Globalisation and Liberalisation of Healthcare Services: WTO and the General Agreement on Trade in Services - Issue Papers

Nadine Gassman, Coordinator, Analytical Process, Fuente de Emprador 28,
Tecamachalco, Estado de Mexico CP 53950, Mexico.
fax: 525-251 2518; email: gasmanna@netmex.com
PHA Secretariat, 250A Jalan Air Itam, 10460 Penang, Malaysia.
tel: 604-229 1396; fax: 604-228 6506;

www.sph.health.latrobe.edu.au/pha

A. Introduction
This paper, firstly, examines global health and healthcare services in the context of globalisation and liberalisation and the impact of the General Agreement on Trade in Services (GATS) on health and healthcare services.

Secondly, the paper critically analyses some empirical data on health and healthcare services in Malaysia and relate them to the changing environment.

Based on this analysis, the paper provides some conclusions and recommendations.

B. Globalisation, Health & Healthcare
Globalisation is a term not only widely used today but also widely interpreted. For some, globalisation means a very broad, almost all encompassing concept incorporating movement of persons, concepts, images, ideas, values, capital, traded goods and services across national borders. Others regard it in the more restricted sense of economic globalisation including the acceleration of global financial speculation, growth of world trade and the integration of the world economy within a neoliberal free-trade oriented framework.

In addition to these, there are widely varying views on the impact of globalisation on the quality of life of the people. Some see globalisation as inherently good and argue that globalisation is inevitable. Others see it as a threat to human development in much of the Third World, particularly in the least developed countries (LDCs).

Those who see globalisation as inherently good base their argument entirely on the concept of “level playing fields”. By this they mean that all nation states are equal in all respects and they compete on equal terms. This is the fallacy in their argument. Critics of globalisation have pleaded with international and national policy makers that:

Consumers are very concerned with some underlying threats of globalisation on health which have not been discussed very much in public forums. These threats include the following:

Globalisation can lead to:

The World Bank (WB), the International Monetary Fund (IMF) and the World Trade Organization (WTO) are the three agencies promoting globalisation. In the process of globalisation, national governments are losing their sovereignty; the World Health Organization (WHO) has lost its leadership role in health policies around the world. The WB and IMF have become the health leaders, especially for developing countries.

This change in leadership from health to finance has had an adverse impact on world health. The concepts of social justice and equity in healthcare services have almost disappeared.

Health Ministry officials in charge of health policy and planning, supported by the WHO, consider health as a cornerstone of economic growth and more importantly as the primary objective of economic growth. On the other hand, with the World Bank and the IMF taking over the leadership role in health, public health services and healthcare for all are now perceived as an obstacle, often the hardest obstacle, threatening public finance and the wealth of nations.

Member states of WB and IMF have been asked to reduce the public health budget on health. This seems to be the top priority of all governments. Public health budget is no longer seen as a productive investment for human development and economic growth but as unnecessary financial burden on governments which should be avoided. To enable developing countries get rid of this financial burden, the WB and IMF introduced the obnoxious structural adjustment programmes (SAPs). The main policies demanded by WB/IMF under the SAPs include the following:

Indebted countries, particularly those in sub-Saharan Africa were forced to introduce SAPs as a precondition for “soft loans” to these countries, which were in desperate need of the soft loans. But in the more advanced developing countries like Malaysia, the governments voluntarily introduced SAPs.

There is evidence that the introduction of SAPs is associated with accelerated development of economic stratification, inequities and significant reversals in the health and welfare of vulnerable groups.

The negative impact of globalisation on health has been discussed at several national, regional and international forums. One of the many conclusions reached during these events was the need for the WHO to take a leadership and active policy guiding role on world health and when necessary confront institutions such as the WTO on issues where health might be at stake.

The process of globalisation is most evident in the area of trade. The WTO multilateral trade agreements have been designed so that the world can be integrated into a system of global trade driven by Northern dominated commercial interests - the TNCs.

TNCs control 70 per cent of the world trade and 80 per cent of all land growing export crops. Yet these TNCs employ only three per cent of the world’s paid labour.1

One of the WTO multilateral agreements that will have a serious adverse impact on health is the General Agreement on Trade in Services (GATS).

