Lecture 18: Globalization and Health

1. Lecture 18:Globalization and Health Richard Smith Reader in Health Economics School of Medicine, Health Policy & Practice Health Economics – SOCE3B11 – Autumn 04/05

2. 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

3. 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)

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

5. Aspects of Globalization thatmay 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

6. Emerging/re-emerging infectious diseases 1996 to 2003 W135 SARS E.coli O157 West Nile Fever Lyme Borreliosis Legionnaire’s Disease Multidrug resistant Salmonella Cryptosporidiosis E.coli O157 E.coli non-O157 Typhoid SARS BSE Malaria nvCJD Diphtheria West Nile Virus Reston virus Influenza (H5N1) Echinococcosis Lassa fever Nipah Virus Yellow fever Cholera 0139 Reston Virus RVF/VHF Venezuelan Equine Encephalitis Buruli ulcer Dengue haemhorrhagic fever O’nyong-nyong fever Ebola haemorrhagic fever Human Monkeypox Dengue haemhorrhagic fever Cholera Cholera Equine morbillivirus Ross River virus Hendra virus

8. Health and International Trade • Context: Effects of trade liberalisation on public health • Trade removal of impediments to liberalisation: 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

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

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

11. Specific Health Issues and most relevant WTO Agreements

13. 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

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

15. Trade Liberalization Preservation of the Right to Regulate Services Multilateral Framework Side Wall: Market Access Commitments Back Wall: Exceptions Front Wall: General Obligations and Disciplines Side Wall: National Treatment Commitments Health Sovereignty Floor: Dispute Settlement The House that GATS Built GATS (Services) GATS Council

16. 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

17. Countries (via MoT) 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’ The GATS Process

18. 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’ Key Aspects of GATS

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

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

21. 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)

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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 for foreign commercial presence also in management of health facilities and allied services, medical and paramedical education, IT and health care

28. 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)

29. 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

30. Mode 4:Movement of Health Professionals • Includes doctors, nurses, paramedics, midwives, consultants, trainers, management personnel • Factors driving cross border movements • wage differentials between countries • search for better working conditions/standards of living • search for greater exposure/training/qualifications • demand and 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

31. 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

32. 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

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

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

35. 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)

36. Commitments – Market Access

37. Commitments – National Treatment

38. 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)

39. 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, BoP etc) and how GATS compares with other agreements

40. 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).