Health services under the General Agreement on Trade Services · (education, telephone services),...

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Health services under the General Agreement on Trade Services 1 Rudolf Adlung 2 and Antonia Carzaniga 2 INTRODUCTION The concept of international trade in services is relatively new. Unlike the bulk of agricultural and industrial production, services have long been considered not to be tradable across borders or, more generally, over distance. The only significant exceptions have been services directly related to the exchange of goods (transport, insurance, etc.) and, more recently, to tourism. The generally low level of trade in services has been attributed to institutional, administrative and/or technical constraints, such as the existence of public monopolies (education, telephone services), strict access regulations and controls (finance, various professional services) and the need for direct physical contact between suppliers and consumers (as in health and other social services). However, in an increasing number of sectors such constraints have diminished or have even disappeared. The advent of new communication technologies, including the Internet, has helped to reduce distance-related barriers to trade. Governments have begun to reconsider their role in the provision of services, and this has presented new opportunities for private participation, both domestic and foreign. The entry into force of the General Agreement on Trade in Services (GATS) in 1995 confirmed the global trend towards the reorganization and restructuring of services. The Agreement was a milestone in the history of the multilateral trading system, comparable to its counterpart in merchandise trade, the General Agreement on Tariffs and Trade (GATT), which came into effect in 1948. GATS provides a system of predictable and legally enforceable conditions for services trade, and has a potentially positive impact on investment, efficiency and growth. Notwithstanding some public misperceptions, its hallmarks are pragmatism and 1 This paper was originally published in the Bulletin of the World Health Organization 2001;79(4):352- 364. It exclusively reflects the views of the authors and should not be associated with the Secretariat or Member governments of the World Trade Organization. It has been reproduced by permission of the World Health Organization. 2 Trade in Services Division, World Trade Organization, rue de Lausanne 154, CH-1211 Geneva 21, Switzerland. Correspondence should be addressed to Rudolf Adlung.

Transcript of Health services under the General Agreement on Trade Services · (education, telephone services),...

13Adlung and Carzaniga. Health services under GATS

Health services under the GeneralAgreement on Trade Services1

Rudolf Adlung2 and Antonia Carzaniga2

INTRODUCTION

The concept of international trade inservices is relatively new. Unlike thebulk of agricultural and industrialproduction, services have long beenconsidered not to be tradable acrossborders or, more generally, overdistance. The only significantexceptions have been services directlyrelated to the exchange of goods(transport, insurance, etc.) and, morerecently, to tourism. The generally lowlevel of trade in services has beenattributed to institutional, administrativeand/or technical constraints, such asthe existence of public monopolies(education, telephone services), strictaccess regulations and controls(finance, various professional services)and the need for direct physical contactbetween suppliers and consumers (asin health and other social services).However, in an increasing number ofsectors such constraints havediminished or have even disappeared.The advent of new communication

technologies, including the Internet,has helped to reduce distance-relatedbarriers to trade. Governments havebegun to reconsider their role in theprovision of services, and this haspresented new opportunities for privateparticipation, both domestic andforeign.

The entry into force of the GeneralAgreement on Trade in Services (GATS)in 1995 confirmed the global trendtowards the reorganization andrestructuring of services. TheAgreement was a milestone in thehistory of the multilateral tradingsystem, comparable to its counterpartin merchandise trade, the GeneralAgreement on Tariffs and Trade (GATT),which came into effect in 1948. GATSprovides a system of predictable andlegally enforceable conditions forservices trade, and has a potentiallypositive impact on investment,efficiency and growth. Notwithstandingsome public misperceptions, itshallmarks are pragmatism and

1 This paper was originally published in the Bulletin of the World Health Organization 2001;79(4):352-364. It exclusively reflects the views of the authors and should not be associated with the Secretariator Member governments of the World Trade Organization. It has been reproduced by permissionof the World Health Organization.2 Trade in Services Division, World Trade Organization, rue de Lausanne 154, CH-1211 Geneva21, Switzerland. Correspondence should be addressed to Rudolf Adlung.

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flexibility. Given the traditionalconsensus principle of the World TradeOrganization (WTO), this was the onlyconceivable approach to devising anAgreement involving some 140participants, including about 70developing and 30 least developedcountries. All WTO Agreements havebeen signed and ratified by allMembers, implying approval by theirnational parliaments in many cases.

Member countries have committedthemselves to the progressiveliberalization of services trade, inaccordance with GATS Article XIX:1,regardless of the launching of any morecomprehensive negotiations within theremit of WTO. A new services roundwas thus launched on 1 January 2000.It can be expected to promote furthermarket liberalization or at least totranslate into legally bindingobligations what has already beenachieved autonomously, and thusadvance or consolidate developmentsthat have been going on for years inmany countries.

The commitment to futurenegotiations is without precedent inGATT. Past trade discussions wereinitiated by large Members, usually theUSA, which felt that the time was ripeto advance liberalization, redefine rulesand close perceived loopholes in thesystem (1). The launch of negotiationsthus depended essentially on theexistence of a leader with politicalvision and economic power. The factthat GATS has institutionalized thisprocess may be attributed, at least inpart, to the exigencies of a broader-based and increasingly diversifiedtrading system. Its membership andits coverage in terms of sectors andmeasures have expanded over the pastdecades.

As the impact of liberalizing forcesvaries significantly among countries

and sectors, so do the accesscommitments currently listed underGATS. While over 90% of WTOMembers undertook some form ofcommitment on tourism services andabout 70% included financial ortelecommunication services in theirUruguay Round schedules, less than40% made commitments on educationand health.

Education and health services havetraditionally been subject to stronggovernment involvement in manycountries and this situation haschanged far less rapidly than the roleof governments in, for example,banking or telecommunications. Fromthe standpoint of individual healthministries and health-relatedassociations, the Uruguay Roundmight have been viewed as a threat,jeopardizing basic quality and socialobjectives, rather than as anopportunity for reform that wouldimprove efficiency. Initial reservationshave been compounded by a variety ofother factors: uncertainties stemmingfrom the novelty of the Agreement,widespread inexperience in concepts ofservices trade, and, in many countries,the absence of well-establishedcoordination between competentsectoral ministries and agencies on theone hand and the trade negotiators incharge of GATS on the other. However,problems of information andcoordination also existed in otherservice areas, which nevertheless drewfar more commitments than health oreducation. It may have been social anddistributional concerns that ledMembers not to volunteer or negotiatecommitments in these two areas.

However, many concernssurrounding GATS are unfounded. Forexample, the Agreement clearlydistinguishes between external accessliberalization and governments’ rights

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to regulate for quality purposes. It alsooffers an enormous degree of flexibility,allowing Members to continuepursuing basic policy objectives inliberalized sectors. Access commitmentscan even be made contingent on newentrants, such as hospitals anddoctors, contributing directly to theseobjectives. The present article isintended to explain such possibilities.We provide an overview of the basicstructure of GATS, patterns of currentaccess commitments under theAgreement, and limitations frequentlyused to qualify such commitments inhealth services. Finally, we discusspossible approaches to combiningtrade policy with sectoral policyobjectives and indicate issues that mayneed to be tackled in the currentround.