C. General Agreement on Trade in Services

Introduction
The General Agreement on Trade in Services (GATS) negotiated during the six years of negotiations at the Uruguay Round (UR) include, among others, the following:

Liberalisation includes deregulation and privatisation which are being engineered by a variety of policy initiatives. For example in Malaysia, the different modes of privatisation take different forms as shown in table 1.

Table 1 – Different modes of privatisation of 68 projects in Malaysia

Mode of Privatisation	Acronyms	Percentage share of the total
Sale of equity	SOE	13
Build-operate-transfer	BOT	22
Sale of asset	SOA	24
Build-operate-own	BOO	10
Corporatisation	COR	9
Build-transfer	BT	7
Lease of asset	LOA	3
Management contract	MC	12

Source: Mid-Term Review of the Seventh Malaysian Malaysian Plan 1996-2000.

These policies are generally presented as technical and therefore neutral adjustments. There has been little or no public debate about the way in which privatisation of public services at national level is linked to the global trade expansion policies of the World Bank (WB), International Monetary Fund (IMF) and the World Trade Organization (WTO).

According to WTO, 160 service sectors are covered by GATS including telecommunication, construction, distribution, education, environment, finance, health, tourism, transport, postal, insurance, entertainment, recreation, culture and sports. Very few people realise that essentially social sectors, which are public goods such as health and education, are also included in GATS. (1)

The reason GATS has taken a central place in the WTO is due to the fact that profitability in the manufacturing industry has declined because of international competition. Therefore the US and European TNCs have turned to services as an alternate source of profit. In the US more than a third of the economic growth over the past five years has been because of service exports.(2) It is also relevant to note that for the US, the largest single export industry is not aircraft or automobiles but it is the entertainment industry – films and television programmes(3) - one of the 160 services liberalised by GATS.

The services sector accounts for two-thirds of the European Union’s total exports and half of all foreign direct investment (FDI) flowing from the Union to other parts of the world.4 The value of global exports of commercial services, according to WTO, was $1310 billion in 1997. This was 19.7 per cent of the global exports of goods and services that year. The industrialised countries controlled 70 per cent as table 2 shows:

Table 2 – Percentage share of world trade in services in 1997

Countries	Exports	Imports	Balance of Trade
Industrial	70.9	66.7	+4.2
Developing	23.2	26.3	-3.1
Others	5.9	7.0	-1.1

Source: Estimated from WTO Annual General Report, Geneva, 1998

Trade in services is, therefore, a stronghold of the industrialised countries. Hence liberalisation of market access offers enormous benefits to major traders particularly the G7. Developing countries, on the margins and sidelines of trade in services, are left out of the race.

In receipts of royalties and licence fees for services, US has no competitor with $30.3 billion received on that account in 1997. The other six countries of G7 together made a total of $18.3 billion with Japan leading with $7.3 billion. For the US, trade in services is of crucial importance because it has large deficits in merchandise trade.(1)
The World Bank has calculated that in developing countries alone, infrastructure development involving some private backing rose from US$15.6 billion in 1990 to $120 billion in 1997. Around 15 per cent were direct foreign investment in public schemes.(2)

The powerful industrial nations represented by the G7 are using GATS to expand the global trade in public services. This, they believe, is the road to economic growth and success. They are helping the powerful coalitions of TNCs to capture a lion’s share of gross domestic product governments are currently spending on services. The European Community has set up the European Network of Multinational industry representatives led by the Chairman of Barclays plc to advise “European Union Negotiators on the key barriers and countries on which they should focus”. (www.gats–info.eu.int).

In the US, the Coalition of Service Industries is calling for a majority foreign ownership to be allowed for all health facilities. The Coalition believes that it can make much progress in the negotiations to allow the opportunity for the US businesses to expand into foreign healthcare markets. Healthcare services in almost all countries in the world except in the US, have been the responsibility of the public sector. This public ownership of healthcare has made it difficult for the US private-sector health-providers to enter the market in these countries (www.uscsi.org)

US trade negotiators are of the view that commercial opportunities exist in the entire spectrum of healthcare services including hospitals, outdoor facilities, clinics, nursing homes, etc.

