Trading Health Care Away?: GATS, Public Services and Privatisation

Sarah Sexton

The Corner House

Briefing 23

http://cornerhouse.icaap.org/briefings/23.html

This briefing was compiled by Sarah Sexton, The CornerHouse, drawing on the work and comments of the following to whom immense thanks are due: Meri Koivusalo, GASPP/STAKES; Allyson Pollock, University College London; David Price, University of Northumbria; Clare Joy and Petra Kjell, World Development Movement; Ellen Gould; Mike Rowson, MEDACT; Erik Wessilius, Adam Ma’anit and Olivier Hoedeman, Corporate Observatory Europe; Geof Rayner, UK Public Health Association; David Hall, Public Services International Research Unit; Caroline Lucas MEP; Kasturi Sen, University of Cambridge; Alexander Nunn, University of Manchester; and James Munro, HealthMatters. THE CORNER HOUSE

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Amid the shouts of demonstrators, the protests of South-ern delegations and the disagreements between the US and European Union, the World Trade Organisation (WTO) failed to launch a comprehensive revision of international trade rules in November 1999 in Seattle, USA. But talks have since begun to change one of the 28 agreements overseen by the WTO -- the General Agreement on Trade in Services or GATS.1

The US, EU, Japan and Canada are trying to revise GATS so that it could be used to overturn almost any legislation governing services from national to local level. Domestic policy making, even on matters such as shop opening hours or the height and location of new buildings, could, in effect, be turned over to the WTO. All legislation would primarily be aimed at increasing trade.

Particularly under threat from GATS are public services -- health care, education, energy, water and sanitation, for instance. All of these are already coming under the control of the commercial sector as a result of privatisation, structural adjustment and reductions in public spending. A revised GATS could give the commercial sector further access and could make existing privatisations effectively irreversible. Experience in the United States and several Latin American countries, where health services have been run for profit over the past decade or so, suggests that the result will be a decline in accessibility to health care worldwide.

Most elected officials and civil servants, let along the general public, are not aware of GATS, nor of its implications. But several countries are demanding that a wide-ranging assessment of the impact of a free market in services be carried out before any more so-called trade barriers are removed. And non-government organisations (NGOs) and trade unions are demanding that services in the public interest be clearly exempt from GATS.

Rules governing international trade are certainly necessary. But such rules should place people before the entrenchment of corporate power.

This briefing outlines the growth in services in recent years, the main provisions of GATS, the proposed revisions to the Agreement, and some key corporate aims in extending it. It details how public services may not in fact be excluded from GATS and explores the implications for public health care. It also considers what may happen to publicly-provided and -funded health care services if private companies capture their most profitable components and the public money subsidising them.

Sidebar - Box 1: The World Trade Organisation The 1986-94 Uruguay Round of GATT, the widest-ranging multilateral trade agreement ever negotiated, covered for the first time not only services but also agriculture, investments and intellectual property rights, such as patents, trademarks and copyright. The 28 agreements which now come under the WTO fall into six broad categories: Multilateral Agreement on Trade in Goods General Agreement on Trade in Services (GATS) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) Trade Policy Review Mechanism (TPRM) Plurilateral Trade Agreements The first category governing trade in goods contains the largest number of agreements: General Agreement on Tariffs and Trade (GATT) (8 agreements modifying the original GATT), whose mandate is to eliminate tariff and non-tariff barriers to the movement of capital and goods between countries. Agreement on Agriculture (AoA). Agreement on the Application of Sanitary and Phytosanitary Measures (SPM). Agreement on Textiles and Clothing. Agreement on Technical Barriers to Trade (TBT). Agreement on Trade-Related Investment Measures (TRIMs). Agreement on the Implementation of Article VI of the GATT 1994 (anti-dumping). Agreement on the Implement-ation of Article VII of the GATT 1994 (customs valuation). Agreement on Preshipment Inspection. Agreement on Rules of Origin. Agreement on Import Licensing Procedures. Agreement on Subsidies and Countervailing Measures. Agreement on Safeguards. A WTO member has to abide by all the agreements which fall into the first five categories. It can chose, however, whether to sign any of the four plurilateral trade agreements which make up the sixth category: Agreement on Trade in Civil Aircraft

Agreement on Government Procurement

International Dairy Agreement

International Bovine Meat

Agreement The WTO administers and implements the various agreements, acts as a forum for multilateral trade negotiations, resolves trade disputes, oversees national trade policies and cooperates with other international institutions involved in global economic policy-making. When the WTO came into effect on 1 January 1995, 76 countries became members. By May 2001, membership had almost doubled to 141 countries. The largest financial contributor to the WTO is the US, which pays about 16 per cent of its budget. Disputes between two countries are brought by governments before tribunals of three trade bureaucrats which hear the cases in secret. If a WTO dispute (and appeal) panel decides that a country’s rules are contrary to a WTO agreement, that country has to conform to the WTO requirement, pay permanent compensation to the country which brought the case, or face trade sanctions. The procedures promote the least trade-restrictive regulation -- voluntary rather than compulsory, consumer information rather than bans, and individual rather than public responsibility. The WTO’s legislative and judicial power to challenge the laws, policies and programmes of countries that do not conform to all its agreements, particularly if they are regarded as too "trade restrictive", sets the WTO apart from other international agreements. Source: Griesgraber, J.M. and Gunter, B.G., (eds.) World Trade: Toward Fair and Free Trade in the Twenty-first Century, Pluto Press, London, 1997.

Everything Under the Sun

Heart surgery and electricity transmission, education and childcare, water purification and pesticide application, sewerage and sports centres, road construction and film making, toxic waste disposal and mobile phone communication -- all are services, not tangible commodities. Some services are luxuries, such as tourism and entertainment. Others are essential: health care, education, transport, water and energy.

Services have become an important part of many countries' economies, overtaking manufactured goods in significance in some places. Providing services (excluding public services) now represents over 60 per cent of the GDP of industrialised countries and 50 per cent of that of others.2 Most services are provided and consumed domestically. In Europe:

"The service sector accounts for two-thirds of the [European] Union's economy and jobs, almost a quarter of the EU's total exports and a half of all foreign investment flowing from the Union to other parts of the world."3

The US Coalition of Service Industries estimates that services account for four-fifths of US GDP.4

International trade in commercial services was worth US $1.35 trillion in 1999 -- about one-quarter of the global trade in goods -- up from some $400 billion in 1985 and from $1.2 trillion in 1995.5 This trade is firmly in the grip of the industrialised countries, which exported nearly 71 per cent of services traded internationally in 1997 and imported 67 per cent.

The EU regards itself as the biggest services exporter in the world,6 while more than one-third of US economic growth over the past five years has been due to exports of services.7 The largest single US export industry is entertainment, in particular, films and television programmes.8

Services account for 60 per cent, or US$210 billion, of annual foreign direct investment, much of which is connected with privatisation of state entities.9

Developing countries import and export less than one-third of the services traded internationally.10 Because of the vast differences between the capacities of developed and developing countries to supply services, it is major traders in the industrialised world which have most to gain from increased access to services markets. The US Coalition of Service Industries is confident that any increase in the consumption of services anywhere in the world effectively means an increase in consumption of US services.11 The European Union acknowledges the disparity in financial services:

"In many instances we will be interested in exporting our competitive banking activities to developing countries but they will not be as interested in establishing a bank in the European Community since the market is already highly competitive".12

The EU attributes "the fact that services represent a smaller proportion of the economy in developing countries ... to their lesser developed financial and business service sectors".13

The world's largest employer is tourism, accounting for one in ten workers worldwide and for one-third per cent of global services exports.14 Many of the workers in service industries are low-paid women. Some 80 per cent of women workers in the European Union are employed in services.15

Sidebar - Box 2: US and EU Service Exports Travel and tourism contributed over $25 billion to the US trade surplus in service exports over imports in 1997, the largest sectoral contribution to the overall services surplus. The European Union is the main source and the main destination of international tourist flows.

and contributed over $25 billion to the US trade surplus in service exports over imports in 1997, the largest sectoral contribution to the overall services surplus. The European Union is the main source and the main destination of international tourist flows. In 1997, the US exported more than $21 billion in business, professional and technical services (including accounting, legal, engineering, architectural and consulting services) and had a $16 billion trade surplus, excluding substantial earnings from foreign investments and foreign affiliates. US legal services exports approach $1.0 billion. US law firms produce services exports when billing foreign clients.