BASIC STRUCTURE OF GATS

GATS allows Member countries toassume legally-binding commitmentsconcerning their use or renunciationof trade-related measures in individualservice sectors. These commitmentsare laid down in country schedules,one for each Member. There is widescope to adjust schedules to domesticpolicy objectives and constraints. Forexample, GATS does not prescribe thenumber, level or sectoral pattern of acountry’s commitments and does notcompel Members, even in sectors theyinclude in schedules, to offerconditions that are more liberal thanthe prevailing trading conditions. Alarge majority of schedules have beenconfined to confirming the status quoor to guaranteeing only some form ofminimum trading rights below presentlevels. In some cases, moreover, itappears that commitments have onlyconceded what governments wereunable to control in any event, as withthe use of electronic media to interact

with services suppliers establishedabroad, such as doctors, lawyers orarchitects.

The scope and content of aschedule may be taken as a firstindication of a country’s basic policyorientation. Confidence in market-driven adjustment would normallytranslate into many relatively liberalcommitments, while preference foradministrative guidance or dislike offoreign influence would lead to fewerand more restrictive entries.Nevertheless, schedules need to beinterpreted with care. It could bemisleading, for example, to inferdirectly from the absence ofcommitments that there is an absenceof trading opportunities. There may bevarious reasons for individualMembers not to schedule sectors inwhich they nevertheless maintain fewbarriers to trade. These can includeunfamiliarity with the Agreement, lackof negotiating requests, and the desireto retain negotiating leverage for futuretrade rounds.

Schedules of service commitmentsare longer and more complex than tariffschedules in the area of goods. Asimple tariff schedule may consist onlyof two columns juxtaposing on thesame line a product classificationnumber and the corresponding tariffrate. In contrast, trading conditions forany scheduled service sector aredefined in at least three columns,covering product description and twotypes of commitment, and four lines.This arises because of the absence oftariffs in services, making it impossibleto use a single indicator to determinemarket entry, and because GATSinvolves a more comprehensivedefinition of trade. Reflecting the needin many service sectors for directphysical interaction between supplierand consumer, the range of

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transactions covered by GATS isparticularly broad. The Agreement notonly embraces the traditional conceptof cross-border trade in the form ofcountry A importing products fromabroad (mode 1; see Box 1), butextends to A’s residents consumingservices in foreign markets (mode 2),foreign suppliers establishing acommercial presence in A (mode 3),and people (designated legally as‘‘natural persons’’) moving into A forthe purpose of providing a service(mode 4).

Recent estimates, based on limitedempirical information, suggested thatmodes 1 and 3 each accounted forabout two-fifths of the world trade inservices, while mode 2 contributed one-fifth; mode 4 was found to beinsignificant. It would not be surprisingif the relevant shares for healthservices were of the same order,although mode 4 and, possibly, mode2 may be more important than in mostother sectors. In any event, given theexistence of many technical,institutional and economic barriers,the role of trade is likely to be morelimited in the health sector than theoverall share of services trade in worldproduction, which amounts to some 7–8% at present, as estimated on thebasis of 1998 data on world grossdomestic production and worldcommercial services exports and of arecent study by Karsenty (2).

For any sector included in itsservices schedule, a Member is held tospecify the commitments that it isprepared to undertake on marketaccess and national treatment. Themeaning and the legal implications ofthese commitments are indicated inArticles XVI and XVII of GATS (Box 1).Since they each apply to the fourmodes of supply, trading conditions areultimately defined in the form of eight

entries per sector. These may varywithin a spectrum whose opposingends are guaranteed market accessand/or national treatment withoutlimitations (full commitments) and thedenial of any such guarantees (nocommitments). While the relevantentry would be ‘‘none’’ in the formercase, the absence of commitmentswould be indicated as ‘‘unbound’’.

It would have been simpler, ofcourse, to provide for only one level ofcommitment per sector, governing atthe same time trading conditionsacross all four modes and, possibly,market access and national treatment.However, this would have meant thatthe most sensitive policy domaindetermines conditions for allconceivable forms of transaction. Incontrast, the structure of theAgreement allows a country that findsit impossible to commit itself undermode 4 (presence of foreign naturalpersons, e.g. physicians and nurses)to extend market access and nationaltreatment under mode 1 (e.g. cross-border imports of telehealth services),mode 2 (residents moving for medicaltreatment abroad) and/or mode 3(foreign inward investment inhospitals).

The nonscheduling of a sector or anoncommitment on a particular modedo not imply that the relevant policiesare beyond all GATS disciplines. Somebasic obligations — first and foremost,the most-favored-nation (MFN)principle — apply regardless of suchcircumstances. Any form ofdiscrimination between tradingpartners on grounds of nationality isprohibited. The only exemptions relateto mutual preferences betweenparticipants in economic integrationagreements, such as the EuropeanUnion or the North American FreeTrade Agreement, and to recognition

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Box 1. Scope and structure of commitments under GATS

Specific commitments on market access and national treatmentA WTO Member must specify, for each sector in its services schedule, two types of legal obligations concerning,respectively, market access and national treatment. The granting of market access implies that the Member mustrefrain from operating any of six types of restrictions enumerated in Article XVI of GATS. These are mostly quota-related barriers that may limit, for example, the number of service providers (hospitals, doctors, etc.) or operations(number of beds, practices, etc.). Also precluded under this Article is the use of economic needs tests, e.g. theconditioning of access approvals on pre-established indicators such as the number of hospital beds or practicesper head of population. It is irrelevant in this context whether such measures are nondiscriminatory (i.e. includenational suppliers) or not. Article XVII defines national treatment as the absence of any measures that modify theconditions of competition to the detriment of foreign services or service suppliers. Although the Article providesno further guidance, it is understood that a full commitment would prevent, for example, foreign-owned hospitalsfrom being excluded from subsidies or other benefits under domestic policy schemes. Denials of market accessand national treatment are not prohibited per se, but they must be listed in the schedule as limitations. Limitationsapplying to all scheduled sectors may be inscribed in a horizontal section to avoid repetition. Commitments may vary across regions (states, provinces, etc.) within a scheduling country, and their entry intoforce may be postponed to a later date— i.e. pre-commitments are made.

