Lecture 18 Globalization and Health Richard Smith Reader

Lecture 18: Globalization and Health Richard Smith Reader in Health Economics School of Medicine, Health Policy & Practice Health Economics – SOCE 3 B 11 – Autumn 04/05

Overview of lecture • • What is globalization? Relationship between globalization and health Aspects of globalization that may effect health Health, international trade and WTO – Trade in health services and GATS

What is ‘Globalization’? • Easier travel & communication • Mixing of customs & cultures • Integration of national economies (removal of barriers to international trade & finance) – ‘liberalization’ or ‘openness’ • Means cannot view national health, interventions and policies in isolation from: – other countries – other sectors (e. g. travel, finance)

Globalization economic opening goods, services, capital, people, ideas, information cross-border flows international rules and institutions national economy and health-related sectors risk factors household economy HEALTH health services

Aspects of Globalization that may effect Health • General effect on health from changes in national economic growth – link between ‘health and wealth’ • Environmental degradation (e. g. air, water pollution) • Improved access to knowledge and technology • Marketing of harmful products & unhealthy behaviours • Conflict & security • Cross-border transmission of disease

Emerging/re-emerging infectious diseases 1996 to 2003 Legionnaire’s Disease Cryptosporidiosis E. coli O 157 SARS BSE nv. CJD Lyme Borreliosis West Nile Virus Reston virus Lassa fever Yellow fever Venezuelan Equine Encephalitis Dengue haemhorrhagic fever Multidrug resistant Salmonella E. coli non-O 157 Typhoid Malaria Diphtheria West Nile SARS Influenza (H 5 N 1) Fever Echinococcosis W 135 Nipah Virus Cholera 0139 Reston Virus Buruli ulcer Ebola haemorrhagic fever Cholera E. coli O 157 RVF/VHF O’nyong fever Dengue haemhorrhagic fever Human Monkeypox Cholera Equine morbillivirus Ross River virus Hendra virus

Health and International Trade • Context: Effects of trade liberalisation on public health • Trade liberalisation: removal of impediments to trade in goods and services (especially via WTO) • Public health: organised measures (public &/or private) to prevent disease, promote health or prolong life of the population as a whole

Specific Public Health Issues • • Infectious disease control Food safety Tobacco Environment Access to drugs Food security Emerging issues (biotechnology…. ) Health services

WTO Agreements • • Goods: GATT Technical barriers to trade: SPS, TBT Intellectual property and trade : TRIPS Services: GATS

Specific Health Issues and most relevant WTO Agreements

Trade in Health Services/GATS: Background • International trade growing, & trade in services is increasing percentage of this overall growth • Of this trade, health sector is already affected by liberalization in other areas (e. g. finance) • Many countries see health as a sector where they may have a comparative trade advantage • More countries seeking to ascend to WTO and therefore make commitments under GATS

General Agreement on Trade in Services (GATS) • GATS emerged from 1994 Uruguay Round of negotiations that created the WTO (Members agree to progressive liberalization) àSubject services trade to ‘same’ treatment as goods (GATT) àBasis = liberalization increases global efficiency (comparative advantage – lower cost, higher quality, innovation) àProvides multilateral legal framework for liberalizing international services trade (based on existing int. trade law) • Debate is polarized - “Tale of Two Treaties” àGATS is worst of treaties – undermines national sovereignty àGATS is best of treaties – increase health (sovereignty)

The House that GATS Built Trade Liberalization Preservation of the Right to Regulate Services Multilateral Framework Side Wall: Market Access Commitments Back Wall: Exceptions GATS (Services) Front Wall: General Obligations and Disciplines nty eig H h alt e er ov GATS Council S Side Wall: National Treatment Commitments Floor: Dispute Settlement

GATS Timetable • 1994 ‘Uruguay Round’ of WTO negotiations saw initial commitments in health services made by a handful of countries • Current negotiations began following WTO meeting in February 2000: – initial requests for specific commitments made by end June 2002 – initial offers due by end of March 2003 – finalised agreement by end of January 2005

The GATS Process • Countries (via Mo. T) select service sector(s) they wish to open to foreign suppliers • A ‘commitment’ is then made within this sector – within each mode individually or combined – stating limitations to how much access foreign providers are allowed • Commitments are multilateral – no ‘favourites’

Key Aspects of GATS • Creates ‘binary’ system – either solely public provided (hence not covered by GATS) or not • Commitments potentially irreversible – changes possible (> 3 years) but entail ‘compensation’ (offering new commitments in other sectors with a view to restoring the balance of commitments which existed prior to the modification) • GATS excludes “services supplied in the exercise of governmental authority” – debate on coverage • MFN principle • Structure – four ‘modes of supply’

S T A R T Threshold Question: Does GATS Apply? Is the health-related service supplied by the government? No Yes Is the health-related service supplied on a commercial basis? No Is the health-related service supplied in competition with one or more service providers? No GATS does not apply Is the health-related service supplied by a private actor pursuant to delegated governmental authority? Yes Yes No GATS applies to measures of WTO members that affect trade in health-related services

Structure of GATS: Four ‘Modes of Supply’ 1. 2. 3. 4. Cross border delivery (e-health) Consumption abroad (movt. of patients) Commercial presence (FDI hospitals) Movement of personnel (doctors abroad)