(including accounting, legal, engineering, architectural and consulting services) and had a $16 billion trade surplus, excluding substantial earnings from foreign investments and foreign affiliates. US legal services exports approach $1.0 billion. US law firms produce services exports when billing foreign clients. The global telecommunications services market is estimated at over US$725 billion. The EU, a net exporter of telecommun-ications services, has a 28 per cent share of total world telecom revenues. US revenues are expected to increase at about 20 per cent annually for the next five years for outbound calls from the US to foreign markets. The WTO estimates that sales over the Internet will double each year for the next five years.

services market is estimated at over US$725 billion. The EU, a net exporter of telecommun-ications services, has a 28 per cent share of total world telecom revenues. US revenues are expected to increase at about 20 per cent annually for the next five years for outbound calls from the US to foreign markets. The WTO estimates that sales over the Internet will double each year for the next five years. The US asset management industry is the largest in the world, handling billions of dollars of private investments and funds each year. By the year 2002, an estimated 51 per cent of total US asset management revenue of $160 billion will come from outside the US. Today, US-domiciled investment managers manage 14 per cent of the total of non-US retirement plan assets and 5 per cent of non-US mutual fund assets.

industry is the largest in the world, handling billions of dollars of private investments and funds each year. By the year 2002, an estimated 51 per cent of total US asset management revenue of $160 billion will come from outside the US. Today, US-domiciled investment managers manage 14 per cent of the total of non-US retirement plan assets and 5 per cent of non-US mutual fund assets. Foreign students, after scholarship and local assistance, spend some $8 billion in the US. The US has a surplus in trade in education services of $7.0 billion.

services of $7.0 billion. Medical services rendered in the US to foreign citizens produced an export surplus of $0.5 billion.

services rendered in the US to foreign citizens produced an export surplus of $0.5 billion. The energy industry – which accounts for about 7 per cent of US GDP – is pressing for global trading rules against monopoly power, anti-competitive practices and discrimination against new market entrants, such as US companies.

industry – which accounts for about 7 per cent of US GDP – is pressing for global trading rules against monopoly power, anti-competitive practices and discrimination against new market entrants, such as US companies. Some 160 US and EU construction firms account for 85 per cent of the world market for construction projects, the US taking 49 per cent and the EU 36 per cent. The EU is a major market for US firms, while EU firms are strong in Africa, the Middle East and Asia. Construction accounts for up to 10 per cent of GDP in industrialised countries but much less in developing countries. Sources: Statement of Robert Vastine, Coalition of Service Industries, 21 October 1999; "Opening World Markets for Services: A Guide to the GATS: Which Sectors Are Covered by GATS?", website: http://GATS-into.eu.int/GATS-info/guide.pl?MENU=ccc

General Agreement on Trade in Services (Gats)

Services first came under the rules of the world trading system in 1995 when the WTO came into effect.16 The ambitious and ambiguous General Agreement on Trade in Services (GATS) sets out rules governing international trade in practically all services.17 It does not define what it means by a service, instead offering a classification list of 160 of them based on a United Nations system which, according to Canadian researcher and activist Scott Sinclair, "reads like a catalogue of occupations and human needs".18 The classification makes no distinction between public (or voluntary) services and those provided on a for-profit basis. Because distribution is a service, moreover, GATS also encompasses goods. As the EU says, "Goods cannot walk, they need to be distributed and transported".19

Because the main way of governing services has traditionally been via complex national rules and regulations, GATS is also "fiendishly complex".20 Like the GATT agreement before it covering trade in goods, GATS encourages trade across national borders in services by requiring a WTO member country to treat all countries the same (most-favoured nation) and to treat foreign companies as if they were domestic (national treatment).

But GATS differs from the agreement governing international trade in goods in several critical ways. At present, some of its rules and requirements do not apply to all services, but only to those sectors which each country has indicated it is prepared to open up to foreign competition.

Moreover, whereas trade in goods involves simply transporting products from one country to another (cross-border trade), trade in services is more varied because services are not so tangible or physical. Airlines, telephone companies, banks and accountants all provide their services in different ways. Thus GATS lists another three ways (or "modes") in which services can be supplied besides cross-border supply -- movement of consumers, foreign commercial presence and movement of persons -- because "the supply of many services is possible only through the simultaneous physical presence of both producer and consumer".21 Some services can be supplied in several ways, others not. A business adviser, for instance, can supply her services to a client in another country by mail, by the client visiting her, through an office in the client's country or by visiting the client. To be a tourist, someone has to go to another country to consume tourism-related services, as does an "exported" street cleaner to carry out "environmental services". A government thus provides the WTO with a "schedule of specific commitments" listing which services and the ways of supplying that service it is prepared to open up to competition under GATS (see Box 3).22

The majority of the WTO's 141 member countries have so far committed themselves to liberalising just a small part of their services. Most commitments have been made in tourism, hotels and restaurants, computer-related services and value-added telecommunications. The least number of concessions have been made in river transportation, basic telecommunications, recreational and cultural services, education and postal services.

A country can alter a commitment but has to wait three years after it has listed it before it can do so. The country also has to negotiate a substitute commitment as compensation in a way which satisfies all other WTO members. The WTO Secretariat admits that country commitments undertaken in GATS "have the effect of protecting liberalization policies, regardless of their underlying rationale, from slippages and reversals".23 The former WTO Services Division Director, David Hartridge, said that GATS "can and will speed up the process of liberalisation and reform, and make it irreversible".24 India's former ambassador to GATT, Bhagirath Lal Das, stresses that liberalisation under GATS is different from a country undertaking liberalisation on its own without making a binding commitment to the WTO:

"The developing countries have lost the flexibility of modifying their policy in the light of future experience ... even if it is assumed that they benefit by importing services."25

The power of GATS, as with all WTO agreements, is that its rules can be enforced by trade sanctions (see Box 1). GATS does allow countries to protect human, animal and plant life or health (Article XIV) through measures which might otherwise contravene the Agreement, but its preamble, according to the US Alliance for Democracy, "has a caveat large enough to drive a truck through".26 WTO dispute panels have interpreted exemptions and exclusions narrowly and forcefully in favour of trade in GATT disputes and have usually ruled against environmental protection measures.27 These rulings "show that GATS can be used to challenge an almost unlimited range of government regulatory measures that, even indirectly or unintentionally, affect the conditions of competition of international service suppliers".28

The GATS standard for "national treatment", for instance, extends well beyond conventional notions of non-discrimination between domestic and foreign companies. It applies to any measure from any level of government -- national, provincial, state, regional, municipal or local -- that alters the conditions of competition in any way that might disadvantage a foreign service or supplier. The WTO's Council for Trade in Services (the permanent body responsible for GATS) has discussed restrictions on large-scale retail outlets, shop opening hours, zoning and planning laws, controls on land use, building regulations, building permits, registration of contractors and professionals, regulation of professional fees, environmental regulations, worker health and safety regulations, local content and employment policies, urban planning rules and environmental protection policies. Even legislation to ensure that a country benefits from foreign investment -- minimum number of local jobs or content, for instance -- could be considered trade restrictive.29 No government measure or practice, whatever its aim, is beyond GATS scrutiny if it might affect trade in services. Countries could thus use GATS to "frustrate government policies, practices and programs that allegedly adversely affect foreign commercial interests in services".30

David Hartridge, WTO's former director of services, described GATS as "the first multilateral agreement to provide legally enforceable rights to trade in all services" and "the world's first multilateral agreement on investment, since it covers ... every possible means of supplying a service, including the right to set up a commercial presence in the export market."31 According to the EU, GATS "aims to end arbitrary regulatory intervention, and assure predictability of laws, to generate growth in trade and investment".32

Unsurprisingly, critics call GATS "the MAI in disguise". According to them, rules and disciplines with effects similar to those of the abandonded Multilateral Agreement on Investment are being incorporated in the WTO through the back door.33 The former WTO Director-General, Renato Ruggiero, acknowledged in 1998 that GATS extended into "areas never before recognised as trade policy" and warned that "neither governments nor industries have yet appreciated the full scope of these guarantees or the full value of existing commitments".34

Researcher Scott Sinclair says that GATS "is designed to facilitate international business by constraining democratic governance".35 Indeed, the WTO expressly states that the Agreement will help its members overcome "domestic resistance to change" and that it will facilitate "more ambitious reforms ... than would be attainable on a national basis alone".36

Sidebar - Box 3: GATS Main Obligations Trade in services used to be considered ancillary to manufacturing and trade in goods. In the mid-1980s, however, many Western governments, faced with worldwide recession, inflation and unemployment, decided that removing obstacles to inter-national trade in services, particularly national regulations, could increase the momentum to export services. The US thus pushed for the provisions of the agreements governing trade in goods to be transposed into the area of services as a whole (although financial services were of prime interest), a move which "could easily have sunk the Uruguay Round and crippled the GATT", according to current WTO Director-General Mike Moore. Many countries reluctantly agreed to GATS only if they could choose which of their services were covered by the Agreement. The US took care, however, to include clauses mandating further liberalisation in future. All Services Two GATS obligations apply directly and automatically to all WTO members for all services – most-favoured-nation treatment and transparency. Most-favoured-nation (MFN) treatment (Article II) does not mean one country is preferred over another – it means the opposite. Favour one, favour all. Treat all countries the same. If a WTO member country grants favourable treatment to another country (even a non-WTO member) regarding the import of a service, it must grant all other WTO signatories the same treatment. If a country allows any foreign competition in a service sector, it must allow service providers from all WTO member countries to compete to supply that service. A country could list any exemptions to this MFN principle by 1995, but exemptions were to be reviewed after five years and could not last more than 10 years anyway. The WTO interprets this MFN obligation as prohibiting not only de jure discrimination (discrimination specifically set out in regulations) but also de facto discrimination (discrimination resulting from regulations or measures not formally discriminatory). Transparency (Article III) requires governments to publish all relevant laws and regulations governing all service sectors. By 1997, governments should have set up enquiry points for foreign companies and governments to obtain this information. Specified Services The other two GATS obligations, market access and national treatment, apply only to those services which a country lists in its Schedule of Specific Commitments. Market access (Article XVI) allows foreign companies to provide cross-border services in a country. But a country can restrict such access by limiting the number of suppliers, operations or employees in a specific sector; the value of transactions or assets; the legal form of the supplier (for instance, limiting it to a branch or joint venture); or the participation of foreign capital.