The concept of services trade: four modes of supplyGATS significantly extends the traditional concept of cross-border trade by distinguishing four modes of supply.For any sector included in a schedule, Members are held to specify the market access and national treatmentobligations with regard to each of these modes. Their definition is based on the territorial presence of supplierand consumer at the time a service is provided: both parties may reside in different territories (mode 1), theconsumer may have moved abroad into the supplier’s country (mode 2), the supplier may have established abranch, subsidiary, etc. in the consumer’s territory (mode 3), or, in the case of natural persons, the supplier maybe physically present (mode 4). A typical example for mode 1 trade, from the scheduling (‘‘importing’’) country’sperspective, is that of foreign medical specialists sending advice, e.g. via the Internet, to domestic doctors orhospitals. In contrast, under mode 2, residents travel abroad to obtain treatment in a foreign clinic or practice.Modes 3 and 4 would apply, respectively, to foreign investments in a country’s hospital sector and the presenceof foreign medical staff in these hospitals. The borderline between modes is not always clear. For example, the definition of mode 2 under the Agreementdoes not explicitly require the consumer to move abroad physically, and the question has therefore arisen as towhether certain transactions carried out electronically would also fall under this mode. Not all modes of supply are equally relevant in all sectors. For instance, while it is relatively easy to conceive ofmedical advice being provided via all four modes, the supply of nursing services does not seem to be possibleunder mode 1. Some Members have nevertheless inscribed a full commitment in such cases. Others havescheduled ‘‘unbound’’, adding in many instances that such supplies are not considered to be technically feasible.It could thus be misleading to associate the absence of commitments with restrictive policy intentions.

Rules governing domestic regulation, other provisions and exemptionsMembers are free to pursue domestic policies in areas such as internal standards, licensing and qualifications toensure the quality of a service. For example, private hospitals may be required to train more staff than needed fortheir own purposes, reserve a specified number of beds for needy patients, or operate emergency services inremote areas. To the extent that such requirements do not focus on, or otherwise discriminate against, foreignsuppliers, they do not fall under Articles XVI and XVII and must not be scheduled. Members are allowed to downgrade specific commitments through the modification of schedules. However,such modification must be negotiated, possibly against compensation, with affected trading partners. In addition,GATS makes provision for the temporary suspension of commitments in the event of balance of payments problems.A general exception clause exempts Members from any obligations where this is required by overriding reasonsof policy (protection of life and health, etc.). These provisions have not been invoked to date. GATS applies only to measures that (i) are taken by governments, at whatever level, or government-mandatedbodies, and (ii) impinge on the supply of services through any of the four modes. It might thus prove impossibleto prevent private operators from discriminating against foreign suppliers (e.g. health insurers vis-a-vis foreignhospitals) or to successfully challenge export-related measures (e.g. incentives to attract foreign patients) ifthese have no discriminatory effects in sectors and modes subject to specific commitments.

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measures in the areas of licensing,certification and technical standards.Thus, while a WTO Member mayprohibit all trade in a noncommittedsector or mode, it must, as a rule,operate this prohibition on an MFNbasis, i.e. vis-a-vis all its tradingpartners. Exemptions from MFNtreatment could have been sought, fora period not exceeding 10 years inprinciple, at the date of entry into forceof the Agreement or, for new WTOMembers, at the date of accession. Anylater exemption would be subject torelatively onerous proceduralconstraints, and there have been nosuch cases to date.

The MFN obligation is a powerfulguarantee, in particular for small andless economically developed Members,allowing them to participateautomatically in any liberalization thatMembers with more negotiatingleverage may be able to achieve. Thereis thus less risk of economically weakercountries being sidelined by dealsstruck between larger participants. Aproblem for these countries is theirlack of influence on the sectoral patternand modal focus of such deals. Thisproblem may also arise in rounds oftrade negotiations. Thus it has beenargued that the export interests of largeOECD industries, including banks,insurance companies and tele-communications operators, providedmost of the negotiating momentumthat helped to bring the UruguayRound to a successful conclusion andto shape current commitments inservices. This does not imply, however,that the negotiating process was biasedagainst smaller and weakerparticipants. On the contrary, manydeveloping countries saw and seizedthe opportunity in these negotiationsto bind their trading conditions, inparticular for mode 3, and thus to

create more predictable andeconomically attractive conditions forforeign investment in infra-structurallyimportant areas. Nevertheless, thequestion arises as to whether there areother sectors and modes, possiblyincluding trade in health servicesunder modes 2 and 4, wheredeveloping countries have activecommercial interests and could not relyon large Members giving direction. Thenew round may be viewed as achallenge for these countries, i.e. thevast majority of the WTO membership,to define their interests more clearlyand pursue them with vigor.

It has been argued that theexistence of commitments under GATScould impinge on the ability ofgovernments to regulate the servicesconcerned. This reflects a profoundmisunderstanding. The Agreementmakes a clear distinction betweenexternal liberalization, coveredessentially by Articles XVI and XVII,and internal regulation for quality andsimilar purposes. However, the GATSrules on regulation, laid down in ArticleVI, are still rudimentary. The onlyexception is the accountancy sector,for which Members agreed on a set ofregulatory disciplines in 1998. One ofthe core elements is a necessity test,which essentially requires thattechnical standards as well as licensingand qualification requirements andprocedures be no more restrictive ontrade than is necessary to fulfill alegitimate objective. Accordingly, underthe accountancy disciplines it wouldbe inadmissible for a Member that hasscheduled commitments in this sectorto make participation in a professionalexamination conditional on theapplicant being resident or to chargefees not related to cost. However, thereis nothing in these disciplines thatwould constrain the right of

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governments to determine thelegitimate quality objectives withintheir jurisdiction. The Agreementmerely contains an illustrative list ofsuch objectives, including theprotection of consumers and theintegrity of the profession. Work isunder way with a view to extendingsuch disciplines to other sectors. It isdifficult to anticipate their precisecontent but it is clear that the ensuingdisciplines would not affect the rightof Members to regulate.

Moreover, a general exceptionclause in Article XIV allows Membersto depart from any obligation under theAgreement if this is necessary toprotect human, animal or plant life orhealth, subject to the proviso that therebe no arbitrary or unjustifieddiscrimination or disguised restrictionon trade. The clause might providelegal cover, for example, for aprohibition on over-the-counter salesof potent pharmaceuticals or for travelbans in the event of epidemics. As ageneral rule, however, protection fromsubstandard medical services andservice providers does not depend onthis exception but can be ensuredunder normal GATS provisions, i.e.Article VI.

