Why isn't the market addressing this? Why doesn't someone start a video service in the US and for the US -- one that follows US law, and not Pakistan's or Iran's or India's or Germany's or anyone else's?

Oh, right, because then they can't sell ads in those places, or use them as tax shelters. Silly question, I guess.

By forcing compliance with oppressive regimes (and with pearl-clutching sponsors in less-oppressive ones), advertising will eventually end everything good about the Internet. If you work in that business, you're the problem. Consider a different career.

There was absolutely no reason to ban in this case and you know it. If there was one video where rules were unintentionally broken, and the user has no history of that before, you remove the video, not completely ban the user.