically discriminates against foreign online gambling operators.

"Congress needs to become part of the decision-making process and create a non-discriminatory market for internet gambling in the US as a way to restore integrity to the international trading system."