However, there is one wholesaleexemption. Pursuant to Article I:3, theAgreement does not apply to servicesprovided in the exercise ofgovernmental authority. The relevantdefinition of such services rests on twoelements: they must be providedneither on a commercial basis nor incompetition with one or moresuppliers. Typical examples include fireprotection or police services, and themonetary operations of central banks.Article I:3 may prove equally relevantin the health and education sectors;free treatment in a country’s publichospitals or free education in public

schools and universities are cases inpoint. Whatever a country’s accessbarriers in such areas, they could notbe challenged under GATS or drawrequests for liberalization in futuretrade rounds. This implies that theprivatization or commercialization ofservices previously falling under ArticleI:3 would automatically extend theapplication of the Agreement to theseservices. The MFN principle and somerelatively soft administrative andinstitutional obligations, including atransparency requirement, would thenapply. The mere coexistence ofgovernmental and private services inthe same sector would be of norelevance in this context. It would beabsurd to believe, for example, that theavailability of private medical or privatesecurity services in a country wouldrequire the government tocommercialize its public hospitals orpolice.

CURRENT PATTERNS OF ACCESS

COMMITMENTS

The number of sectors committed byindividual WTO Members tends to bepositively related to their level ofeconomic development. Developedcountries apparently found it easier,or more economically beneficial, thanthe majority of developing countries tosubmit relatively extensive schedules.The commitments of one-third of WTOMembers, all developing and leastdeveloped countries, were confined to20 or fewer of the approximately 160services sectors defined during theUruguay Round. Another one-thirdscheduled between 21 and 60 sectors,and the remaining third included upto about 130 sectors. However, thecomposition of the latter group is notuniform: it not only comprises virtuallyall OECD Members but also several

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developing and transitional economiesand even a few least developedcountries (the Gambia, Lesotho, andSierra Leone).

The country pattern of commit-ments in health services is even morediffuse. One member, Canada, has notundertaken commitments in any of thefour relevant subsectors (medical anddental services; services provided bymidwives, nurses, physiotherapistsand paramedical personnel; hospitalservices; and other human healthservices such as ambulance servicesand residential health facility services),while Japan and the USA havescheduled only one (Table 1). Thiscontrasts with least developedcountries such as Burundi, theGambia, Lesotho, Malawi, SierraLeone, and Zambia, which haveincluded at least three subsectors.Estonia, Georgia, Jordan, the KyrgyzRepublic, and Latvia, which recentlyjoined WTO, also undertook relativelyextensive commitments. Nevertheless,no service sect or other than that ofeducation has drawn fewer bindingsamong WTO Members than the healthsector (3).

Of the four subsectors, medical anddental services are the most heavilycommitted (54 Members), followed byhospital services (44 Members) andservices provided by nurses, midwives,etc. (29 Members). Overall, this patternsuggests that it is politically easier ormore economically attractive foradministrations to liberalize capital-intensive and skills-intensive sectorsthan labor-intensive activities (Table 2).

What factors could explain thegenerally shallow level of commitmentson health services? The most obviousreason is the existence of governmentmonopolies, in law or in fact, offeringservices free or significantly below cost.

There seems to be no point in assumingexternal policy bindings, at least undermode 3 (commercial presence), ifprivate activities are either prohibitedor rendered commercially unattractive.However, total monopoly situations arelikely to be rare. In many countrieswith a public health sector there arealso private suppliers. The mere factthat commercial providers are able tosurvive economically suggests that thepublic and the private segments do notcompete directly, which means thatthey do not provide the same services.For example, there may be differencesin waiting periods, quality ofequipment, or types of treatmentoffered. With this in view, five WTOMembers (Latvia, Malaysia, Mexico,Poland, and Slovenia) confined theircommitments to various parts of theprivate health sector. Nevertheless,given prevailing policy patterns inmany countries, the potential for mode3 trade, and consequently formeaningful commitments, may havebeen lower in health services than inmany other areas.

Requests for liberalization, orliberal policy bindings, in the UruguayRound might also have been weak inthis sector. In the absence of vocalexport interests, many governmentsmight have hesitated to request accesscommitments abroad and toreciprocate by way of their ownbindings on health services. There wereapparently no pace setters in thesenegotiations comparable to the roleplayed, owing to strong exportinterests, by the USA, the EuropeanUnion and other OECD countries inareas such as telecommunications andfinancial services. Moreover, as notedabove, many administrations mighthave been concerned, rightly orwrongly, about the potential impact ofaccess liberalization on basic social

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No commitments: Argentina, Aruba, Bahrain, Brazil, Canada, Chile, Colombia, Cuba, Cyprus, Egypt, Gabon, Ghana, Guinea, Haiti,Honduras, Hong Kong (China), Iceland, Indonesia, Israel, Kenya, Liechtenstein, Macao (China), Malta, Mauritius, Morocco, NewZealand, Nicaragua, Nigeria, Paraguay, Peru, Philippines, Republic of Korea, Romania, Solomon Islands, Sri Lanka, Thailand, Tunisia,United Arab Emirates, Venezuela.

EU Member States are counted individually.

In addition to the sectors included above, the definition of medical and health services employed by most WTO Members for schedulingpurposes also includes veterinary services and a nonspecified category of other health-related and social services.

a Least developed countries.

Table 1. Specific commitments of WTO Members on individual health services, July 2000(countries and areas listed according to WTO designations)

,

.

Medical Other Medical Otherand Nurses, human and Nurses, human

dental midwives, Hospital health dental midwives, Hospital healthservices etc. services services services etc services services

Antigua and Barbuda X Kyrgyz Republic X X X XAustralia X X Latvia X X X

Austria X X X X Lesothoa X X X

Barbados X Malawia X X XBelize X X Malaysia X X XBolivia X Mexico X X XBotswana X X Norway X XBrunei Darussalam X Pakistan X XBulgaria X Panama X

Burundia X X X Poland X X X

Congo DRa X Qatar X

Costa Rica X X Rwandaa XCzech Republic X Saint Lucia X

Dominican Republic X X XSaint Vincent and the GGGrenadines X X

Ecuador X Senegal X

EU(12) X X X Sierra Leonea X X XEstonia X X X Slovak Republic X XFinland X Slovenia X X

Gambiaa X X X X South Africa X XGeorgia X X X Swaziland X XGuyana X Sweden X XHungary X X X Switzerland XIndia X Trinidad and Tobago X XJamaica X X X Turkey XJapan X USA XJordan X X X X Zambiaa X X X XKuwait X X Total 54 29 44 17

Members Members

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and quality objectives. The commit-ments ultimately made for mode 3,possibly the most significant mode formany health services, have possiblybeen inspired by the intention toovercome shortages of physical andhuman capital, and to promote

Table 2. Numbers of WTO Members with commitments on medical, hospital andother health services, July 2000. The 4 modes are defined in Box 1, p. 17, para. 2.

EU Member States are counted individually.

Partial commitments on market access include commitments that carry any of the six limitations specified in Article XVI:2 of GATS aswell as commitments subject to limitations in sectoral coverage (e.g. exclusions of small hospitals or public sector entities) orgeographical coverage within the Member's territory, and any other measures scheduled in the relevant column (including domesticregulatory measures for which Article VI might have provided legal cover). Similarly, partial commitments recorded under nationaltreatment may include cases of overscheduling or misinterpretations.a Figures in parentheses are the reduced number of full commitments if horizontal limitations, which apply to all sectors contained inthe individual country schedules, are taken into account.

efficiency through foreign directinvestment and the attendant suppliesof skills and expertise.