(Article XVI) allows foreign companies to provide cross-border services in a country. But a country can restrict such access by limiting the number of suppliers, operations or employees in a specific sector; the value of transactions or assets; the legal form of the supplier (for instance, limiting it to a branch or joint venture); or the participation of foreign capital. National treatment (Article XVII) means that once foreign companies have been permitted to enter a country, they must be treated in the same way as domestic ones. The WTO explains that "the key requirement is to abstain from measures which are liable to modify, in law or in fact, the conditions of competition in favour of a Member’s own service industry". Thus the test for non-discrimination is whether any measure puts a foreign supplier at a disadvantage. Modes of Supply The Schedule of Specific Commitments also identifies which of four different ways (or "modes") of supplying services are covered. Cross-border supply (Article I.2a). Services can be supplied from one country to another: international telephone calls; Internet services; telemedicine; a purchase of laboratory services from another country; a purchase of medicines or advice on the Internet. Only the service itself crosses the border.

(Article I.2a). Services can be supplied from one country to another: international telephone calls; Internet services; telemedicine; a purchase of laboratory services from another country; a purchase of medicines or advice on the Internet. Only the service itself crosses the border. Consumption abroad (Article I.2b). Individuals or companies can go to another country to use a service there. Tourism is a prime example. This mode encompasses travel to another country to obtain a medical treatment that is better, faster or cheaper than that available domestically.

(Article I.2b). Individuals or companies can go to another country to use a service there. Tourism is a prime example. This mode encompasses travel to another country to obtain a medical treatment that is better, faster or cheaper than that available domestically. Commercial presence (Article I.2c). A company can set up subsidiaries, branches, joint ventures or representative offices or can lease premises in another country to provide services there. For instance, banks can set up operations in another country, and US health care companies can set up hospitals or clinics in European countries.

(Article I.2c). A company can set up subsidiaries, branches, joint ventures or representative offices or can lease premises in another country to provide services there. For instance, banks can set up operations in another country, and US health care companies can set up hospitals or clinics in European countries. The presence of natural persons (Article I.2d). Individuals from one country can be admitted temporarily to another country to provide services there, for instance, fashion models, doctors or nurses. GATS does not apply, however, to people seeking permanent employment or to conditions for obtaining citizenship, permanent residence or permanent employment. Of all four ways of supplying a service, WTO member countries have made the least number of commitments in this mode. Once a government has committed itself under GATS to opening a service sector to foreign competition, it must not keep money from being transferred out of the country to pay for the relevant services (Article XI), except when the country is experiencing serious balance-of-payment difficulties (Article XII). Such exceptions must be temporary and justified by an International Monetary Fund assessment of the country’s financial situation. GATS thus provides almost guaranteed conditions for foreign exporters and importers of services and investors in any sector which a country has listed in its Schedule.

Gats 2000

GATS is innovative, complex and without legal precedent. Few of its provisions have been tested or clarified by challenges brought to the WTO dispute panel. Little information exists on the impact of GATS so far in facilitating trade in services, or on the economic benefits countries have accrued from services liberalisation, let alone their social and environmental effects. There is little baseline data upon which to make comparisons. The WTO Secretariat recognises this lack of data upon which to base an assessment of trade in services, while the UK government says it has yet to work out how such statistics can even be collected.37 Nonetheless, WTO representatives have begun to negotiate to extend the scope of GATS.

When the Agreement was signed in 1995, some countries considered it to be incomplete.38 A clause (Article XIX) was therefore included mandating "successive rounds of negotiations ... aimed at achieving a progressively higher level of liberalization" -- in practice, privatisation and deregulation. It specifies that the first "successive round" of negotiation should begin within five years of GATS coming into effect, that is, by the year 2000. As Canadian trade and investment researcher Ellen Gould points out, "under the GATS, liberalization could just keep on going and going, presumably until negotiators run out of sectors to open up to foreign competition and ownership".39 The WTO Secretariat describes Article XIX as "a guarantee that the present GATS package is only the first fruit of a continuing enterprise."40 Other clauses provide for further rules to be developed for domestic regulation, government procurement of services, subsidies and emergency safeguards (see Boxes 4 and 5).

When he was European Commission Vice President, Leon Brittan made clear that "the aim [of GATS 2000 negotiations] must be ... to conclude an ambitious package of additional liberalisation by developing as well as developed countries, in politically difficult as well as in other sectors".41 The EU Commissioner for Trade, Pascal Lamy, has argued that "if we want to improve our own access to foreign markets, then we can't keep our protected areas out of the sunlight. We have to be open about negotiating them all if we are going to have the material for a big deal."42

The US, European Union, Japan and Canada (known as the Quadrilateral or "Quad" governments) are pushing hard to:

increase the services and ways of supplying services that WTO member countries agree to open up to foreign competition (market access);

re-classify services to get around some countries' reluctance to open them up to foreign competition; 43

insert new rules and restrictions that apply to all members, services, sectors of services and ways in which services are supplied, irrespective of whether countries have agreed to open such services to competition; 44

members, services, sectors of services and ways in which services are supplied, irrespective of whether countries have agreed to open such services to competition; place new constraints on domestic regulation (see Box 4).

They are seeking more access to Southern markets, to each other's public services, and further deregulation of services already in private hands but publicly-regulated, such as media, publishing, telecommunications, energy, transport, financial and postal services. Northern countries are interested in service liberalisation in Southern countries in construction and engineering; distribution; education; environmental, health and social services; and recreational and cultural services.

These revisions, if they are agreed upon, could mean that the voluntary nature of GATS -- under which a country decides which services to list as open to foreign competition -- would in effect be meaningless. It could be irrelevant whether a country offers up its services or not if other rules apply to all services. Guarantees, such as those from the UK's Department of Trade and Industry that "the UK government has no intention whatsoever of offering to privatise public health care or education under the GATS 2000 negotiations", would have little force.45

Following the GATS "built-in agenda" mandating successive rounds of negotiations, talks opened on 25 February 2000 in Geneva, home to WTO headquarters. The United States would like these negotiations to be completed as soon as possible, and suggested the end of the year 2002 as a deadline. Other countries, however, want the negotiations to be open-ended, or integrated within a broader and comprehensive revision of all the WTO agreements.46

Despite the requirement for "transparency" in GATS (see Box 3), the renegotiations are taking place between government representatives behind closed doors (but in close consultation with international corporate lobbyists). Few of the results of discussions are made publicly available by the WTO or individual countries. It is next to impossible for citizens' organisations to find out the current state of negotiations while access to many background documents is restricted.47 Thus even negotiations on apparently technical issues such as reclassification of services are evading public accountability and public and parliamentary debate.

Sidebar - Box 4: Regulating Governments, Not Corporations Article VI of GATS covers domestic regulation. Its aim is to encompass any regulation that affects services but which is not covered by other GATS obligations. Its fourth clause aims to ensure that "qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services”. Although undefined in GATS, "technical standards" could encompass most types of government control. The WTO Agreement on Technical Barriers to Trade, for instance, defines them as: "product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory". In the context of services, "technical standards" could apply to the processes and methods of producing services, including administration. This could encompass their funding and delivery, including reimbursement under mandatory (public or private) insurance schemes. A wide swathe of government regulations concerning environmental protection, consumer protection and industrial policy would seem to be covered by this fourth clause: legislation accrediting professionals as competent to practise; awarding licences to television or radio stations; giving university status to academic institutions; licensing hospitals; and granting waste disposal permits. So that these national requirements and standards do not constitute an "unnecessary barrier" to trade in services, Article VI.4 states that they should be "not more burdensome than necessary" and should not restrict the supply of the service. But what does "burdensome" mean? How would restriction be determined? In case of a dispute between countries, the clause does not provide a clear legal formula that a WTO dispute panel could refer to. A Working Party on Domestic Regulation – one of the three sub-groups of the Council for Trade in Services (the body within the WTO that oversees GATS) – has been drawn up to discuss "reform" of domestic regulation. This involves drafting a "necessity test" – a legal formula which could be used "to assess the level of trade-restrictiveness of a measure". If proposals for this test are adopted, a government challenged by another through the WTO would first have to show that a disputed regulation met a "legitimate objective" – and the WTO would determine what counted as "legitimate". Then, to clarify "burdensome" and "restrictive" as applied to the means of achieving that objective, the Working Party has considered importing into Article VI.4 the definition of "least burdensome" from a GATS Annex on Telecommunications: "pro-competitive". The European Union has gone further and identified "anti-competitive practices", including cross-subsidising by monopoly providers of network infrastructure and services. It argues that this practice restricts competing suppliers from being able to provide services in a market. Instead, it maintains that charges for each part of a service should be at: "cost-oriented rates that are transparent, reasonable, having regard to economic feasibility, and sufficiently unbundled so that the supplier need not pay for network components or facilities that it does not require for the service to be provided". Governments that currently use non-market mechanisms, such as risk pooling, social insurance funds, block contracts and cross-subsidising, to deliver public services to as much of their population as possible could find such practices challenged as anti-competitive (see p.19). The European Union has also suggested that a measure should not be considered trade-restrictive if it is "proportionate" to the objective pursued. But what might be considered proportionate, reasonable or rational would be a matter of judgement, reflecting the values of those with decision-making power. Worse, Article VI.4 could be interpreted as applying to all services, not just to those which a country has offered to liberalise. The other clauses in Article VI clearly apply only to those services listed in a country’s schedule of commitments. The WTO Secretariat believes the different phrasing of Article VI.4 is "intentional". If these proposals were adopted, all domestic regulations would have to be "pro-competitive”, even if no foreign firm was involved. A WTO disputes panel could require countries to unbundle a public monopoly such as health care and substitute competing service providers or competing health care insurers. Health systems researchers Allyson Pollock and David Price point out that these proposals "would transform the WTO from a body combating protectionism to a global agent of privatisation". "The WTO’s strategy is shifting from persuasion to the development of new global regulations which will over-ride national sovereignty in domestic policy and impose unprecedented market reform obligations on all the processes of service delivery and throughout all service sectors". In essence, the aim of GATS is to regulate governments, not corporations. Compared to markets in goods, those in services and access to them are more constrained by government interventions. The power of a GATS article on domestic regulation clause is that many governments may censor themselves by not instituting legislation or public policy objectives which could be interpreted as being against WTO rules. There has been no challenge to any domestic regulation under GATS as yet, but at the WTO Secretariat itself acknowledges, "cases may arise in the future". GATS sets in place a legal framework which governments could use in future to challenge other countries’ domestic regulations. The WTO stresses that governments can still regulate under GATS. Discussions about domestic regulation, however, raise the question: how? Sources: Pollock, A.M. and Price, D., "Rewriting the Regulations", The Lancet, 356, 9 Dec. 1999, pp.1995-2000; "Opening World Markets for Services: A Guide to the GATS: Which Sectors are Covered by GATS?", website: http://GATS-into.eu.int/; Sinclair, S., GATS: How the World Trade Organization’s New "Services" Negotiations Threaten Democracy, Canadian Centre for Policy Alternatives, Ottawa, 2000; WTO Secretariat, "International Regulatory Initiatives in Services", S/C/W/97, 1 March 1999.