Mode 1: Cross border delivery of services • Shipment of laboratory samples, diagnosis and clinical consultations by mail • E-health – – – Telediagnostic Telesurveillance Teleconsultation Teletreatment Teleproducts (especially phamaceuticals)

Mode 1 Opportunities • Enable health care delivery to remote and underserviced areas – promoting equity • Alleviate (some) human resource constraints • Enable more cost-effective disease surveillance • Improve quality of diagnosis and treatment • Upgrade skills, disseminate knowledge through interactive electronic means

Mode 1 Risks • Relies on telecommunications and power sector infrastructure • Capital intensive, possible diversion of resources from basic preventive and curative services • Equity issue if it caters to a small segment of the population - urban affluent

Mode 2: Consumption abroad • Movement of patients from home country to the country providing the diagnosis/treatment • Movement of health professionals from home to another country to receive medical education and training

Mode 2 Opportunities For exporting countries • Generate foreign exchange earnings to increase resources for health • Upgrade health infrastructure, knowledge, standards and quality For importing countries • Overcome shortages of physical and human resources in speciality areas • Receive more affordable treatment

Mode 2 Risks • Create dual market structure • May crowd out local population – unless these services are made available to local population • Diversion of resources from the public health system • Outflow of foreign exchange for importing countries

Mode 3: Commercial presence • Establishment of hospitals, clinics, diagnostic and treatment centres and nursing homes and training facilities through foreign direct investment – cross border mergers/acquisitions, joint venture/alliance • Opportunities foreign commercial presence also in management of health facilities and allied services, medical and paramedical education, IT and health care

Mode 3 Opportunities • Generate additional resources for investment in upgrading of infrastructure and technologies • Reduce the burden on public resources • Create employment opportunities • Raise standards, improve management, quality , improve availability, improve education (foreign commercial presence in medical education sector)

Mode 3 Risks • Large initial public investments to attract FDI • If public funds/subsidies used - potential diversion of resources from the public health sector • Two tier structure of health care establishments • Internal brain drain from public to private sector • Crowding out of poorer patients, cream skimming phenomena

Mode 4: Movement of Health Professionals • Includes doctors, nurses, paramedics, midwives, consultants, trainers, management personnel • Factors driving cross border movements à wage differentials between countries à search for better working conditions/standards of living à search for greater exposure/training/qualifications à demand supply imbalances between countries • Approach towards mode 4 trade in health services by exporting and receiving countries varies - some countries encourage outflow, others create impediments

Mode 4 Opportunities From sending country • Promote exchange of knowledge among professionals • Upgrade skills and standards (provided service providers return to the home country) • Gains from remittances and transfers From host country • Meet shortage of health care providers, improve access, quality and contain cost pressures

Mode 4 Risks From sending country • Permanent outflows of skilled personnel ‘brain drain’ • Loss of subsidised training and financial capital invested • Adverse effects on equity, availability and quality of services

Tourism/Courier Transportation Others Culture & sport Health & Social services Education Finance Construction Distribution Environment Telecommunication Business specific commitments Scope of analysis National treatment Market access Cross-industrial commitment 1 -4 = modes 1 2 3 1 4 2 3 4

Status of GATS Commitments (No. WTO Members by Sector)

Commitments of WTO Members in Health Services Number of WTO Members number (~2004) with commitments in health (developed/developing): Medical/dental services 62 (18/44) (excl. USA) Nurses/midwives 34 (17/17) (excl. USA) Hospital services 52 (15/37) (incl. USA) Other human health 22 (2/20) (excl. USA & EC) No commitments at all 39 (e. g. Canada, Brazil)

Commitments – Market Access

Commitments – National Treatment

Summary of GATS Commitments • Generally, number of sectors committed positively related to the level of economic development • But - pattern in health services less clear – Far more developing than developed country commitments • E. g Canada no commitments, USA/Japan only one whereas LDCs (Burundi, Gambia, Zambia etc) have 3 or 4 subsectors – Of 4 subsectors – medical/dental most heavily committed (62), followed by hospital (52). – Highest share of full market access recorded for mode 2 – Developed countries use limitations on modes 2 & 3 more than developing countries – No Member undertaken full commitments for mode 4 (highly restricted area)

GATS – 3 Key Questions • Why are current levels of trade in health services low? – presence of government monopolies – likely to be rare – no ‘pace setters’ in health (c. f. telecommunications/financial services) – different ‘economic’ value (c. f. telecommunications/financial services) • How will GATS effect a country’s health sovereignty/system? – depends on interpretation of “commercial basis” and “in competition” – general obligations – MFN, pursuing increased liberalization, exception for measures ‘necessary’ to protect health’, dispute settlement – horizontal commitments made for other sectors • What effect might liberalization have on national health/wealth? – currently data free environment – even extent of ‘openness/liberalization’! – research required on impact of liberalization on: population health status, distribution of health services/status, economic factors (GDP, Bo. P etc) and how GATS compares with other agreements

Further References • See references for Seminar 6 • Smith RD. Foreign direct investment and trade in health services: a review of the literature. Social Science and Medicine, 2004; 59: 2313 -2323. • For future ref: – Blouin C, Drager N, Smith RD (eds). Trade in Health Services, developing countries and the GATS. Oxford University Press (in press). – Smith RD. Trade in Health Services: Current Challenges and Future Prospects of Globalisation. In: Jones AM (ed). Elgar Companion to Health Economics. Edward Elgar (in press).