A comparison accross all schedulesand sectors reveals that tradingconditions are considerably morerestrictive for mode 4 than for other

Medical and dental

services

Nurses, midwives,

etc.Hospital services

Other human health

services

Total of 54 29 44 17

Market access

Full 16 (-2)a 8 (-1) 15 8Partial 11 4 0 2Unbound 27 17 29 7

Full 28 (-3) 10 (-1) 38 10Partial 24 19 4 6Unbound 2 0 2 1

Full 15 (-7) 6 (-2) 16 (-7) 10 (-4)Partial 33 22 26 7Unbound 6 1 2 0

Full 0 0 0 0Partial 49 28 41 12Unbound 5 1 3 0

National treatmentFull 19 8 (-1) 18 (-2) 10 (-2)Partial 9 4 0 1Unbound 26 17 26 6

Full 28 (-2) 10 (-1) 38 (-3) 11 (-3)Partial 22 19 4 5Unbound 4 0 2 1

Full 18 (-1) 9 (-1) 31 (-25) 9 (-6)Partial 31 19 10 7Unbound 5 1 3 1

Full 1 0 2 (-1) 0Partial 49 28 39 17Unbound 4 1 3 0

Mode 1

Mode 2

Mode 3

Mode 4

Model 1

Mode 2

Mode 3

Mode 4

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modes. Reflecting the politicalconstraints involved, many Membershave limited the entry of naturalpersons to intracorporate transfers orto experts with special skills that arenot domestically available. Thiscontrasts with the conditions for mode2 (consumption abroad), which tend tobe the most liberal. In many cases,governments may have felt that itwould be pointless to try influencingdemand patterns once consumers hadleft the countries concerned.Nevertheless, such possibilities mayexist. Cases in point include theexclusion of health treatment abroadfrom domestic consumer subsidies orpublic reimbursement schemes. Mode2 trade may prove economicallysignificant in sectors such as educationand health, where consumermovements can be viewed as a partialsubstitute for the movement ofpersonnel under mode 4 and inwarddirect investment under mode 3.Economically advanced developingcountries in the vicinity of majorexport markets, e.g. Mexico, Morocco,and Tunisia, appear to be particularlywell placed for developing such trade,i.e. for attracting foreign patients forlonger-term health treatment.

Commitments on individual healthservices largely follow this generalpattern. The highest share of fullmarket access commitments isrecorded for mode 2 (consumptionabroad); it reaches 85% in the hospitalsector. From the standpoint ofdeveloping countries, which may becompetitive suppliers in this area, it isinteresting that virtually all relevantcommitments scheduled by developedMembers are without limitation (Table3; see mode 2, hospital services), thusamounting to a legally enforceableguarantee not to deter their residentsfrom consuming abroad. In other

subsectors, however, developedcountries have tended to uselimitations on modes 2 and 3 morefrequently than developing countries(Table 4). Concerning mode 4, no WTOMember has undertaken full commit-ments in any of the four healthsubsectors. As in virtually all otherservices, commitments for this modeare subject to limitations and these aregenerally highly restrictive.

The high percentage of non-bindings for mode 1 in some corehealth sectors, namely 50% for medicaland dental services, 60% and more fornursing and similar services, and 65%for hospital services, may reflect theperception that cross-border provisionof these services is not technicallypossible. Some schedules containfootnotes explaining that a non-commitment under mode 1, inparticular for hospital services, isattributable to the unfeasibility of suchsupplies (Box 1). The question arises,however, as to whether theadministrations involved haveconsidered all conceivable possibilitiesof combining traditional health serviceswith modern communication technologies(Box 2). Telehealth is a case in point. Ifapplied to inpatients, the electronicprovision of medical advice acrossborders could actually be classified asa hospital service, an interpretation notnecessarily anticipated by all Membersat the time of scheduling. From thelegal standpoint this should not be amatter of concern: new technologieswould not turn a non-commitment,even if attributed to technicalconstraints, into a binding accessobligation.

Commitments do not have thesame importance across all sectors andmodes. Their economic value may behigh in certain cases, e.g. midwiferyservices/mode 4, but not in others, e.g.

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Table 3. Numbers of WTO developed Members with specific commitments onhealth services, July 2000. The 4 modes are defined in Box 1, p. 17, para. 2.

EU Member States are counted individually.

a Figures in parentheses are the reduced number of full commitments if horizontal limitations are takeninto account.

Medical and dental

services

Nurses, midwives,

etc.Hospital services

Other human health

services

Total (out of 21 schedules) 18 17 15 2

Market accessFull 4 (-1)a 2 (-1) 0 0Partial 1 1 0 0Unbound 13 14 15 2

Full 5 (-1) 2 (-1) 14 0Partial 13 15 1 2Unbound 0 0 0 0

Full 2 (-2) 2 (-2) 0 0Partial 14 15 15 2Unbound 2 0 0 0

Full 0 0 0 0Partial 16 17 14 2Unbound 2 0 1 0

National treatmentFull 4 2 0 0Partial 1 1 0 0Unbound 13 14 15 2

Full 5 2 14 0Partial 13 15 1 2Unbound 0 0 0 0

Full 1 2 13 (-13) 0Partial 16 15 2 2Unbound 1 0 0 0

Full 0 0 0 0Partial 17 17 14 2Unbound 1 0 1 0

Mode 1

Mode 2

Mode 3

Mode 4

Mode 1

Mode 2

Mode 3

Mode 4

25Adlung and Carzaniga. Health services under GATS

Table 4. Numbers of WTO developing Members with specific commitments onhealth services, July 2000. The 4 modes are defined in Box 1, p. 17, para. 2.

Includes Central and Eastern European transition economies.

a The figures in parentheses are the reduced number of full commitments if horizontal limitations aretaken into account.