Sidebar - Box 5: GATS 2000 Negotiations–New Rules and Restrictions GATS mandates specific rules to be drawn up covering subsidies, government procurement and emergency safeguard measures. GATS already covers subsidies in effect as part of the national treatment and most-favoured nation provisions. If a government provides a subsidy to a national service supplier (including a public one), in theory, it has to provide it to a foreign-based service supplier as well. As WTO research staff have said, this requirement is a powerful argument for abandoning the subsidy altogether. In practice, it would eliminate public services and encourage privatisation. Article XV, however, promises to develop further rules on subsidies to avoid "trade distortive effects" and as such goes further than previous international free trade agreements such as the earlier GATT or the North American Free Trade Agreement (NAFTA). The Article sets no date for these negotiations. Further rules could, however, be drawn up to protect national subsidies and grants related to the provision of universal public services such as health care and education or to public interest objectives such as health and safety. For the most part, government procurement -- government agencies buying in goods and services for governmental purposes - falls outside WTO obligations. GATS Article XIII currently exempts it from the most-favoured nation, national treatment and market access obligations (but not transparency), but mandates further negotiations by the beginning of 1998. Negotiations on government procurement are taking place in other WTO fora, however. For instance, the Council for Trade on Goods is trying to negotiate an agreement on transparency as part of the separate Agreement on Government Procurement which would apply to services as well as goods. The plurilateral Agreement currently covers goods only and has been signed by just 27 (mainly industrialised) countries. The US has been pushing hard for an agreement on transparency. It wants binding rules on the notification and announcement of tenders for government procurement contracts in order to give companies enough information and time to submit bids. Reform of government procurement could be another mechanism by which public services are opened up to competition. GATS does not define "governmental purposes". The WTO Secretariat has stated that the mandated negotiations "are expected to lead to commitments to open up some government purchases to foreign service suppliers." Safeguards are emergency measures taken by a government to provide temporary protection against "fairly traded" products that either cause or threaten to cause "serious injury" to domestic service suppliers, for instance, if the domestic market has been flooded with these products, or if the country has a balance of payments crisis. They are permitted under the GATT rules on goods, but have not yet been introduced into GATS. "Serious" has not been defined. GATS Article X provides for negotiations on emergency safeguard measures to be completed by the beginning of 1998, a deadline which the Working Party on GATS Rules agreed to extend to December 2000 and then again to March 2002. Southern countries argue that safeguards rules would address concerns about the difficulty of reversing GATS commitments. Many countries are seeking means by which they might, at least temporarily, suspend GATS commitments when faced with adjustment problems or until their domestic industries have developed to the extent that they can withstand foreign competition. Citizen groups in both North and South are concerned to keep environmental, health and safety, and consumer measures, to limit commercial encroachment on public services, and to reverse commercialisation if it proves harmful. Indeed, such safeguards could be part of a process to reform GATS so that it was less detrimental to sustainable development or human health. But Northern country negotiators have strongly resisted safeguard provisions, contending that GATS provides enough flexibility already. Negotiations on these rules are proceeding in parallel with those on market access (that is, increased country commitments on their schedules) and could be used as trade-offs between the two. For instance, the prospect of an emergency safeguard mechanism might be used to persuade Southern countries to make more commitments. Sources: "Opening World Markets for Services: A Guide to the GATS: Which Sectors are Covered by GATS?", website: http://GATS-into.eu.int/GATS-info/guide.pl?MENU=ccc, accessed 1 November 2000; Sinclair, S., "Expanding the WTO Services Agreement: What’s on the GATS 2000 Re-negotiating Table?", GATS: How the World Trade Organization’s New "Services" Negotiations Threaten Democracy, Canadian Centre for Policy Alternatives, Ottawa, 2000, ch 4.

Business Objectives in Gats 2000

This secrecy, combined with GATS's obscure, bureaucratic, arcane and technical terminology, make it difficult for policymakers, let alone the general public, to grasp the significance of the Agreement. But statements from US and EU industry associations indicating what they want out of the current negotiations give a much clearer picture.

The president of the US Coalition of Service Industries (CSI), Robert Vastine, has said that his "most salient criticism" of GATS is that countries have specified so few services to be opened up to liberalisation.48 He argues that:

"the new negotiations must secure commitments to national treatment, market access, and cross border services in as many sectors as possible. Current scheduled exceptions are too broad, and must be honed".49

US negotiators must:

"propose broad commitments to liberalization in areas such as the right to establish a business presence in foreign markets (commercial presence), the right to own all or a majority share of that business, and the right to be treated as a local business (national treatment)."50

Vastine is adamant that the WTO:

"must ... provide that the entire new 'round' be completed by 31 December 2002, in order to force closure on the existing agenda, reap what gains can be garnered, and begin again with a fresh agenda that could include items like investment".51

The European Union has been actively reaching out to companies. It declares that:

"GATS is not just something that exists between Governments. It is first and foremost an instrument for the benefit of business, and not only for business in general, but for individual services companies wishing to export services or to invest and operate abroad."52

"In short", it concludes, "the GATS should be one of the key reference texts used by any corporate planner seeking to do business on a world level".53

The EU encouraged the establishment in 1998 of the European Services Network (now Forum -- ESF) of multinational industry representatives, led by Barclays plc chair Andrew Buxton, to "advise European Union negotiators on the key barriers and countries on which they should focus" and to ensure "that the EU's policy corresponds to the real export and economic growth interests of our service industries".54 The ESF still represents a limited group of companies, primarily financial services, telecommunications, postal, tourism and engineering/construction, but is determined "to support and encourage the movement to liberalise service sector markets throughout the world and to remove trade and investment barriers for the European services sector".55 The ESF says that "foreign investors should have the same access to domestic markets as domestic companies" and that barriers such as nationality or residency requirements should not apply to the posting of key personnel.56

Several joint industry-government conferences provide examples of the close collaboration between corporate employees and government officials in testing and refining their ideas for expanding GATS. In the US, one of the goals of the World Services Congress, a large three-day international conference in November 1999 attended by corporate executives and WTO, World Bank and government officials, was to "shape government policies". The 100 or so comprehensive research papers presented at the Congress serve "as a guide not just to the topics under consideration but also to the intended direction of the GATS re-negotiation itself".57 In November 2000, the US Department of Commerce and the US Coalition of Service Industries jointly held a conference on "Services 2000: A Business-Government Dialogue on US Trade Expansion Objectives", the purpose of which was "to focus industry's priorities in the current WTO negotiations" and to "allow participants to make detailed recommendations to negotiators".58 The Trade Directorate of the European Commission, meanwhile, co-funded the November 2000 European Services Forum international conference on "The GATS 2000 Negotiations: New Opportunities of Trade Liberalisation for All Services Sectors".59

