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G L O B A L  H E A L T H
G A T S  &  M A R K E T 

25 January 2005  
  

Trading Health Services Across Borders: 
GATS, Markets, And Caveats

The health services sector of the developed world
must become more aware of business opportunities
in less developed countries.

By Ian S. Mutchnick, David T. Stern, and Cheryl A. Moyer

ABSTRACT:

The General Agreement on Trade in Services (GATS) is the result of an ongoing process of opening national markets to foreign health services within an international framework of trade agreements that prohibit discriminatory treatment of foreign suppliers. Developing markets are growing, as is demand for health care services, and most of this demand is being met by the private market. The globalization of health services requires the resources of the academic and corporate sectors of the developed world for equitable and sustainable growth. Health services trade should be seen as a tool for achieving these goals, rather than as an end in itself.

There is a tacitly held belief that involvement in global health issues in developing countries is equivalent to charity work. This belief is false. Although groups such as Doctors without Borders will not fail for lack of work any time soon, the international market for health services offers increasingly robust opportunities. The shrinking impact of time and space made possible by advances in travel and information technology has made international trade in services generally, and in health services specifically, a growing commercial concern. A recent analysis of trade in health services points out, “Although trade in health services is modest at present, given the rapidly growing global health care industry and the likely removal of some of the regulatory barriers to such trade at the regional, multilateral, and the national levels, trade in health services is likely to take on greater importance in the future.”¹

It is important for several reasons for the health services sector of the developed world to become more aware of business opportunities abroad. Most fundamentally, they represent a new and lucrative market for services in the highly competitive health care sector. Liberalization of markets in developing countries will increasingly lure private providers of health care services with the promise of large, underserved, and increasingly affluent populations. Of greater significance, however, these markets are opening and will do so with or without the knowledge, experience, and perspective of the academic and commercial health care community of the developed world. With this in mind, it is important to note that it is not globalization per se that will be good or bad for the developing world, but how we manage this globalization. The shortcomings of developed-world health systems aside, these countries have much to offer in terms of financial and intellectual capital to these developing markets. Before we explore the application of these resources to achieving an equitable and well-functioning globalized health services marketplace, an overview of international trade is warranted.

Global Trading Environment

In 1948 twenty-three countries signed the General Agreement on Tariffs and Trade (GATT), which explicitly stated tariff levels for a given good. For forty years GATT served to maintain a peaceful global trading system among, by the early 1980s, more than one hundred members. In 1994 the Uruguay Round of trade negotiations (so named for having commenced in Punta del Este, Uruguay) replaced GATT with the World Trade Organization (WTO). The WTO is both a forum for member countries to conduct ongoing trade negotiations and a body that facilitates the implementation, administration, and operation of signed agreements. Part of the WTO’s facilitative mandate is the adjudication of disputes with determination and guarantee of remedy. Thus, the rights of member nations are guaranteed within a framework of well-defined principles and explicitly stated commitments to free trade. To these principles and commitments we now turn.

Between 1980 and 2000 the total monetary value of commercial services exports (such as telecommunications, construction, and finance, as opposed to goods such as cloth, cocoa, and cars) increased by more than 400 percent, from $364 billion to $1.4 trillion.² This explosive growth brought concerns over trade in services to the Uruguay table; the resulting agreement was called the General Agreement on Trade in Services (GATS). Under GATS, services trade—including health services—between member nations is bound by two guiding principles. First, GATS disallows bestowing “most-favored-nation status” on any particular trading partner(s): The degree to which a WTO member opens a sector of its service market to any country must be the same for all member countries. The second is the principle of national treatment. This requires all members to treat service providers, whether domestic or foreign, in the same way. Member governments, to the extent that they have officially committed to opening their markets (see below), are forbidden to implement laws that would discriminate between local and foreign health services providers. Although these principles are firm, the degree to which individual members commit to opening their markets to foreign health services providers is quite flexible. Some countries have limited their commitments to just a few of the 160 possible service sectors, while others have opened their markets (at varying degrees of openness) to more than 140 of them. GATS, then, is simply a list of the specific commitments to market liberalization made by each member country. Some have made no commitments, while others have decided to open their markets widely. Countries can neither reverse commitments without advance warning nor forward a domestic agenda of discriminatory trade practice that is inconsistent with their committed levels of market liberalization.