Medical and dental

services

Nurses, midwives,

etc.Hospital services

Other human health

services

Total (out of 44 schedules) 36 12 29 15

Market accessFull 12 (-1)a 6 15 8Partial 10 3 0 2Unbound 14 3 14 5

Full 23 (-2) 8 24 10Partial 11 4 3 4Unbound 2 0 2 1

Full 13 (-5) 4 16 (-7) 10 (-4)Partial 19 7 11 5Unbound 4 1 2 0

Full 0 0 0 0Partial 33 11 25 15Unbound 3 1 4 0

National treatmentFull 15 6 (-1) 18 (-2) 10 (-2)

Mode 1 Partial 8 3 0 1Unbound 13 3 11 4

Full 23 (-2) 8 (-1) 24 (-3) 11 (-3)Mode 2 Partial 9 4 3 3

Unbound 4 0 2 1

Full 17 (-1) 7 (-1) 18 (-12) 9 (-6)Mode 3 Partial 15 4 8 5

Unbound 4 1 3 1

Full 1 0 2 (-1) 0Mode 4 Partial 32 11 25 15

Unbound 3 1 2 0

Mode 1

Mode 2

Mode 3

Mode 4

26 TRADE IN HEALTH SERVICES

midwifery services/mode 1. Likewise,the restrictiveness of similarlimitations, e.g. discriminatorysubsidies, nationality requirementsand land ownership restrictions, canvary widely between sectors.Uncertainties may remain with regardto the measures scheduled inindividual cases. For example,licensing requirements for doctors orhospitals, contained in a number ofschedules, may be operated for eitherquality purposes or for the adminis-

Box 2. Electronic commerce in the health sector: the relevance of GATS

The concept of technological neutralityAs a general rule the introduction of new transport or transmission technologies does not affect WTO Members’rights and obligations under GATT and GATS. For example, there would be no legal basis in GATT, and noreasonable health-related or trade-related justification, for subjecting pharmaceuticals ordered electronically toborder treatment different from that of the same consignments ordered via regular mail. Border treatment mayinclude the examination of content, product verification, tariff collection or the seizure or refusal of hazardousproducts. Similarly, GATS ensures in principle that cross-border trade in services is not affected by the transmissionprocesses employed. For example, except for reasons falling under Article XIV (protection of life and health,etc.), countries would find it difficult under GATS to explain why medical advice provided electronically fromabroad is not subject to the same rules as advice conveyed by mail. The underlying concept of technologicalneutrality in the treatment of like services applies both to scheduled and non-scheduled sectors, as departuresare likely to fall foul of the basic MFN obligation.

Application of domestic regulation to electronic suppliesThe provision of telehealth services under mode 1 may raise challenging new issues for health administrations.Imagine a foreign supplier that is significantly less qualified or subject to less rigorous controls than domesticallyestablished operators. Could the ensuing risks be contained in the same way as risks associated with the use offoreign-produced pharmaceuticals? Possibly not, as there is one important difference: a foreign country’s controlover its domestic pharmaceutical industry, in application of producer-related and product-related regulations,may be complemented by the importing country’s own procedures for the testing and approval of products. Suchpossibilities do not exist for services that are not standardized and whose quality cannot normally be assessedindependently of the production process. However, such process assessment is beyond the importing country’sjurisdictional control.

Yet this does not mean that no adequate instruments are available. Possible solutions could consist, for example,of a requirement on domestically established hospitals or doctors to cooperate only with foreign telehealth providersthat have been certified by the governments concerned and/or are insured against malpractice with aninternationally recognized company. Additional provisions may help to clarify the place of jurisdiction in the eventof disputes. Governments in countries operating public health insurance schemes may also make paymentscontingent on the qualification of the foreign subsuppliers involved. These possibilities also exist for residentsseeking reimbursement for health services consumed abroad.

Further considerationsThe implications of electronic commerce for the health sector are multifaceted and extend beyond the scope ofGATT and GATS. They include issues related to the security and privacy of transactions and to contract andliability law (4).)

tration of restrictions on access. In theformer case, scheduling is notnecessary, as quality-related measuresdo not fall under either the marketaccess provisions of Article XVI or thenational treatment obligations ofArticle XVII (Box 1). In contrast, ifquantitative restrictions were involvedit would be better to schedule size, timeframe and other relevant featuresrather than the existence of animplementation mechanism.

27Adlung and Carzaniga. Health services under GATS

LIMITATIONS ON TRADE IN HEALTH

SERVICES

In order to obtain a full picture of thelimitations made by individualMembers it is necessary to examineboth the horizontal and the sector-specific parts of schedules. Horizontallimitations, which apply across allcommitted sectors (Box 1), typicallyreflect economy-wide policy concernsand objectives. These may includeforeign exchange restrictions,restrictions on the physical presenceof foreign suppliers, foreign equityceilings, restrictions on the legal formof establishment (e.g. joint venturesonly), exclusion of foreign-ownedentities from certain subsidies andincentives, or limitations on theacquisition of land or real estate. Therelationship between horizontal andsector-specific commitments is notstraightforward in all cases, however,and there may be conflicting entriesin the two sections. For the purpose ofthis study the more restrictive or morespecific version has been taken intoaccount.

The relatively few limitationsapplying to health services undermodes 1 and 2 (cross-border trade andconsumption abroad in health services)are predominantly sector-specific. Inthe main, they concern the non-portability of insurance entitlements

The restrictive effects associatedwith such limitations may be matchedby other barriers that are notnecessarily recorded in schedules.They include the nonrecognition offoreign licences, qualifications orstandards. For example, public healthinsurers may refuse to reimburse thecost of treatment abroad on thegrounds that the services involvedhave been of lower quality than thoseoffered domestically. It could provedifficult to challenge such practicesunder GATS. Similar measuresemployed by private commercialinsurers would not even fall under theAgreement. While Article VII entitlesMembers to enter into recognitionagreements or grant recognitionautonomously, notwithstanding thepotential tension with the MFNobligation, they are under noobligation to develop a liberal approachin this regard. Under the relevantprovisions of Article VII:3, govern-ments are merely required, once theygrant recognition, not to do this in amanner that would constitute a meansof discrimination or a disguised

(Table 5). Horizontal limitations—i.e.those applying to all scheduled sectorsthat may prove relevant for healthservices—include the non-eligibility offoreign suppliers for subsidies, andrestrictions on foreign exchangeavailability.

Members Sectors

Bulgaria Medical and dental services

Latvia and PolandMedical and dental services; services provided by nnnurses, midwives, etc.; hospital services

Slovenia and USA Hospital services

a All limitations relate to mode 2 trade, except in the case of Poland, which has also included mode 1 supplies of medical and dental services and the services provided by nurses, midwives, etc.

Table 5. Limitationsa on insurance portability

28 TRADE IN HEALTH SERVICES

restriction on trade in services. By endof July 2000, WTO had received 30notifications of recognition measuresunder Article VII:4. Of thesenotifications, 13 pertained to healthservices inter alia; they were submittedby Macao (China) and several LatinAmerican countries and concerned therecognition of diplomas.

As noted above, mode 3(commercial presence) and, inparticular, mode 4 (presence of naturalpersons) have drawn the highest shareof partial or limited commitments.Most of the limitations scheduled formode 4 are horizontal, while relativelymany of those for mode 3 are sector-specific. In limiting their mode 3commitments to natural persons, somecountries, most of them developed,have reserved the right to restrict thecommercial incorporation of foreignhealth care providers. Frequent marketaccess limitations scheduled undermode 4 concern quantitative restrictions,mainly setting a ceiling on numbers offoreign employees or denying access toall persons not considered to bespecialist doctors, etc. Typical nationaltreatment limitations under mode 4relate to training and languagerequirements.

