Lecture 18:
Globalization and Health
Richard Smith
Reader in Health Economics
School of Medicine, Health Policy & Practice
Health Economics – SOCE3B11 – Autumn 04/05
Overview of lecture
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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
Multidrug resistant
Salmonella
Cryptosporidiosis
E.coli O157
SARS
BSE
E.coli non-O157
Typhoid
Malaria
E.coli O157
nvCJD
Lyme Borreliosis
Venezuelan
Equine Encephalitis
Dengue
haemhorrhagic
fever
West Nile Virus
Reston virus
Lassa fever
Yellow fever
Diphtheria
West Nile
SARS
Influenza (H5N1)
Fever
Echinococcosis
W135
Nipah Virus
Buruli ulcer
Ebola
haemorrhagic
fever
Cholera
Cholera 0139
RVF/VHF
O’nyongnyong fever
Reston Virus
Dengue
haemhorrhagic
fever
Human
Monkeypox
Cholera
Equine
morbillivirus
Ross River
virus
Hendra virus
Economic impact, selected infectious disease
outbreaks, 1990–1999
USA—E. coli 0157
Food recall/
destruction
Periodic
UK—BSE
US$ > 9 billion
1990-1998
HONG KONG SAR
Influenza A (H5N1)
Poultry destruction, 1997
INDIA—Plague
US$ 1.7 billion,
1995
PERU—Cholera
Seafood
Export Barriers
1991
UR TANZANIA
Cholera
US$ 36 million
1998
MALAYSIA—Nipah
Pig destruction, 1999
World Health Organization
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
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Infectious disease control
Food safety
Tobacco
Environment
Access to drugs
Food security
Emerging issues (biotechnology….)
Health services
WTO Agreements
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Goods: GATT
Technical barriers to trade: SPS, TBT
Intellectual property and trade : TRIPS
Services: GATS
Specific Health Issues and
most relevant WTO Agreements
WTO AGREEMENTS
HEALTH ISSUES
 Infectious Disease Control
 Food Safety
 Tobacco Control
 Environment
 Access to Drugs
 Health Services
 Food Security
Emerging Issues
 Biotechnology
 Information Technology
 Traditional Knowledge
SPS
TBT
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TRIPS GATS
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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)
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)
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
Side Wall:
National Treatment
Commitments
GATS Council
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 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’
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’
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Threshold Question:
Does GATS Apply?
Is the health-related service
supplied by the government?
No
Yes
Yes
Is the health-related service
supplied on a commercial basis?
Yes
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
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
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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 for 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
 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
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
4
1
2
3
4
Status of GATS Commitments
(No. WTO Members by Sector)
100
50
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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
Mode 1
Mode 2
Medical and
Midwives,
Hospital
Other Human
Dental Services
Nurses, etc.
Services
Health Services
Full
21 (4/17)
8 (2/6)
18 (0/18)
11 (0/11)
Partial
12 (1/11)
6 (1/5)
1 (0/1)
1 (0/1)
Unbound
29 (13/16)
20 (14/6)
35 (15/20)
10 (2/8)
Full
35 (5/30)
12 (2/10)
44 (14/30)
15 (0/15)
Partial
24 (13/11)
21 (15/6)
5 (1/4)
5 (2/3)
3 (0/3)
1 (0/1)
3 (0/3)
2 (0/2)
Full
29 (13/16)
7 (2/5)
18 (0/18)
12 (0/12)
Partial
26 (4/22)
25 (15/10)
31 (15/16)
9 (2/7)
Unbound
7 (2/5)
2 (0/2)
3 (0/3)
1 (0/1)
Full
0 (0/0)
0 (0/0)
0 (0/0)
0 (0/0)
56 (16/40)
32 (17/15)
48 (14/34)
21 (2/19)
6 (2/4)
2 (0/2)
4 (1/3)
1 (0/1)
Unbound
Mode 3
Mode 4
Partial
Unbound
Commitments – National Treatment
Mode 1
Mode 2
Medical and
Midwives,
Hospital
Other Human
Dental Services
Nurses, etc.
Services
Health Services
Full
24 (4/20)
9 (2/7)
21 (0/21)
12 (0/12)
Partial
10 (1/9)
6 (1/5)
1 (0/1)
1 (0/1)
Unbound
28 (13/15)
19 (14/5)
30 (15/15)
9 (2/7)
Full
34 (5/29)
12 (2/10)
44 (14/30)
15 (0/15)
Partial
23 (13/10)
21 (15/6)
5 (1/4)
5 (2/3)
5 (0/5)
1 (0/1)
3 (0/3)
2 (0/2)
Full
19 (1/18)
10 (2/8)
33 (13/20)
11 (0/11)
Partial
37 (16/21)
22 (15/7)
15 (2/13)
9 (2/7)
Unbound
6 (1/5)
2 (0/2)
4 (2/2)
2 (0/2)
Full
3 (0/3)
1 (0/1)
3 (0/3)
1 (0/2)
54 (17/37)
31 (17/14)
44 (14/30)
19 (2/17)
5 (1/4)
2 (0/2)
5 (1/4)
2 (0/2)
Unbound
Mode 3
Mode 4
Partial
Unbound
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, BoP 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).