Market Structures

In their analysis of GATS health services commitments, Rudolph Adlung and Antonia Carzaniga state that “the potential for trade in health services has expanded rapidly over recent decades…. The technological and economic forces working towards global market integration are unlikely to leave the health sector unaffected.”³ Even a small share of this market would be significant: Worldwide health care expenditures were an estimated $3.3 trillion in 2001 and are expected to grow to $4.4 trillion per year by 2005.⁴ A look at spending on health care at different levels of gross domestic product (GDP) suggests that the future size of the health services market will be enormous (Exhibit 1).⁵ A large majority of the world’s countries spent less than $500 per person per year on health in 2000, compared with $1,000–$2,500 by most developed countries.⁶ Given continued increases in GDP in several markets and a concomitant increase in health services spending as GDP grows, the size of the health services marketplace is likely to grow robustly over the next several decades.

But does more health services spending equate to more market opportunities? Perhaps the public provision of health services prevents private entry into the health services marketplace. Contrary to popular belief, most health services worldwide are privately financed. The current climate of declining governmental budgets, rising costs, and reduced national insurance coverage worldwide foretells future trends for greater private involvement in the health sector.⁷ Exhibit 2 shows data from the World Health Organization (WHO) on the percentage of health care spending from private sources; it is important to note that a large majority of the world’s population lives in countries where private spending exceeds 50 percent of total health services spending.⁸ The WHO comments that “the private sector has the potential to play a positive role in improving the performance of the health system.”⁹ The days of antipathy to private-market solutions in many developing countries have passed; many now view the private market as a necessary tool for improving health services.

Opportunities for trade in health services run the spectrum from supply of equipment to telemedicine. GATS categorizes services by territorial relationship between buyer and seller, defining four “modes” of health services supply. In mode 1, buyer and seller are located in different territories, and services are provided via mail, telephone, or the Internet. Global demand for telehealth is now estimated at $1.25 trillion and is expected to grow rapidly as communications infrastructure is developed.¹⁰ Several cross-border teleradiology, telepathology, teledermatology, and other telehealth relationships have been developed over the past decade. For example, Johns Hopkins International has developed telemedicine consulting services in pathology and radiology. Steven Thompson, its chief executive officer, said in 1999, “There is a growing demand in many parts of the world for the innovative medical services that Hopkins is known for.”¹¹

Mode 2 is consumers traveling abroad seeking care or education. Trade in mode 2 is an important source of revenue for countries such as Cuba, which has developed specialized clinics catering to the well-to-do of other countries, and China, which is developing acupuncture and moxibustion clinics for foreigners. The Mayo Clinic provides highly specialized services for wealthy foreigners, while specialty hospitals in India attract U.S. patients by providing international-quality liver transplants for one-tenth the U.S. cost. India and Jordan have reserved seats in their medical schools for foreigners, thereby generating sizable revenue.

Mode 3 trade occurs through foreign direct investment in health services enterprises. Examples include India’s Apollo group of hospitals, which is opening hospitals in Sri Lanka, Nepal, and Malaysia; and Chindex International, a U.S. company providing medical equipment and supplies and clinical care in China, with total revenues of $30.5 million. Chindex is optimistic about the future market in China:

The demand for international-standard healthcare services in China is increasing due to a growing Chinese middle class and the influx of Western people, influences and concepts, along with the increasing ability of Chinese citizens to afford better healthcare services.”¹²

Opened in 1997, the Chindex-owned Beijing United Family Hospital and Clinics was profitable by 2000.
Finally, health services may be traded through movement of health professionals to another country. Mode 4 constitutes a large portion of health services trade despite the fact that no country has yet undertaken sizable commitments for market liberalization. This is revealing, as it suggests that current levels of mode 4 health services trade are a function of market developments not covered by any access guarantees under GATS. If this is the case, and if GATS can reasonably be expected to produce future market liberalization (as most analysts predict), then current levels of trade likely represent the beginning of an upward trend.