Economic needs tests (ENTs) havealso been frequently referred to undermode 3 and mode 4, mostly for hospitalservices but also for medical and dentalservices. There are few cases whereMembers have indicated the relevantcriteria underlying such tests, forexample population density, agestructure, death rates and the numberof existing facilities. However, arecommendation in the guidelinesdeveloped for scheduling purposes inthe Uruguay Round calls on Membersto indicate the main criteria on whichENTs are based. For example, if theauthority to establish a facility is based

on a population criterion, the criterionshould be described concisely.Unspecified ENTs have been used inparticular by economically advancedcountries. Given their potential fordiscretionary application, such entriesmay come close to a situation in whichno commitment exists.

Also of dubious value are therelatively large number of mode 4commitments that are limited totrainees or intracorporate transferees.Their significance depends essentiallyon the ability of a foreign supplier toestablish a commercial presence undermode 3. However, this tends to be moredifficult for exporters of medicalpersonnel in developing countries thanfor those in developed countries, givencurrent investment patterns, and couldprove elusive in those large segmentsof the health sector where privateentrepreneurial activity is either notadmitted or commercially unattractive.

Restrictions on foreign equityparticipation and on permissible typesof legal incorporation have beenscheduled as market accesslimitations (Article XVI) for mode 3 ina few cases. Such restrictions may beintended to encourage transfers oftechnology, skills and expertise; theyare mostly contained in the horizontalsection of the schedules concerned.Some Members have also madehorizontal national treatmentlimitations reserving the right torequire foreign-owned facilities to trainnationals. Other horizontal limitationsunder the relevant provisions of ArticleXVII include restrictions on thecomposition of boards of directors andthe acquisition of land or real estate,as well as a requirement to grant morefavorable treatment to economicallydisadvantaged groups or regions. Thelatter requirement may prove to be apotentially powerful instrument for

29Adlung and Carzaniga. Health services under GATS

developing countries to reconcile tradewith social equity objectives. However,it may not even have been necessaryto provide legal cover for it inschedules.

General references to nationallegislation are relatively frequententries in both the horizontal and thesectoral sections. It is difficult in suchcases, however, to identify therestrictive or discriminatory elementsthat would fall foul of Articles XVI orXVII. As noted above, the mereexistence of national legislation withadverse effects on marketparticipation, such as licensingrequirements or training obligations,does not call for scheduling per se.

Somewhat surprisingly, there areno advance commitments in the healthsector providing for liberalization fromspecified later dates. Such pre-commitments have been used intelecommunications by almost half ofthe approximately 80 Members thathave committed themselves on thissector, in order to map out future pathsof liberalization. Precommitments areas legally valid as any other obligationsunder Article XVI or Article XVII, andmay thus serve the same purpose.They may be an interesting policyoption in any sector, possibly includinghealth, for which governments havedeveloped longer-term reformstrategies allowing for increasedprivate participation. In circumscribingand guaranteeing future market accessopportunities, precommitments enablepotential new entrants as well asincumbent suppliers to adjust in time.

MFN exemptions are quite rare inhealth services. Three Members havelisted them specifically for medical,dental and/or human health services,and another four have done so forprofessional services in general. All

exemptions are intended to providelegal cover for reciprocity provisions(e.g. potentially affecting the right offoreign suppliers to exercise themedical profession or theirqualification for reimbursement underpublic health insurance schemes).However, a number of MFN exemptionsthat are not sector-specific may alsobe relevant for health services,including guarantees under bilateralinvestment protection agreements ortax preferences for certainnationalities.

ASSESSMENT AND OUTLOOK

The potential for trade in healthservices has expanded rapidly overrecent decades. New tele-communications technologies havereduced the impact of geographicalbarriers to trade (for example fortelediagnosis, teleanalysis and thelike), while rising incomes andenhanced information have tended toincrease the mobility of potentialpatients. At the same time, from thestandpoint of domestic healthauthorities, cost pressures associatedwith aging or fast-growing populations,new medical developments and awidening price/productivity gap in thehealth sector have underscored theimportance of efficiency objectives.Such objectives, in turn, tend to beassociated with the existence ofcompetition, including competitionassociated with foreign marketentrants. However, while such trade/efficiency links appear appealing toeconomists, at least within anappropriate regulatory environment,doubts may remain as to the effects ofstiffening competition on other corepolicy concerns in the health sector,such as quality and the alleviation ofpoverty.

30 TRADE IN HEALTH SERVICES

There are limits to the extent towhich governments can influence thelevel and structure of trade in healthservices through various instruments.For example, while nonportability ofinsurance cover may deter manyresidents from seeking treatmentabroad, well-to-do persons are notlikely to be discouraged. While amonopoly hospital sector, withoutforeign investment, may be viewed asinstrumental in ensuring fairdistribution, cross-border mobility ofpatients may compensate, at least inpart, for the absence of alternatives todomestic supply. The traveling ofpatients abroad also complicatesdistributional objectives: do they applyonly to the nonmobile part of thepopulation or do they include peoplewho are physically and financially ableto seek treatment in foreign hospitals?Furthermore, while administrativerestrictions might prevent publiclycontrolled facilities from offeringtelemedical services, private suppliersmay be eager to fill any ensuing marketniches.

From a wider developmentalstandpoint, additional considerationscome into play. Health is among therelatively few service areas in which,subject to various qualifications,developing countries may prove to becompetitive exporters, under severalmodes, including mode 2. Possibly ona basis of inward direct investment,which may in turn benefit from mode3 commitments, they may be able toattract patients not only from otherdeveloping countries (e.g. to Thailandor South Africa from South-East Asiaor sub-Saharan Africa) but also fromadjacent industrialized countries (forinstance to the Caribbean from NorthAmerica, and to North Africa fromEurope). Such possibilities areparticularly relevant for countries

endowed with sufficient infrastructuralresorces, which are able to capitalizenot only on locational advantages butalso on a range of efficient ancillaryservice industries. However, this is notnecessarily the perspective of low-income developing countries. Theirinterests tend to hinge predominantlyon other modes of supply: mode 3 (i.e.attracting investment inflows) andmode 4 (i.e. sending medical personnelabroad and benefiting fromremittances). While the economic valueof mode 3 commitments is self-determined, contingent on a country’sown schedule, the export opportunitiesunder mode 4 necessarily depend onother Members’ policies.

