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
• 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 cross-border flows
goods, services,
capital, people,
ideas, information

international
rules and
institutions

national economy and

health-related sectors

risk household health

factors economy services

HEALTH
 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
Cryptosporidiosis Salmonella
E.coli O157
E.coli non-O157
SARS BSE Typhoid
Malaria E.coli O157
nvCJD
Lyme Borreliosis West Nile Virus Diphtheria
West Nile SARS
Reston virus Fever Influenza (H5N1)
Lassa fever Echinococcosis
W135 Nipah Virus
Yellow fever
Cholera 0139 Reston Virus
Venezuelan Buruli ulcer RVF/VHF
O’nyong- Dengue
Equine Encephalitis Ebola haemhorrhagic
nyong fever
haemorrhagic fever
Dengue fever Human
haemhorrhagic Monkeypo
Cholera Cholera Equine
x Ross River
fever morbillivirus virus

Hendra virus
Economic impact, selected infectious disease
outbreaks, 1990–1999

USA—E. coli 0157 UK—BSE

Food recall/ US$ > 9 billion
destruction HONG KONG SAR
1990-1998
Periodic Influenza A (H5N1)
Poultry destruction, 1997
INDIA—Plague
US$ 1.7 billion,
1995
UR TANZANIA MALAYSIA—Nipah
PERU—Cholera
Cholera Pig destruction, 1999
Seafood
US$ 36 million
Export Barriers
1998
1991

World Health Organization

 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
 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
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:
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: Back Wall:

Market Access Exceptions
Commitments
GATS
(Services)
Front Wall:
General Side Wall:
Obligation National Treatment
s i g nty
e re Commitments
and v
h So GATS Council
DisciplinesHealt 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’
 S
T
Threshold Question:
A
R
Does GATS Apply?
T
Is the health-related service
Is the health-related service No supplied by a private actor
supplied by the government? pursuant to delegated
governmental authority?
Yes
Is the health-related service Yes
supplied on a commercial basis? No
Yes
No
Is the health-related service Yes GATS applies to measures
supplied in competition with of WTO members that affect
one or more service providers? trade in health-related services
No
GATS does not apply
 Structure of GATS:
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:
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 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
 specific commitments
Business
Telecommunication
Construction
Distribution
Environment
Finance
Education
Health & Social services
Culture & sport
Tourism/Courier

Cross-industrial commitment
Market access

Transportation
Others

1
National treatment

2
Scope of analysis

3
4
1
2
3
4
1-4 =
modes
 Status of GATS Commitments
(No. WTO Members by Sector)

100

50

0
 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
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)
Mode 1 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)
Mode 2 Partial 24 (13/11) 21 (15/6) 5 (1/4) 5 (2/3)
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)
Mode 3 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)
Mode 4 Partial 56 (16/40) 32 (17/15) 48 (14/34) 21 (2/19)
Unbound 6 (2/4) 2 (0/2) 4 (1/3) 1 (0/1)
Commitments – National Treatment
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)
Mode 1 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)
Mode 2 Partial 23 (13/10) 21 (15/6) 5 (1/4) 5 (2/3)
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)
Mode 3 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)
Mode 4 Partial 54 (17/37) 31 (17/14) 44 (14/30) 19 (2/17)
Unbound 5 (1/4) 2 (0/2) 5 (1/4) 2 (0/2)
 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).