Health care services are only half the picture, however. An adequate financial environment must exist for consumption of health services to grow robustly. Current health insurance markets in the developing world are quite meager but, similar to health services, appear set to grow concomitantly with public demand and ability to pay. Negotiations for liberalization in this market take place within the larger context of the financial services sector, not the health services sector. According to the Commission for Macroeconomics and Health, the market for private insurance in low- and middle-income countries is set to “increase as more… people move into income brackets that allow them to purchase private health insurance.”¹³ This market is already being explored by several international health enterprises. Sul America Seguros, a Brazilian managed care operation half-owned by Aetna, covered 1.6 million enrollees and generated revenues of $1.2 billion in 1996. Similarly, CIGNA has rapidly grown its South American managed care operations to cover 2.6 million people in Brazil, Chile, and Guatemala by 1999.¹⁴

GATS is an ongoing process; the agreement itself stipulates that “members shall enter into successive rounds of negotiations.”¹⁵ Current rounds of negotiations began in Doha, Qatar, in 2000, and a process of requests for, and offers of, specific market liberalizations between members is now under way. Interestingly, growing levels of trade in health services are now taking place in the context of very few GATS commitments to open markets.¹⁶ Rupa Chanda notes that there has been “very little progress in terms of increased market access and elimination of discriminatory treatment.”¹⁷ Despite current low levels of interest in liberalizing health services trade within the context of GATS, Pierre Sauvé, a specialist in services trade with the Organization for Economic Cooperation and Development (OECD), notes that “the sector does offer significant scope for liberalization in my view, and lots is seemingly happening outside a trade policy framework.”¹⁸ For example, the United Nations (UN) Committee for Trade and Development partnered with the WHO to author a report on the implications of increasing health services trade; the WHO and the WTO partnered for the same purpose in 2002.¹⁹ In January 2002 the WHO sponsored a meeting that aimed to “identify research and monitoring priorities for assessing trade in health services and the impact of GATS.”²⁰ Further, the WHO monitors GATS negotiations and aids country health officials in evaluating GATS commitments. It would seem that this activity takes place in anticipation of greater amounts of health services trade and in recognition that balanced and sustainable growth in the international health services market will take a considerable amount of work.

Caveats And Policy Implications

There are two conceptual categories of caveats to the process of cultivating cross-border trade in health services. The first, more mechanistic, is the process of hammering out the legal details of trade agreements within the GATS framework and negotiating around differences of interpretation on existing agreements. As agreements start to take shape, countries may still restrict the entry and practice of foreign providers and may limit foreign direct investment with discriminatory tax and regulatory policies. GATS encourages these types of rules if they demonstrably protect the public’s health. However, rules that handicap competition to a degree noncommensurate with a country’s GATS and public health commitments are disputable through the WTO.

More problematically, it is the ethical imagination informing the choices we make, the decision frames we employ, and the values we exercise that present challenges to us as a community of health policy analysts and responsible corporate decisionmakers. We assert that the goal of research on, analysis of, and corporate decision making about international health services trade should be placed firmly within a larger framework of policy goals that aim to create equitable, responsive, efficient, and competent health systems.²¹ A few pertinent examples will help to describe the practical implications of this perspective.

The tension between fair trade and risks to population health will need to be explored as increased competition places stress on the goals of equity, quality, and access. For example, foreign direct investment may bring world-class hospitals to capital cities but in the process encourage a more explicitly two-tier system of health care. Much of the existing literature on health policy analysis dichotomizes the social good of public health and the economic good of health services trade. An outlook seeking solely to expand health services trade may focus solely on economic analyses to justify market expansion. However, a more robust economic model integrating social and commercial goods would be a valuable analytic tool when evaluating multiple, perhaps competing, values in the service of broader health system objectives.