Sidebar - Box 6: GATS Privatisation of Immigration? Many developing countries have pointed out that GATS contains clear, specific and detailed obligations facilitating the movement of capital, but not for the movement of labour. Yet as US sociologist Saskia Sassen notes: "it is the increased circulation of capital, goods and information under the impact of globalization, deregulation, and privatization that has forced the question of the circulation of people onto the agenda." GATS encourages industrialised countries to poach the brightest and the best from poor countries and to put up barriers to the rest. Highly-skilled professionals often gravitate toward countries offering better pay and working conditions. In Jamaica, over 50 per cent of nursing positions are vacant because Jamaican nurses are working in North America. Filipino nurses also move in large numbers to the US. India and Cuba train doctors who wind up working abroad. Indian finance minister Yashwant Sinha pointed out at the World Economic Forum in Davos in January 2001 that 38 per cent of all doctors in the US are Indians, as are 34 per cent of the scientists at NASA. For developing countries, such mobility can mean increased remittances sent back home, but also a drain of their most-needed skills. The investment these countries put into training such professionals is an example of aid flowing from South to North. The British public health system, meanwhile, has estimated that it is short of 17,000 nurses and several thousand doctors, not least because of deteriorating pay and working conditions, and cuts in training. At least one quarter of doctors and nurses working in the public sector qualified in countries such as Spain, Scandinavia, the Philippines, Australia, New Zealand and, recently, China. South African President Mandela appealed to Britain to stop "leaching" his country’s health workers. This trend is largely controlled by Northern countries wanting extra skilled workers. The use of foreign labour keeps wages and conditions low. Encouraging the movement of health care professionals also creates pressure to standardise medical training and qualifications, but the pressure is often for lower standards rather than higher ones. The WTO Secretariat has said that: "the most significant benefits from trade are unlikely to arise from the construction and operation of hospitals ... but their staffing with more skilled, more efficient and/or less costly personnel than might be available on the domestic labour market". Indeed, it is professional workers who are the main focus of GATS. Sassen describes GATS as "a privatized regime for the circulation of service workers" which has not been subject to the public scrutiny applied to national immigration policy. GATS amounts to a migration policy (albeit one applying to temporary labour) under the oversight not of a national government but a separate, autonomous entity. Sassen argues that: "this can be seen as yet another instance of privatization of that which is profitable and manageable ... In this case, it would be a privatizing ... of immigration policy components that are characterized by high-value added (persons with high levels of education and/or capital), manageability (they are likely to be temporary and working in leading sectors of the economy and hence are visible migrants, subject to effective regulation), and benefits (given the new ideology of free trade and investment). Governments are left with the supervision of the ‘difficult’ and ‘low-value added’ components of immigration – poor, low-wage workers, refugees, dependants, and potentially controversial brain-drain flows. This can clearly have a strong impact on what comes to be seen as the category ‘immigrant’ with policy and broader political implications." "Human capital" can be imported, but borders are closed to "immigrants", who are invariably assumed to be "black", resulting in institutionalised and legitimised racism. Several developing countries support GATS’ facilitation of the movement of people because, as India’s ambassador to the WTO, Srinivasan Narayanan, said, "this is an area where developing countries have some competitive advantage". Narayanan has pointed out that Northern countries cite the "politically sensitive issue" of immigration as a reason for not making more commitments under the "presence of natural persons" way of supplying services – even though Southern countries have had to made commitments under other WTO agreements in politically sensitive areas such as intellectual property rights and cannot renege on them. Yet long-standing WTO observers point out that countries such as the US are unlikely to allow in Indian workers unreservedly. Sources: Sassen, S., "Unstoppable Immigrants", The Guardian, 12 September 2000, p.21; Sassen, S., Globalization and Its Discontents: Essays on the New Mobility of People and Money, The New Press (W.W.Norton & Co.), New York, 1998; Srinivasan Narayanan, statement at "The GATS 2000 Negotiations: New Opportunities of Trade Liberalisation for all Service Sectors", European Services Forum Conference, 27 November 2000, Brussels, website: www.esf.be/esf_%20conf_speeches.htm, accessed 24 March 2001; WTO Secretariat, "Background Note on Health and Social Services", S/C/W/50, 18 September 1998.

Turning Public Into Private

Although GATS encompasses all services, many civil servants and government ministers believe that it makes an exception for public services -- those "supplied in the exercise of governmental authority" (Article I.3b) -- such as health care, education or utilities. But GATS defines government services so narrowly -- "any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers" (Article I.3c) -- that the exception could be almost meaningless if one country were to challenge another country's public services at the WTO dispute panel as contravening GATS.60

Governments the world over have been deregulating and privatising both the funding and the provision of public services, sometimes on their own initiative, sometimes as a condition of IMF structural adjustment programmes (SAPs) and sometimes on World Bank advice.61 In some cases, governments have simply sold public entities off. For instance, in Britain, the railways, telephones, and electricity, gas and water utilities have been transferred to the for-profit sector. Governments are transforming other public services, particularly those which it might be politically unacceptable to privatise outright, by requiring the public body to contract services out to for-profit companies or to institute a process of compulsory competitive tendering (private provision). They have separated infrastructure such as buildings from service provision, and privatised the infrastructure by means of an array of public-private "partnerships" that retain an ostensible public dimension and thus appear more politically acceptable. Examples include the UK's Private Finance Initiative (PFI), build-own-transfer (BOT) schemes, and build-own-operate-and-transfer (BOOT) projects. Governments have also introduced internal markets, that is, divided purchasers from providers within a public service sector (see Box 10).62 Management from the private sector has been introduced to infuse the public service sector with market-oriented methods and principles. As David Hall of the Public Services International Research Unit points out:

"The corporatisation of public service organizations ... usually involves the introduction of business accounting ... and may be a change as significant as that to private ownership itself."63

As far as GATS is concerned, if a government contracts out any part of its public services, such as cleaning or catering, or if private (either for-profit or voluntary) companies supply services also provided by the government (for instance, if private schools exist alongside state ones, or if there is a mixture of public and private funding), then those services could be judged by a WTO dispute panel as not being a government service and thus subject to GATS rather than exempt from it, that is, subject to competition from operators from abroad.64

As a result of existing deregulation and privatisation, national -- and increasingly transnational -- companies have sprung up and made inroads into a wide range of public services in many countries, particularly utilities (water, energy, telecommunications, transport), refuse collection, prisons, housing, social services, and support services (cleaning, catering, information technology).65 Via GATS, they could gain access to many more.

The European Union, for example, wants all WTO member countries to open up their water delivery systems to competition because this "would offer new business opportunities to European companies, as the expansion and acquisitions abroad by a number of European water companies show".66 French-based companies such as Vivendi, Suez-Lyonnaise and Bouygues (SAUR) have taken the lead in water supply.67 Education has been described by investment group Lehman Brothers as "the final frontier of a number of sectors once dominated by public control".68 Other targets include museums, libraries, energy and transport.

Via GATS, private companies could prise open for themselves public funding for services. The EU and US spend a substantial amount of public money on public services. In the countries of the OECD (Organisation for Economic Cooperation and Development), public expenditure on health services and education accounts for more than 13 per cent of gross domestic product.69 Much of this spending now goes to public or voluntary bodies but could end up being channelled to for-profit groups. Nearly 50 per cent of UK tax revenue now goes to profit-making companies.70

It is often argued that the privatisation of public services brings more competition, more private finance so as to lessen public expenditure, less bureaucracy, more flexibility, greater opportunities for the workforce, and more modern management practices. In practice, however, cartels develop and corruption is rife. Public money provides guarantees for private companies which simply avoid competition from the public sector. There is little or no accountability or regulation within the private sector, and job cuts or reduced conditions of work are common.

The bulwarks of public health -- air quality, safe drinking water, food safety, road safety, drainage and sanitation -- have been under threat because of privatisation for some time now; under GATS, they could be permanently dismantled. The consequences are apparent in many poorer countries today and in nineteenth century Europe: high mortality rates, especially high maternal death rates, a proliferation of contagious diseases, and high levels of poverty and homelessness.71

The WTO Secretariat has acknowledged that restricting domestic regulation creates a tension between trade expansion and national sovereignty. But another critical tension is that between the goals of trade more generally, as facilitated by privatisation, and the public interest. As David Hall points out:

"Whether the private companies involved are national or foreign is arguably a less important issue for public services than the impact of privatisation on financing or service provision ... There may still be negative development consequences of globalisation of these services, from the entry of foreign capital, but the distinctive damage to public services happens through privatisation".72

Health care researchers Allyson Pollock and David Price stress that "the crucial factor is not so much domestic sovereignty as the way in which public interest and public-health objectives can be over-ridden by objectives that further trade".73 Health care researcher Meri Koivusalo argues that what the WTO really deals with "is not trade barriers between nations or interests between the North and the South, but ... incentives and mechanisms which deal with the respective rights, responsibilities and capacities of the private and public sector."74