It might be argued that reliance onforeign investment is a more viabledevelopment strategy since it isassociated with resource inflows, whilelabor movements abroad aretantamount to a loss of human capital.Are the ensuing remittances sufficientcompensation? Empirical studiesgenerally confirm that the majority ofmigrants from developing to developedcountries are better educated than theaverage workforce remaining behind.This may reflect prevailing policypatterns in the recipient countries,which tend to favor inflows of qualifiedrather than unqualified persons, aswell as a higher propensity of educatedand well-informed persons to moveabroad. In any event it means thatexisting migration data tend tounderstate the corresponding transferof human capital. However, not allmovements imply economicallysignificant losses for the homecountries. The critical factors arewhether the persons involved have leftpermanently and whether they wouldhave found, or would find on returninghome, employment matching theirqualifications (5).

31Adlung and Carzaniga. Health services under GATS

Foreign investment in healthfacilities represents a positive transferof resources whose ramifications mayreach well beyond the health sector.Indirect effects, including those ongrowth, income and employment, mayoccur in related industries such asconstruction, transport, communicationand, possibly, tourism. The attendantdevelopmental benefits may provedifficult to trace empirically, but thisdoes not mean that they areeconomically irrelevant. Such benefitsmay have health-related implications.From the standpoint of public healthit might prove too narrow a view toconsider only the direct effects on apopulation’s health status of increasedforeign presence in, for example, acountry’s hospital sector. Broaderroutes of causation, leading from theliberalization of trade and investmentto development and from developmentto health, may be equally significantin this connection. Infant mortality issignificantly lower and has dropped farmore rapidly over the past two decadesin Hong Kong, the Republic of Korea,and Singapore than in Indonesia, thePhilippines, and Thailand. This mayhave less to do with the organizationof public health than with theresources produced in the formergroup by trade and investment regimesthat in general are more open thanthose in the latter three countries.

Concerns have been voiced thathealth sector liberalization may turnout to be a two-edged sword fordeveloping countries. Increased tradein the health sector may benefithospital operators, health professionalsand an urban economic elite, but howwould it affect the economicallydisadvantaged? Such concerns areunderstandable but they need to be putin a proper perspective.

• First, it is important to bear inmind that GATS does not imposeany constraints on the terms andconditions under which a potentialhost country treats foreignpatients. For example, nothing inthe Agreement would preventMembers from subjecting theservices provided to foreigners thathave come for treatment to specialtaxes or charges. The proceeds, inturn, might be used to enhance thequantity and quality of basicdomestic supplies.

• Second, there are no legalimpediments in GATS that wouldaffect the ability of governments todiscourage qualified staff fromseeking employment in the privatesector, whether at home or abroad.Deterrent measures might includedeposit requirements orguarantees, which would make itfinancially unattractive for youngprofessionals to capitalizeimmediately on taxpayers’investment in their education byseeking higher incomes. Inaddition, there are positivemeasures that may limit the riskof brain drain: liberalization undermode 3, combined with foreigncountries’ commitments undermode 2, may help to createdomestic employment opportunitiesand, in turn, dissuade staff frommoving abroad.

• Third, it is difficult to see anycrowding-out effects, to thedisadvantage of resident patients,that could not be addressedthrough adequate regulation. Suchregulation would not normally fallfoul of GATS provisions, even insectors that have been committedwithout limitation. For example, acountry might require all private

32 TRADE IN HEALTH SERVICES

hospitals to reserve a minimumpercentage of beds for freetreatment for the needy, to offersome basic medical services inremote rural areas, or to train staffbeyond the number required for thepurposes of these institutions.Such measures would withstandexamination under both Article XVIon market access and Article XVIIon national treatment. If onlyforeign-owned facilities weresubject to such public serviceobligations the relevant regulationwould need to be covered bylimitations under Article XVII.

Similar obligations have beendiscussed at length in the GATSnegotiations on basic tele-communications, concluded inFebruary 1997, where social andregional policy considerations alsocame into play. A Reference Paperdeveloped in this context confirms theright of any government to define thekind of universal service obligation itwishes to maintain and also confirmsthat such measures would not beregarded as anticompetitive per se.Commitments under the ReferencePaper are self-commitments in so faras its content was negotiated in thecontext of the telecommunicationsnegotiations, while its implementation,through incorporation in schedules, infull or in part, was left to individualcountries. About 80% of the WTOMembers undertaking commitmentson basic telecommunicationsincorporated the Reference Paper.These Members are self-committed toadministering their universal serviceobligations in a transparent,nondiscriminatory and competitivelyneutral manner and to ensuring thatthey are not more burdensome thannecessary for the kind of serviceenvisaged.

It could be argued that theseprovisions do not add a lot to whatalready exists in GATS Article III ontransparency, Article VI on domesticregulation, Article XVI on marketaccess and Article XVII on nationaltreatment. However, their inclusion inthe Reference Paper might havereassured telecommunicationsadministrators and regulators who, forunderstandable reasons, were perhapsnot entirely familiar with the terms andstructure of GATS. A commoninterpretation of existing rules and, insome cases, specification of additionaldisciplines should be of particularinterest to developing countries as itwould allow them to economize onnegotiating resources. It may be worthconsidering such an approach inhealth services as well.

Given the basic social andinfrastructural functions conferred oncore service sectors, including health,there is certainly no point in talkingpolicymakers into hasty liberalization.The consequences should be carefullyconsidered, and this may well indicatea need for new regulation toaccompany the phasing in of externalcompetition. In a public monopolyenvironment the production,financing, regulation and control of aservice tend to go hand in hand,whereas the move toward competitivesystems necessarily implies aseparation of tasks and functions.Liberalization may thereforepresuppose reregulation in order tomeet the multiplicity of legitimateobjectives involved. This is achallenging task, not least fordeveloping countries lacking regulatoryexperience. However, there is nothingto prevent administrations from joiningforces to exploit possible synergiesand/or mandating competentinternational organizations to propose

33Adlung and Carzaniga. Health services under GATS

model solutions. Regulatory approachesdeveloped for telecommunications inrecent years, under the auspices of theInternational TelecommunicationUnion, could inspire work in WHO andcomparable bodies in other areas aswell. The technological and economicforces working towards global marketintegration are unlikely to leave thehealth sector unaffected, and timelyaction by governments would seem tobe desirable.

Conflict of interests: none declared.

REFERENCES

1. Adlung R. Liberalizing trade in services:from Marrakech to Seattle.Intereconomics 1999;5:211–222.

2. Sauvé P, Stern RM, eds. GATS 2000:new directions in services tradeliberalization. Washington DC: HarvardUniversity and Brookings InstitutionPress; 2000: 33–56.

3. Background note on health and socialservices. Geneva: World TradeOrganization; 1998 (unpublisheddocument WTO S/C/W/50, 18September 1998; www.wto.org).

4. Electronic commerce and the role of theWTO. Geneva: World TradeOrganization; 1998.

5. Background note on presence of naturalpersons (mode 4). Geneva: World TradeOrganization; 1998 (unpublisheddocument WTO S/C/W/75, 8December 1998; www.wto.org).

34 TRADE IN HEALTH SERVICES