The management of expanding health services trade will require decisions that depend not only on the facts and figures but also on how our experiences, missions, and contexts have prepared us to perceive them. Take, for example, Lee Kyung Hae, a South Korean farmer who, at the 2003 WTO meeting in Cancun, Mexico, climbed a barricade outside the meeting and fatally plunged his pocketknife into his heart. An innovative farmer, Lee had received national attention in Korea for his agricultural practices, had received a UN award for rural leadership, and had three times been elected to his provincial assembly. When beef prices collapsed in the early 1990s in the context of a newly liberalized Korean livestock market, Lee lost his farm and became a staunch opponent of the WTO. It is not simply market liberalization but the reaction of those affected by it that will shape our future. In establishing policy objectives and in deciding how best to achieve them, a plurality of perspectives will be important. Equally important will be implementation of mechanisms to equilibrate the functional influence of these respective points of view; the power of financial capital should not be allowed free rein.²² Further research into the value sets underlying the various interest groups (as well as those of the communal decision-making/executing bodies) not only will help to illuminate policy objectives but also may further contextualize trade liberalization as one tool among many to be used in striving for highly functional and adaptive health systems.

It is important to recognize that health services markets in developing countries exist within weak regulatory and enforcement environments where capital, knowledge, experience, and analytical skills are in short supply. Mohamed Hassan, executive director of the Third World Academy of Sciences, notes the growing “gap in the production and use of scientific and technological knowledge [and]…the increasing complexity of the problems whose solution, drawing on such knowledge, is needed to achieve equitable, environmentally sustainable, development.”²³

The developed world has tremendous capacity to solve problems and execute solutions, as exemplified by the Human Genome Project, the activities of the Bill and Melinda Gates Foundation, and the World Bank. The Global Forum for Health Research estimates that of the US$73.5 billion spent on health research and development (R&D) globally in 1998, only US$2.5 billion (3 percent) came from all low- or middle-income countries combined, comprising some 90 percent of the world’s population. Private foundations and universities—the vast majority of which are based in the developed world—themselves generated US$6 billion.²⁴ This represents much more than simply a disparity of financial capital; it represents a vast repertoire of intellectual, institutional, and experiential capital, very densely concentrated in the developed world.

The application of these resources can have positive benefits when applied in thoughtful ways with rigorous evaluation. A large analysis conducted by the World Bank found that growth in GDP in fifty-six selected developing countries was robustly and positively correlated with a compound variable incorporating both the amount of aid received and a policy environment conducive to institutional change.²⁵ On a smaller scale, a randomized evaluation of a program to provide iron supplements and deworming medicine to schoolchildren in India found a statistically significant increase in body weight and a one-fifth reduction in absenteeism within the first five months.²⁶ Thoughtful application of problem-solving resources works to improve conditions, not only at home but in foreign places as well.

The likely expansion of international trade in health services in the coming years will bring complicated problems and will require decisions with tremendous consequences. Although widespread social benefit from expanding trade may be possible, it is not guaranteed. It will require the application of financial and intellectual capital, analytical and problem-solving skills, and institutional and individual experience to create an ethical environment that prioritizes social benefit and views global trade as a tool to reach it. We in the developed world have much in the way of these resources; we should share them freely.

The authors acknowledge Alain Enthoven, Rudolf Adlung, and Catherine Mann for providing much-needed expert content review.

