Lecture 18:Lecture 18:

Globalization and HealthGlobalization and Health

Richard Smith

Reader in Health Economics

School of Medicine, Health Policy & Practice

Health Economics – SOCE3B11 – Autumn 04/05

Overview of lectureOverview 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’?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)

HEALTH

health services

riskfactors

household economy

national economy and health-related sectors

GlobalizationGlobalizationeconomic opening cross-border flows

international rules and

institutions

goods, services,capital, people,

ideas, information

Aspects of Globalization thatAspects of Globalization thatmay effect Healthmay 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

Cryptosporidiosis

Lyme BorreliosisReston virus

Venezuelan Equine Encephalitis

Dengue haemhorrhagic fever

Cholera

E.coli O157

West Nile Fever

Typhoid

Diphtheria

E.coli O157

EchinococcosisLassa feverYellow fever

Ebola haemorrhagic fever

O’nyong-nyong fever

Human Monkeypox

Cholera 0139

Dengue haemhorrhagic fever

Influenza (H5N1)

Cholera

RVF/VHF

nvCJD

Ross River virus

Equine morbillivirus

Hendra virus

BSE

Multidrug resistant Salmonella

E.coli non-O157

West Nile Virus

Malaria

Nipah Virus

Reston Virus

Legionnaire’s Disease

Buruli ulcer

SARS

W135

SARS

Emerging/re-emerging infectious Emerging/re-emerging infectious diseases 1996 to 2003diseases 1996 to 2003

World Health Organization

Economic impact, selected infectious disease Economic impact, selected infectious disease outbreaks, 1990outbreaks, 1990––19991999

UKUK——BSEBSEUS$ > 9 billionUS$ > 9 billion

19901990--19981998

UR TANZANIA Cholera

US$ 36 millionUS$ 36 million19981998

INDIAINDIA——PlaguePlagueUS$ 1.7 billion, US$ 1.7 billion,

19951995

PERUPERU——CholeraCholeraSeafood Seafood

Export BarriersExport Barriers19911991

MALAYSIAMALAYSIA——NipahNipahPig destruction, 1999Pig destruction, 1999

HONG KONG SARHONG KONG SARInfluenza A (H5N1) Influenza A (H5N1)

Poultry destruction, 1997Poultry destruction, 1997

USAUSA——E. coli 0157E. coli 0157Food recall/Food recall/destructiondestruction

PeriodicPeriodic

Health and International TradeHealth and International Trade

• Context: Effects of trade liberalisation on public health

• Trade removal of impediments toliberalisation: 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 IssuesSpecific Public Health Issues

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

WTO AgreementsWTO Agreements

• Goods: GATT

• Technical barriers to trade: SPS, TBT

• Intellectual property and trade : TRIPS

• Services: GATS

Specific Health Issues and Specific Health Issues and mostmost relevant WTO Agreements relevant WTO Agreements

WTO AGREEMENTS SPS TBT TRIPS GATS HEALTH ISSUES

Infectious Disease Control * * Food Safety * Tobacco Control * * * Environment * * Access to Drugs * Health Services * Food Security * Emerging Issues Biotechnology * * * Information Technology * Traditional Knowledge *

Trade in Health Services/GATS: Trade in Health Services/GATS: BackgroundBackground

• 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 General Agreement on Trade in Services (GATS)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 sovereigntyGATS is best of treaties – increase health (sovereignty)

The House that GATS Built

GATS(Services)

Trade Liberalization Preservation of the Right to Regulate Services Multilateral Framework

Front Wall:General

Obligations

andDisciplines

Side Wall:Market AccessCommitments

Side Wall:National Treatment

Commitments

Back Wall:Exceptions

Floor:Dispute Settlement

GATS Council

Health Sovereignty

GATS TimetableGATS 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’

Threshold Question: Does GATS Apply?

Is the health-related service supplied by the government?

Is the health-related service supplied on a commercial basis?

Is the health-related service supplied in competition with

one or more service providers?

Is the health-related servicesupplied by a private actor

pursuant to delegated governmental authority?

GATS applies to measures of WTO members that affect trade in health-related services

No

YesYes

No

No

Yes

GATS does not apply

No

Yes

START

Structure of GATS:Structure of GATS:Four ‘Modes of Supply’Four ‘Modes of Supply’

1. Cross border delivery (e-health)

2. Consumption abroad (movt. of patients)

3. Commercial presence (FDI hospitals)

4. Movement of personnel (doctors abroad)

Mode 1:Mode 1:Cross border delivery of servicesCross 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 OpportunitiesMode 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 RisksMode 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:Mode 2:Consumption abroadConsumption 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 OpportunitiesMode 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 RisksMode 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:Mode 3:Commercial presenceCommercial 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 OpportunitiesMode 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 RisksMode 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:Mode 4:Movement of Health ProfessionalsMovement 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 OpportunitiesMode 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 RisksMode 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

Scope of analysisScope of analysis sp

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Cross-industrial commitment

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National treatment

Market access

1-4 = modes

1122

3344

1122

3344

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

0

50

100

Commitments of WTO Commitments of WTO Members in Health ServicesMembers 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 AccessCommitments – Market Access Medical and

Dental Services

Midwives,

Nurses, etc.

Hospital

Services

Other Human

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)

Mode 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)

Mode 2

Unbound 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)

Mode 3

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)

Partial 56 (16/40) 32 (17/15) 48 (14/34) 21 (2/19)

Mode 4

Unbound 6 (2/4) 2 (0/2) 4 (1/3) 1 (0/1)

Commitments – National TreatmentCommitments – National Treatment Medical and

Dental Services

Midwives,

Nurses, etc.

Hospital

Services

Other Human

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)

Mode 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)

Mode 2

Unbound 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)

Mode 3

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)

Partial 54 (17/37) 31 (17/14) 44 (14/30) 19 (2/17)

Mode 4

Unbound 5 (1/4) 2 (0/2) 5 (1/4) 2 (0/2)

Summary of GATS CommitmentsSummary 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 QuestionsGATS – 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 ReferencesFurther 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).