GATS has set the scenario for the major TNCs which include the pharmaceutical industry and health-maintenance organisation (HMOs) to capture the market in health services in developing countries, including Malaysia. The HMOs are of special concern to consumers in Malaysia and other developing countries. In mid 1990s, the HMOs were known as the “darlings of Wall Street”. However by 1997 the stock-market boom in HMOs had ended in the US.3 HMOs made profits of US $700 million in 1996; in 1998 they lost $768 million.4 One of the strategies the healthcare industry used to restore profitability was to capture markets abroad, particularly in Latin America, by acquiring publicly run facilities in these countries. This foreign-acquisition policy by the industry was supported by the US government, the World Bank and multilateral financial institutions such as the Inter-American Development Bank. These agencies have supported managed care initiatives that convert public healthcare institutions and social insurance funds to private management and private ownership or both.5

When HMOs enter developing countries, they target the public funding in these countries.
Multibillion-dollar social security or tax pools become effectively privatised when public healthcare is re-directed through private sector organisations. Malaysians beware!

TNCs want the services such as the health sector, which are traditionally provided by the public sector opened to market forces. The WTO and the World Bank have carefully orchestrated to create policies to ensure that these traditional areas of public provisions are opened to the TNCs. But the WTO has found that the opening of healthcare services to the private sector slow.(6)

When GATS was first introduced in 1995, only 27 per cent of WTO member states agreed to open hospital services to foreign suppliers. Some governments have resisted opening the hospital sector to market forces because they insisted that hospitals are part of their national heritage.7 As a result, even after five years of GATS, health sector in many countries has not been accessible to TNCs.

To enable TNCs enter into the health services of developing countries, WTO has in process three objectives:

Extension of GATS
During the Uruguay Round of negotiations, a built in provision to enable governments to safeguard health and social services from GATS treatment was put in place by defining them as government services.
Article 1.3 defined a government service as one “which is supplied neither on a commercial basis, nor in competition with one or more service suppliers”.

However, Article 19 of GATS opens a way to end the protection provided in Article 1.3. According to Article 19, “Members shall enter into successive rounds of negotiations with a view to achieving a progressively higher level of liberalisation”. In the context of continued negotiations towards achieving higher levels of liberalisation, it is relevant to note that although the WTO membership includes over 130 nation states, the TNCs that sit on all the important advisory committees decide detailed policy and set the agenda. WTO trade agreements have been described as a bill of rights for corporate business.(8),(9),(10)

To further end the protection offered by Article 1.3, WTO secretariat has argued that for health services to be classified under Article 1.3, they should be provided free. Many governments initially protected health services from GATS treatment by defining them in this way. But the WTO has counter-argued by highlighting certain inconsistencies. The hospital sector in many countries, WTO argues, is made up of government-owned and privately owned entities and both operate on a commercial basis charging the patient or his/her insurance for the treatment provided. Supplementary subsidies may be granted for social, regional and similar policy purposes. It is therefore unrealistic in such cases to argue for continued application of Article 1.3 and to maintain that no competitive relationship exists between the two groups of suppliers.11 In addition, Article 13 of GATS calls for the end of subsidies that distort trade and requires members to negotiate procedures to combat them.

According to WTO, it seems that wherever there is a mixture of public and private funding, such as user charges or private insurance, or there are subsidies for non-public infrastructure, such as public-private partnerships or competitive contracting for services, the service sector should be open to TNCs.
Healthcare in Malaysia is, therefore, vulnerable on several counts for penetration by TNCs.

Dispute settlement
The WTO uses dispute settlement to implement market access. These procedures enable strong WTO member states to force changes in the domestic laws of weak members and to impose retaliatory trade sanctions in areas totally unconnected with the disputed practice. Current proposals will enable TNCs to take legal action against governments that frustrate their foreign-investment aspirations. Dispute settlement is an important means of US influence and a vital weapon in its trade expansion. According to Ambassador Charlene Barshefsky, the leader of the US trade delegation to the aborted Seattle Ministerial Meeting, the US has demonstrated a record as the most aggressive user of WTO dispute resolution process.(12)

Dispute settlement is another term for attack on weak member states by the stronger ones leading to a loss of the formers’ sovereignty.