NOTES

1. R. Chanda, “Trade in Health Services,” Commission on Macroeconomics and Health Working Paper Series, Paper no. WG 4: 5, June 2001, www.cmhealth.org/docs/wg4_paper5.pdf (20 October 2004).
2. World Trade Organization, Statistics Database, stat.wto.org/Home/WSDBHome.aspx?Language= (20 October 2004).
3. R. Adlung and A. Carzaniga, “Health Services under the General Agreement on Trade in Services,” Bulletin of the World Health Organization 79, no 4 (2001): 352–364.
4. Chanda, “Trade in Health Services.”
5. World Health Organization, World Health Chart, 2001, www.whc.ki.se/index.php (20 October 2004).
6. Ibid.
7. Chanda, “Trade in Health Services.”
8. WHO, World Health Chart.
9. WHO, The World Health Report 2000, Health Systems: Improving Performance, 2000, www.who.int/whr/2000/en (7 December 2004).
10. Chanda, “Trade in Health Services.”
11. Lucent Technologies, “Johns Hopkins and Lucent Technologies to Develop Global Network for Telemedicine and Patient Access,” Press Release, 14 December 1999, www.hopkinsmedicine.org/press/1999/DEC99/991215.htm (20 October 2004).
12. Chindex International Inc., “Corporate Backgrounder,” July 2003, www.chindex.com/invest/documents/bkrdjuly03.pdf (20 October 2004).
13. J.A. Sbarbaro, “Trade Liberalization in Health Insurance: Opportunities and Challenges: The Potential Impact of Introducing or Expanding the Availability of Private Health Insurance within Low and Middle Income Countries,” CMH Working Paper Series, Paper no. WG 4: 6, December 2000, www.cmhealth.org/docs/wg4_paper6.pdf (20 October 2004)
14. K. Stocker, H. Waitzkin, and C. Iriart, “The Exportation of Managed Care to Latin America,” New England Journal of Medicine 340, no. 14 (1999): 1131–1136.
15. World Trade Organization, General Agreement on Trade in Services, Article XIX, Paragraph 1, www.wto.org/english/docs_e/legal_e/26-gats.pdf (19 January 2005).
16. For simplicity, “health services trade” includes trade in health care financing services for the remainder of this paper.
17. Chanda, “Trade in Health Services.”
18. Pierre Sauvé, Organization for Economic Cooperation and Development, personal communication, 9 May 2003.
19. WTO, WTO Agreements and Public Health: A Joint Study by the WHO and the WTO Secretariat (Geneva: WTO, 2002); and S. Zarilli and C. Kinnon, eds., International Trade in Health Services: A Development Perspective (Geneva: WTO, 1998).
20. WTO, International Consultation on Assessment of Trade in Health Services and GATS: Research and Monitoring Priorities (Geneva: WTO, 2002).
21. For a fuller treatment of this, see M. Koivusalo and M. Mackintosh, Health Systems and Commercialisation: In Search of Good Sense, March 2004, www.unrisd.org/unrisd/website/document.nsf/(httpPublications)/32A160C292F57BBEC1256ED10049F965?OpenDocument (1 November 2004).
22. An excellent example can be found in P. Starr, The Social Transformation of American Medicine (New York: Basic Books, 1982). In his commentary on the reasons behind multiple defeats of national health insurance reform, Starr contrasts the enormous financial backing available to groups opposing a national U.S. health insurance plan with the meager funds available to proponents of this type of reform. Although it is difficult to clearly quantify the role this may have played in the outcome, it is suggestive that this financial disparity is well documented in all three major attempts at U.S. health insurance reform in the twentieth century. Whether one agrees or disagrees with the value of national health insurance, there must be some doubt cast on a process in which decisions of profound consequence are so heavily weighted toward financial resources.
23. M. Hassan, “North-South Disparities in the Production and Use of Knowledge,” Nature, 1999, www.nature.com/wcs/c00.html (1 November 2004).
24. Global Forum for Health Research, The 10/90 Report on Health Research 2003–2004, 2004, www.globalforumhealth.org/pages/index.asp (2 November 2004).
25. World Bank, Assessing Aid: What Works, What Doesn’t, and Why (Washington: World Bank, 1998).
26. G.J. Bobonis, E. Miguel, and C.P Sharma, “Iron Deficiency Anemia and School Participation,” Poverty Action Lab Paper no. 7, www.povertyactionlab.org/papers/bobonis_miguel_sharma.pdf (2 November 2004).

Ian Mutchnick (ianmutchnick{at}yahoo.com) is a resident in neurological surgery at the Neurosurgical Institute of Kentucky, University of Louisville School of Medicine. David Stern is an associate professor of medicine and medical education and director of Global REACH, University of Michigan Medical School, in Ann Arbor. Cheryl Moyer is research director of Global REACH.

DOI: 10.1377/hlthaff.w5.42
©2005 Project HOPE–The People-to-People Health Foundation, Inc.