Sidebar - Box 7: Creating Health Markets: Privatising Health Care ... The IMF, World Bank and World Health Organisation To establish a trade in services, as GATS aims to do, there has to be a market in services -- services have to be bought and sold. Until recently, however, many countries have not had markets in health care, education, water and sewerage, or energy. All have, by and large, been provided by government or non-profit organisations. The state has set up schools and paid the teachers, built the hospitals and trained the nurses and doctors. Markets are now being created by enabling entities other than the state to provide services. Privatisation of ownership -- outrightly selling-off water suppliers, for instance -- is an obvious means. Other means are more hidden and gradual: privatisation of service provision (by requiring contracting out, leasing or competitive tendering); privatisation of finance (charging users of the service, private capital, private health insurance) and the introduction of internal markets (dividing purchasers from providers of services). Health care services have not generally been explicitly privatised. Instead, there has been an incremental process of government retrenchment accompanied by private sector enlargement as the services have been commercialised. Markets -- and thus the potential for trade -- have crept in through the back door. Imf and World Bank Governments such as those in the US, Britain, Chile and New Zealand have themselves instigated the gradual commercialisation of their public health services. Others, however, have been unable to avoid doing so because of debt and the influence of the International Monetary Fund (IMF) and the World Bank. IMF programmes have compelled many countries to reduce their public spending on health, which is no longer regarded as a productive investment for human development and economic growth, but as an unnecessary financial burden and expense which governments should avoid. Moreover, a "cost recovery" strategy for public services has invariably involved the introduction of "user fees" or charges to patients, even for basic health care, which are now widespread through the South. A 1998 World Bank report noted that "about 40 per cent of projects in the Bank’s [health, nutrition and population] portfolio and nearly 75 per cent of projects in sub-Saharan Africa included the establishment or expansion of user fees". Studies have shown that such fees simply decrease people’s use of medical services. The results are often an increase in child mortality, sexually-transmitted diseases and tuberculosis (TB). People die of easily-treatable diseases because they cannot afford to buy the medicines. In Nigeria, Kenya and Ghana, people’s use of hospitals and clinics dropped by half within one or two weeks of charges being introduced. In one region of Nigeria, maternal deaths rose 56 per cent while hospital births declined 46 per cent after user charges for emergency admissions were introduced. In Ghana, user fees in rural clinics contributed to a doubling of child mortality between 1983 and 1993. Infant mortality has risen by one quarter in Zambia since 1980, while life expectancy has dropped from 54 years to 40. In Zimbabwe, the poor were supposed to be exempt from user fees levied on health services, but a World Bank evaluation found that just one-fifth of the poor could obtain the necessary waivers. The World Bank has been directly involved in health policy planning in the South since the mid-1980s. Its 1993 annual report, Investing in Health, described public services as a barrier to the abolition of world poverty. It still maintains that "if market monopolies in public services cannot be avoided, then regulated private ownership is preferable to public ownership" and that, in most circumstances, "the primary goal of public policy should be to promote competition among providers." The report advocated incentives for the purchase of private insurance, privatisation of public services and promotion of market competition. The Bank’s health "reform" policy has included making people pay for their health care, reducing public provision to a few programmes, and turning over the rest of government services to profit-making organisations and individuals. The Bank currently operates over 200 health care projects, many effectively requiring further privatisation of public health systems. The Bank’s health spending is now three times the budget of the World Health Organisation. In 1998, Mexico received the largest loan the World Bank had ever made for health care, $750 million, to change the "structure" of public health care operations. In the west Indian state of Maharashtra, the World Bank is providing half the funding (Rs300 million/£4.4 million) for a private hospital treating heart disease in a joint venture with one of India’s largest pharmaceutical companies, Wockhardt. Wockhardt is linking up with a large US health care insurer and with the US Harvard Medical School, which will train Wockhardt’s medical staff and introduce them to new medical technologies. In the 1990s, the Philippines instituted a cost cutting and privatisation programme in the health sector. Now half of hospital beds are private and most costs are paid for by patients. An insurance system covers just one-third of the population. The government now spends less than three per cent of its budget on public health, but nearly 30 per cent on servicing its debt. Just three per cent of the World Bank’s $1.8 billion poverty alleviation programme in the Philippines goes to fund health care –and most of that goes towards projects related to women’s reproduction. (The project’s real intent is population management, comments Antonio Tujan, a Philippine NGO worker.) The World Bank pays more for the services and infrastructure for the Subic Bay freeport zone, the former US naval base which is being turned into a base for US corporations such as Oriental Petroleum, than on health. Other World Bank and IMF policies have undermined people’s ability to pay for health care: the lifting of price controls; the freezing of wages; the devaluation of local currencies; and the reduction of subsidies on basic essentials such as food and transport. Many people, especially women, now work longer hours for lower wages and have less food. Falling incomes, increased prices for essential commodities, declining basic services and an increased women’s workload have all led to more illness and deaths. All these "reforms" have helped commercial interests to cater to wealthier people in developing countries through private health care insurance and private hospitals. Most people are left dependent on a poorly-equipped, shrinking public sector; it is the affluent who call upon rapidly-expanding and increasingly high-cost private services. "Before, everyone could get health care", said one person interviewed during the World Bank’s 1999 poverty consultations, "but now everyone just prays to God that they don’t get sick because everywhere they ask for money." Conclude medical researchers Kasturi Sen and Meri Koivusalo: "Strong private and increasingly transnational interests are ... altering the nature and even the existence of public health care ... systems throughout the developing world with the helping hand of international agencies such as the World Bank." The World Trade Organisation regards itself as the coordinator of the international transfer of such policies. It asks "How can WTO Members ensure that ongoing reforms in national health systems are mutually supportive and, whenever relevant, market-based?" The EU, similarly, states that one purpose of the WTO is: "to provide a forum for negotiations on trade relations, with a view to achieving greater coherence in global economic policy making. In practice this will involve close co-ordination with the policies of the International Monetary Fund and the World Bank." World Health Organisation More recently, the World Health Organisation (WHO) has joined the privatisation trend through its advocacy of "public-private partnerships", a trend which is leading to the partial privatisation and commercialisation of the UN system itself. Cuts in national government contributions to WHO have been one of the forces driving it into "partnership" with industry and the private sector. WHO’s budget for the financial year 2000/2001 is US$1.86 billion, while that of baby food producer Nestlé is US$7.9 billion for its promotional activities alone. The WHO approach has been criticised for benefiting commercial interests rather than public health initiatives. Efforts are also being made to restrict the WHO from regulating industry in areas with health implications such as baby food, pharmaceuticals, tobacco and alcohol. In 2000, WHO itself admitted that tobacco company consultants have had staff positions at WHO. Sources: Hall, D., Globalisation, Privatisation and Healthcare--A Preliminary Report, Public Services International Research Unit, Greenwich, January 2001, website: www.psiru.org; Price, D., Pollock, A.M. and Shaoul, J., "How the World Trade Organisation is Shaping Domestic Policies in Health Care", The Lancet, 354, 27 November 1999, pp.1889-1892; "Health Hazard: How the System Makes Us Sick", New Internationalist, Issue 331, Jan/Feb 2001, website: www.newint.org; Sen, K. and Koivusalo, M., "Health Care Reforms and Developing Countries: A Critical Overview", International Journal of Health Planning and Management, Vol. 13, 1998, pp.199-215; Koivusalo, M. and Ollila, E., Making a Healthy World: Agencies, Actors and Policies in International Health, Zed Books, London, 1997; TRAC, Tangled Up In Blue: Corporate Partnerships at the United Nations, TRAC, 2000, website: www.corpwatch.org; Richter, J., Holding Corporations Accountable: Corporate Conduct, International Codes and Citizen Action, Zed Books, London and New Jersey, (forthcoming September 2001); HAI, Public-Private Partnerships: Addressing Public Health Needs or Corporate Agendas?, Health Action International, Amsterdam, May 2001, website: www.haiweb.org/campaign/PPI/seminar200011.html.

Turning Health Care Into Health Markets

Health care is just one example of a public service threatened by GATS. Commercial interests now provide some of the health services in many countries, sometimes in competition (albeit limited and regulated) with public providers.75 In the UK, for instance, for-profit nursing homes and privately-financed hospital buildings provide health services in competition with public ones.76

This dual system gives the WTO a useful rationale for encouraging further competition and privatisation through GATS:

"The hospital sector in many countries ... is made up of government-owned and privately-owned entities which both operate on a commercial basis, charging the patient or his [sic] insurance for the treatment provided ... It seems unrealistic in such cases to argue for continued application of Article 1.3 [that the service is a government service] and/or to maintain that no competitive relationship exists between the two groups of suppliers of services".77

The stakes are huge: expenditure on health in OECD countries is estimated at more than US$3 trillion annually.78

To date, however, GATS has not been instrumental in privatising health care services and opening them up to foreign competition.79 Health and social services are "trailing behind other sectors" in the rate they are being listed under GATS as open to competition. The WTO acknowledges that some governments do not want to commercialise their hospitals because they are part of their "national heritage".80

As of 1998, 59 countries had put one or more aspects of their professional (medical, dental, veterinary, nursing, midwifery, physiotherapy) services or health-related and social services (including hospitals) under GATS. Medical and dental services had the highest tally with 49 countries while 39 countries had agreed to open up hospital services to foreign suppliers. In the financial services sector, including health insurance, however, 76 countries have made commitments.81 Poorer countries have made more commitments in the hope of attracting services they lack. Sierra Leone is the only country to have included all eight health service categories under GATS, while the US has included just hospital and health insurance services.

Even if they have made such commitments, however, such countries can still limit foreign suppliers' market access and specify which ways of supplying the service are open to competition (see Box 3). The highest number of restrictions in ways of supplying health services is in "commercial presence".