Changing government procurement rules
The WTO proposes to use a reformed government procurement agreement as a primary mechanism for opening public services to the private sector. Government procurement rules provide the legal and regulatory framework within which public bodies contract for goods, services and investment funds. This reformed procedure proposed by WTO opens up domestic services and markets to international competition.

The influential European Union reform proposals focus on “unlocking new potential markets” by extension of private firms’ involvement with public services and by creation of contracting rules to ensure acceptable return for investors.(13)

Impact of GATS on developing countries
GATS like all other WTO multilateral agreements, are a terse mixture of economics, business and law. The representatives of many developing countries have signed on the dotted lines of these mystical agreements without understanding much of their implications.

The inherent weakness of GATS is similar to those found in TRIPs and other WTO Multilateral Agreements. The weakness is its inability to deliver proportionate gains to developing countries in areas of trade in services although GATS has created a global space for multilateral trading rules in services. Services are an important factor in a country’s economy. It constitutes approximately 70 per cent of the GDP in industrialised countries and about 50 per cent in developing countries.

Most of the trade barriers imposed on services are opaque and not amenable to easy measurements. According to various modalities of service trade, trade barriers in case of trade in services are not effective. Hence most countries protect their services sector by non-tariff barriers. Such non-tariff barriers take the form of state monopolies, capital and labour market reservations, technical standards, administrative regulations, etc.

GATS had been negotiated and agreed upon with very limited information and empirical data available on trade in services. Unlike data on trade related to agriculture and industry, data on trade in services is not well organised and is not available to provide the necessary back up to the kind of intricate negotiations at the WTO. In the absence of solid data, the quality of negotiations in services is also seriously affected.

Almost all the negotiations on GATS have taken place on theoretical assumptions and without any valid data particularly from developing countries. Negotiators were groping in the dark. Negotiators from developing countries who were at the negotiating talks have made offers without ever knowing the impact of such offers on the various sectors and overall economic, social and cultural development.

Service providers from industrial countries have enormous economic strength. When they enter developing countries, they can force domestic service providers out of business by initially quoting very competitive prices which local firms cannot quote – service dumping. The service providers from industrialised countries can operate at a loss for a few years, drive small service providers out, get a monopoly and then fix prices.

Through GATS, the WTO is orchestrating an innovative privatisation bonanza. TNCs including pharmaceuticals, insurance and service sectors are waiting in a line to grab considerable portions of the GDP that governments spend on healthcare services. The long tradition of Malaysian and other Asian welfare states based on universal coverage through solidarity and community risk pooling and publicly accountable services is being gradually but surely dismantled. The two super powers – the US and the European Union – are aggressively backing the project in the interests of the TNCs based in these countries.

(1) WTO Annual Report, World Trade Organization, Geneva, 1998.

(2) Roger N Recent trends in private participation in infrastructure: public policy for the private sector, note no. 196. Washington, World Bank Group, 1999, 1-4.

(3) Lewit K, Cowan C, Braden Bet al. National health expenditures in 1997: more slow growth. Health Affairs 1998; 17:99-111.

(4) Kuttner, R. The American Health Care System, Wall Street & Healthcare. N Engl. J. Med., 1999, 340:664-668.

(5) Stocker K, Waitskin H, Iriart C. The exportation of managed care to Latin America, N. Engl. J. Med., 1999, 340:1131-36.

(6) WTO Secretariat, Health & Social Services: background note by the Secretariat S/C.1050, 18 Sept 1988 (98-3558).

(7) Ibid.

(8) Price D, Pollok AM & Shaoul J. How the World Trade Organization is shaping domestic policies in healthcare, The Lancet, 354, Nov. 27, 1999, 1889-1892.

(9) Balanya B, Doherty A, Hoedman O, Ma’anit A, Wesselius E. WTO millennium bud: TNC control over global trade policies. Corp Eur Observer, 1999; 4:3.

(10) Mishra R, Beyond the nation state: social policy in an age of globalisation. Soc Policy Admin, 1999; 31:481-500.

(11) WTO health and Social Services. Background note by the secretariat S/C/W/50, 18 Sept 1998 (98-3558)

(12) Office of the United States Trade Representative, op.cit.

(13) European Commission. Public procurement in the European Union: exploring the way forward. Green Paper, Brussels: European Commission, 1996.