During GATS 2000 talks, US negotiators have made health care a special target:

"The United States is of the view that commercial opportunities exist along the entire spectrum of health and social care facilities, including hospitals, outpatient facilities, clinics, nursing homes, assisted living arrangements, and services provided in the home".82

The US Coalition of Service Industries is calling for majority foreign ownership of all public health facilities to be allowed:

"We believe we can make much progress in the [GATS] negotiations to allow the opportunity for US businesses to expand into foreign health care markets ... Historically, health care services in many foreign countries have largely been the responsibility of the public sector. This public ownership of health care has made it difficult for US private-sector health care providers to market in foreign countries."83

The US private health care sector also wants to gain access to "rapidly expanding health care expenditures in many developed countries" experiencing "an increase in their aged population".84

Sidebar - Box 8: Marketing Health in Chile At the beginning of the twentieth century, Chile was a pioneer of equal access to health services for all. By the end of that century, it had become a pioneer in free market policies in health care. Between 1979 and 1985, the government sharply reduced government and employer contributions to health care services, passing more and more of the costs on to users through wage and salary withholdings and co-payments. By 1995, seven per cent of the gross pay of every person formally employed was withheld for health care. The employee now decides where this deduction goes. Since 1981, one option has been into a "plan" or contract offered by an ISAPRE, (Instituto de Salud Previsional), a health insurance company modelled on those in the United States. Another is to the public sector’s National Fund for Health, FONASA (Fundacion Nacional de Salud) and a third option is to the public health care facilities, the remnants of the national health service, the SNS (Sistema Nacional de Salud). According to neo-liberal free market thinking, these changes were meant to foster the rise of for-profit providers of health services which have to compete with each other in the medical marketplace and are thus forced to provide better care and to keep costs down. While less is spent from the public purse for health services, reducing employers’ expenditures on health benefits is supposed to enable more workers to be hired and Chilean industries to become more competitive in world markets. But while a greater number of health care systems (both public and private) offering an array of options at various prices is now available to each person, they are not necessarily accessible to each person. The determining factor is not "choice" but one’s ability to pay. This is clearly indicated by looking at who takes advantage of which “options”. The health insurance companies, the ISAPREs, have captured most high-income Chileans while the public system has wound up with all the low-income workers. Almost three-quarters of the ISAPREs’ clients are in the top 30 per cent of Chileans by income, while 41 per cent of those in the public system are in the bottom 30 per cent. The average income of an ISAPRE client is about seven times that of the average wage earner in the public system. In 1989, 21 per cent of the users of the public system -- over two million people -- were too poor to have withholdings or make co-payments. A beleaguered public health services system is meanwhile supposed to attend to the health needs of 70 per cent of Chileans, not to mention 100 per cent of the nation’s public health costs (environmental health, sanitation control and occupational safety). It has become grossly under-resourced: the government cut back sharply on its contribution to the public system on a per-person basis by 43 per cent between 1974 and 1989. Between 1973 and 1988, the number of employees in the public health system was slashed from 110,000 to 53,000, even though the number of people dependent upon it grew by one million during the same period. The remaining SNN employees have seen their real wages fall while they are assigned greater workloads in deteriorating working conditions. Investment in equipment and facilities has also been drastically cut. A doctor at the Central Emergency Hospital admitted: "We don’t even have enough sheets. We have to tell patients’ relatives to bring sheets, syringes, medicines. It’s embarrassing and it’s demoralizing to work now in a public hospital. The patients we see here and their families -- they have to sell everything, their furniture, everything, to afford the medicines. Sometimes, it’s better not to tell them that, yes, we could do something to cure you or your loved one because you know they won’t be able, even with the help of relatives and friends, to come up with the money for the medicines." The sharp curtailment in government funding for health care, together with the flight of higher-income people from the public system, have generated inefficiencies. A patient who has to stay in hospital for seven days waiting for an X-ray takes up space and other resources. Excessive waiting periods mean that many patients end up in emergency care, placing their lives in extra jeopardy and using up more resources. One hospital administrator said that an ulcer is not likely to be attended to until it bleeds when it will be treated as an emergency at a greater financial cost. Between 1984 and 1987, the greatest increase of all categories for medical treatments was in "emergencies", accounting for 40 per cent of the total. The net impact of health care liberalisation has been to shift most of the cost of health services onto consumers. In 1989, over 81 per cent of all health expenditure in Chile came from the wallets of consumers themselves (up from 19 per cent in 1974). The government contributed only 17 per cent (down from over 61 per cent in 1974). Employers contribute only 1.6 per cent at most -- by and large voluntarily at that; yet in 1974, their mandatory contributions had amounted to over 19 per cent of total health expenditure. The shift does not fall evenly on all Chileans. Middle-class and poorer Chileans have seen dramatic increases in what they must pay for health insurance and services. Many higher-income Chileans are likely to be paying less; those 15 per cent of Chileans with higher incomes who use ISAPREs contribute not a peso to the public system. By the late 1980s, the government was paying for only 38 per cent of the public system’s budget. It is the comparatively low wage earners in the public system -- mostly hard-pressed lower middle-class Chileans -- who subsidise heavily the health care of over two million poorer Chileans. In the words of Dr Raul Donckaster of the Medical Association, "It’s the poor who help the poorest". Source: Collins, J. and Lear, J., Chile’s Free Market Miracle: A Second Look, Food First Books, Oakland, California, 1995.

Sidebar - Box 9: Health Care for the Few In Chile, the ISAPREs (Instituto de Salud Previsional), health insurance companies modelled on those in the US, illustrate what happens when the private sector is given free rein in providing health care within the free market model. The essence of an ISAPRE’s profitability is discrimination. Most of the 30 or so ISAPREs do not themselves operate health service facilities: they sell health insurance, and by the profit-seeking logic of the marketplace, they sell insurance only to those least likely to need it. Most ISAPREs screen out people with certain congenital diseases and pre-existing cancer and those thought to be at high risk of contracting AIDS. They refuse applicants over 60 or 65 years of age or charge them very high premiums; by 1990, only two per cent of ISAPRE subscribers were retired. Psychiatric and dental care are rarely covered. The ultimate safeguard for the ISAPREs is that the annual premium for customers who have used health care services over the course of a single year is substantially hiked or the customers are dumped with little prospect of buying coverage from another ISAPRE. ISAPREs initially rejected women of child-bearing age or required women to certify that they were not pregnant when they took out insurance. Government interventions consistently favoured ISAPREs to the detriment of the public health system and the public purse. When ISAPREs were authorised legally in 1981, they took off slowly. The government then intervened to expand their market. In 1983, it increased mandatory health care withholdings from four per cent of wages and salaries to five per cent, and then to six per cent in 1984 and to seven per cent in 1986. The 1986 Health Law mandated the public system (FONASA) to take on the payment of all medical and maternity leaves and of neo-natal care for those insured under ISAPREs. It was also decreed that FONASA reimburse wages lost by ISAPRE subscribers due to illness after the tenth day of absence from work and during the 90 days of maternity leave. Since ISAPRE members tend to be higher earners, it is more expensive to cover their leaves of absence than those of people who are not with an ISAPRE. Yet again, the majority of Chileans, lower middle class and lower income, wind up subsidising the higher-income minority. ISAPREs are allowed to use public facilities for emergency cases and major procedures such as heart and brain operations, thereby avoiding costly investments in such facilities.

Private medical care insurers, by their very nature, do not invest in preventive health care.

Advertising and sales expenditure have become a major part of the "costs" of privatised medical care. In 1989, one-sixth of ISAPREs’ expenditure went on advertising, sales and related administrative expenses. Many ISAPREs spent more than that, some over one-third.

It is meaningless to argue that ISAPREs give "more efficient" or even "better" health care than the public system since they have so many more resources. In 1989, the ISAPREs had 6.5 times more financial resources per person than the public system. ISAPRE clients consume 70 per cent of the total deductions for health care, even though they are less than 15 per cent of the national population. With the public system run into the ground, most Chileans today would choose to be in the private system if they could afford to do so. Source: Collins, J. and Lear, J., Chile’s Free Market Miracle: A Second Look, Food First Books, Oakland, California, 1995.

Using Gats to Privatise Public Health Care

GATS could facilitate further privatisation and competition in health care services if more countries are pressured during GATS 2000 negotiations to list health care services on their schedules of commitments in all ways of supplying the service.

In the longer term, challenges under GATS to public services could be another way. The US could take Britain to the WTO disputes panel, for instance, if the British government or any other body refused a US multinational permission to buy a British public National Health Service hospital which had been financed through the Private Finance Initiative. Similarly, the Canadian province of Alberta plans to allow private, for-profit hospitals to provide services previously provided only by public hospitals. If any of these private entities are based outside Canada (and a US-based company could use NAFTA to gain access), Alberta would be obliged to extend the same rights to every other "like" foreign provider under the GATS most-favoured nation rule.85

A third way GATS could facilitate privatisation and competition is if mechanisms and principles underpinning the design, funding and delivery of public services are in effect proscribed -- for example, if the vague requirement for "domestic regulation" to be "least burdensome" to trade is defined as "pro-competitive" (see Box 4).86 "Universal risk pooling", for instance, is a key principle of public health care services and would be at risk because it is not "pro-competitive". It means that the different risks that people will need health care services are pooled together across society. Some people are healthy most of the time and need little health care, while others are chronically ill for years on end and need more. Access and entitlement to health care services are based on an individual's need for them, not on their ability to pay.

Also threatened is another widely-used principle: "cross-subsidisation". Under this principle, areas or services which cost less subsidise areas and services which cost more. In many countries, profitable services such as international telephone calls have subsidised less profitable but socially beneficial telephone services in rural areas. In transport, bus services or railway branch lines serving outlying areas are easily paid for by routes in busy, more congested areas.87 Risk pooling and cross subsidies between rich and poor, healthy and sick ensure that all get tolerably equal access to similar levels of care because the basis of public services aims to be redistribution.

Getting rid of cross-subsidisation is an essential step in service privatisation. It allows corporations to divide up integrated health care services, extract the more profitable ones and the more profitable patients (usually those who least need health care) and leave behind a reduced public sector. Such break-ups threaten the principles of universal coverage and shared risk that tax-funded (as in Britain and Canada) or social-insurance-funded (as in France or Germany) health care systems generally uphold.88

The trend is toward something like the United States' health care system, which has become dominated by for-profit organisations over the past decade. There, researcher Robert Kuttner observes, tacit cross-subsidies are being eliminated and hospitals treated more and more as businesses:

"Temporary losses are defensible only as investments in future profits, so cross-subsidy must be avoided ... There is no place for uncompensated care, unprofitable admissions, research, education, or public health activities -- all chronic money losers from a strictly business viewpoint".89

A revised GATS could not only reduce equitable access to health care services. It could also undermine mechanisms for containing the costs of public sector health care. It could override national regulations governing health care and affect the kind of services provided, restricting rather than enlarging people's choice of services and of the places in which they are provided.90 With reduced public expenditure on health and social services, women will increasingly have to take up the slack and nurse the sick who cannot find or afford health care.91

Sidebar - Box 10: Britain’s National Health Service Privatisation by the Back Door The UK’s National Health Service (NHS) has been a beacon to the world. Despite being under-funded and over-worked, particularly over the past two decades, it still provides high-quality health care to most of the people in Britain more cheaply and more efficiently than almost any other medical system in the world, according to the OECD. The health service is paid for out of general taxation, which is considered, even by the Financial Times, to be the fairest, most economical, most efficient and least bureaucratic way of funding the great bulk of health care. But under the guise of modernisation and reform -- which many of those working within the NHS believe is necessary -- the country’s health and social services are being commercialised and privatised. Given the general popularity of the NHS and its entrenched public nature, however, this process has been ad hoc, fragmented and covert. A first step has been to undermine confidence in public provision through unrelenting criticism of public services. Some of the methods to encourage for-profit involvement in the NHS are well-known: compulsory competitive tendering for "support" services such as cleaning, catering, laundry, computing and laboratory analysis, for instance. But other, more subtle mechanisms, are less familiar, mechanisms which the World Bank is recommending to other countries: separating the purchaser from the provider of health services;

introducing commercial accounting and private financing;

allocating resources on the basis of each patient’s health risks rather than a population’s health needs;

introducing user charges and private insurance. Purchaser-Provider Split In 1991, the Conservative government introduced an internal market to the NHS by separating the providers and purchasers of health care services from each other. Whereas health authorities throughout the country used themselves to plan and provide hospital services to a local population within a geographic area on the basis of its anticipated health needs, now they had to purchase care from NHS trusts (or the private sector) providing these services. The NHS trusts running the hospitals, meanwhile, had to compete with each other to obtain patients. Services were separated from each other and other activities, packaged into saleable and marketable items, priced separately and offered to purchasers, who began to shop around for the best financial deals. Despite further organisational changes in 1999, the purchaser-provider split remains. Commercial Accounting At the same time, commercial resource accounting procedures were introduced. Since 1991, NHS trusts have had to pay a "capital charge" to the government for the use of buildings and equipment -- even though the state already owns them outright. The cost of replacing these assets as new is estimated; the trusts then pay 6 per cent of this valuation out of their annual income (even though if the state were to replace the assets, it could borrow money for about 3 per cent). Trusts also became legally bound to break even, ensuring that their expenditure matched or was less then their income. Indeed, the only legal requirements of NHS trusts providing hospital and community services are now financial and are not related to health care at all. There are no legal mechanisms to ensure that they serve the interests of the local communities from which they draw their patients. In 1996-7, one-third of NHS trusts failed to meet at least one of their financial targets. Many continue to fall short. Current proposals would enable private firms or other trusts to take over trusts which do not meet their statutory financial targets. In an attempt to balance their books and pay the capital charge, trusts have had to reduce their expenditure or increase their income. Many have made major cuts in staff and in the services they provide, such as long-term care, rehabilitation and elective surgery (surgery for non-life-threatening conditions). Unsurprisingly, waiting lists for operations have grown. Trusts have also reduced their capital charge by selling off assets: the higher the value of the asset base, the higher the capital charge and the lower the budget available for clinical care. Trusts have also tried to generate extra income by getting in more private patients or more funds for commercial research, or by treating more patients more quickly. "In effect, the hospital becomes a factory for conveyor belt care", says health policy professor Allyson Pollock and her colleagues. Thus hospitals and services are now planned more according to the financial demands of trusts than to the clinical needs of the people in the area they serve. Affordability has become far more of a critical constraint in planning priorities in which clinicians and public health doctors are not required to be involved. Administrative running costs within the NHS are estimated to have doubled because of the imposed market processes, rising from 5 per cent to 12 per cent of total costs. Moreover, the introduction of the capital charge provided a stream of funding that could be used to pay for new capital investments -- one that could be channelled directly towards the for-profit sector. The Privatisation of Public Funding Capital spending within the NHS, allocated by the government to maintain, refurbish or replace buildings, has been insufficient for years. The backlog of maintenance and repair in the NHS is now over £3.1 billion. But public capital funding has now been virtually eliminated. Trusts, which became responsible for capital financing (by the introduction of the capital charge) instead of the government, have thus had to turn to the private sector to finance new investments if they want to remain "competitive" in attracting purchasers of their services (even though private finance is more expensive than public financing). The Private Finance Initiative (PFI), launched in 1992 by the Conservative government, was extended to the National Health Service in 1997 by the Labour government. A source of finance, not funding, PFI allows private companies and consortia to build and own hospitals which they lease to the NHS for between 20 and 60 years. The NHS pays for the building’s capital and running costs out of its incoming (mainly public) revenue. In effect, public funds subsidise the expansion of the private sector. PFI hospitals cost the NHS more than if it were to build its own hospitals. A new hospital in Edinburgh, for example, would have cost the state £180 million, but will cost it £30 million a year for 30 years at current prices -- £900 million in total. The health authorities will meet these costs by selling three existing hospitals, and cutting 33 per cent of its beds and 20 per cent of its staff budgets. Most PFI schemes involve centralising hospitals on a single, usually cheaper, site and selling the land on which previous hospitals were built. Private money is now funding the largest hospital rebuilding programme in Britain for 30 years. And, ironically, as Allyson Pollock points out, it "is being paid for by the largest service closure programme in the history of the NHS". Overall, the introduction of the private finance initiative to hospitals in the National Health Service has resulted in a 30 per cent reduction in staffed acute beds and a 20 per cent reduction in clinical budgets and workforce. Some 12,000 NHS beds have closed since 1997. Government consultants have calculated that every £200 million spent through the PFI leads to the loss of 1,000 doctors and nurses. The costs of proposed developments have soared 75 per cent. Even in the short term, payments for a PFI hospital are usually higher than the capital charge to the government. Annual payments range from 11-18 per cent of the construction costs, compared to the 6 per cent capital charge. Additional payments cover cleaning, lighting and laundry services that the private hospital provides. Shareholders in PFI schemes can expect annual returns of 15-25 per cent. As hospital trusts would never be allowed to go bankrupt, there is no risk to the consortia’s funds. The planning, supply and support of PFI hospital services is left to private sector consortia. Detailed information about PFI hospital schemes, particularly planning assumptions about the numbers of beds and services needed, is rarely publicly available because of commercial confidentiality. The data that has been obtained, however, suggests that projections about clinical activity and beds are lower than current trends and health authorities’ projections. Although ostensibly financing the infrastructure only, the private sector decides how to supply the services and the investment needed to support these services. Health authorities and trusts no longer control the number of hospital beds or the levels of service they believe are required for the people in their area. The government health minister said in November 2000: "We had to get the hospital building programme started. If you like ... we had to create a market in PFI because there was not a market." Although PFI is an expensive way to build new hospitals and leaves less money to be spent on patient care, the government recently extended the initiative to some 3,000 local doctors’ premises, community pharmacies, health centres and long-term care facilities. Already health care companies and property developers are expanding into the ownership and provision of primary care premises. The government is also considering encouraging the private sector to coordinate payroll, administration and computer services for local doctors, and even the provision of clinical services under PFI arrangements. In the year 2000, the UK government promised £20 billion ($31 billion) of extra money to the national health service over four years. But where will this taxpayers’ money end up? A large chunk of the billions the government has promised to the National Health Service could simply disappear into the for-profit sector. Per-Patient Funding Health authorities receive block budgets from central government on the basis of the anticipated needs of all the people in the geographical area they serve. But the new NHS primary care trusts which came into effect in April 2001 will be reimbursed not on the basis of geographic populations but on that of general practitioner’s patient lists. This fundamental shift in funding allocation is similar 