.		.	The Doctors Reform Society of Australia, Box 992 Gosford 2250 Phone 02 9264-9084 Fax 02 9267-4393.	.
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Doctors Reform Society

PO Box 922

Gosford NSW 2250

Tel 02 9264 9084

Fax 02 9267 4393

drs@nlc.net.au

www.drs.org.au

Submission to the

Senate Foreign Affairs, Defence and

Trade Committee

on

The General Agreement on Trade in Services (GATS) and

A Proposed Australia-US Free Trade Agreement

April 2003

CONTENTS:

1. INTRODUCTION

2. BACKGROUND

2.1 Economic Globalisation

2.2 Inequality and Health

2.3 Government Regulation and Public Services

2.4 The Free Market in Health Care

2.5 Medicare and the Pharmaceutical Benefits Scheme (PBS)

3. THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

3.1 General

3.2 Exclusions and Exceptions

3.3 General Obligations with Specific Impacts on Health Care:

VI Domestic Regulation

VIII Monopolies

XV Subsidies

3.4 Specific Obligations:

XVI Market Access

XVII National Treatment

3.5 Progressive Liberalisation

3.6 The Right to Regulate and Dispute Resolution

3.7 Flexibility

4. A PROPOSED AUSTRALIA-UNITED STATES FREE TRADE AGREEMENT (FTA)

5. IMPACT ON DEVELOPING NATIONS

6. TRANSPARENCY, ACCOUNTABILITY, EVALUATION & CONSULTATION

7. CONCLUSIONS

8. REFERENCES

1. INTRODUCTION

The Doctors Reform Society (DRS) is an organisation of doctors formed in 1973 to support the introduction in Australia of universal health insurance, initially Medibank, now Medicare. The DRS continues to advocate for equitable universal access to quality health care for all members of Australian society. The DRS welcomes this opportunity to contribute our views.

The DRS has addressed health implications of economic globalisation, the General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO) and a proposed bilateral free trade agreement (FTA) between Australia and the United States of America (USA) in previous submissions (2001-2003) to the Department of Foreign Affairs and Trade (DFAT).

A free trade agreement (FTA) is an agreement between two or more nations to remove 'substantial barriers to trade'. This may be in the form of bilateral, regional or multilateral agreements. The prime objective of FTAs is to facilitate international trade by private corporations. This is via the liberalisation of trade in goods and services and the protection of direct foreign investment and intellectual property rights by limiting government regulation. FTAs generally favour market-based as opposed to government-administered structures and promote privatisation.

International trade in services has increasingly been included in FTAs and in 1994 within the framework of the World Trade Organisation (WTO). Since 1995 the General Agreement on Trade in Services (GATS), one of the free trade agreements of the WTO, has subjected this significant sector, including health services, to multilateral trade rules. “Barriers to trade in services” have become the subject of international trade negotiation. Barriers to trade in services in contrast to trade in goods are largely domestic regulatory barriers rather than tariffs or barriers at the border (Sanger, 2001; Shaffer et al., 2002).

The DRS believes universal public health care, Australia’s Medicare and Pharmaceutical Benefits Scheme (PBS) are seriously threatened by market driven principles which underlie FTAs. To deem health care a tradable commodity is a relatively recent concept that conflicts with international accords that define access to health care as a basic public health and rights issue. The failure of market provision of health services is clearly demonstrated in the USA. Recent experience in Australia confirms the spiralling costs associated with increased reliance on private provision of health care.

The DRS believes economic globalisation and the narrow free-market agenda of FTAs and the WTO is flawed. Narrow economic values have assumed dominance at the expense of other values. This neo-liberalism of privatisation, market and capital deregulation, tax cuts for the wealthy, reduced social services and replacing the concept of ‘community’ with ‘individual responsibility’ have lead to increased inequality, social exclusion and poverty. Measurements of benefit by Gross Domestic Product (GDP) do not take into account the costs of economic growth and the distribution of benefits. Lack of government regulation and involvement in resource distribution through socio-economic policies and delivery of public services causes increasing socio-economic inequity. This contributes to poor health outcomes and good health is a prerequisite for human development and prosperous economies.

The DRS strongly believes health services should not be negotiated in trade agreements. This submission will deal specifically with health implications of economic globalisation and free trade agreements and the ramifications on health care policy.

2. BACKGROUND

2.1 Economic Globalisation

Many receive no benefit from economic globalisation. Growing inequalities both between and within nations cannot be ignored (Cornia, 1999; World Bank, 1999; World Bank, 2000; UNDP, 2002; UNICEF, 2002). According to the United Nations (UN), the gap between the rich and poor has been growing over the last 50 years and the rate of growth has been greatest during the economic liberalisation of recent decades. Although global wealth has never been greater the distribution is ‘extraordinarily unequal’ (World Bank, 2000).

The ratio between the average income of the world’s wealthiest five per cent of people and the poorest five per cent increased from 78:1 to 123:1 in the five years from 1988 to 1993 (UNDP 1999). The ratio between the income of the richest 20% of the world’s population to the poorest 20% has increased from 30:1 in 1960 to 78:1 in 1994 (UNDP, 1999). In 1990 the annual income per person in industrialised countries was 60 times greater than that in the least developed countries; in 1999 it was almost 100 times greater (UNICEF, 2002). The gap between the average income in the richest 20 countries and the poorest 20 countries has doubled in the past forty years (World Bank, 2000).

Reports such as St Vincent de Paul’s Two Australias - Addressing Inequality and Poverty 2001 and Harding and Greenwell’s Trends in Income and Consumption Inequality in Australia highlight growing inequalities in Australia (St Vincent de Paul, 2001; Harding & Greenwell, 2002). Poverty among adults has increased steadily during the past decade (Harding et al., 2001). Benefits from wealth generated in recent decades has gone largely to the wealthiest in society. A comparison of data between the 1993/4 and 1998/9 Household Expenditure Surveys by the Australian Bureau of Statistics (Docs 6530.0) shows Australians in the lowest quintile of household incomes in the five year period received an average weekly increase of $9 - that is a 5% increase to $160 per week. In contrast, the top 20% of income earners over that same period received an average weekly increase of $343 (23.4%) to $1,996 per week.

Until the mid-1990s, rising market income inequalities in many OECD nations were offset by progressive tax and public transfer systems (UNDP, 1999). As public spending and investment declines, post-tax and transfer income inequalities in several countries, notably the US, are now growing more rapidly than market income inequalities alone (Aba & Mintz, 2001). Many governments are actively participating in globalisation's upward redistribution of wealth and power. The 'economic stimulus' tax packages in the United States have given three-quarters of US$212 billion in tax relief over three years to the top 10 per cent of taxpayers with six per cent going to the bottom three-fifths of the population. More over, two-thirds of the tax breaks are destined for corporations (Borger, 2001). Thirty six per cent of the most recent US $1.35 trillion tax cuts went to the richest one per cent of taxpayers who have an average annual income of US $1.1 million and get tax breaks to the tune of $80,000 each (Krugman, 2003; Weisbrot, 2003).

The neo-liberal, free market agenda may regard inequality as a positive virtue (Margaret Thatcher’s ‘glory in inequality’), inevitable and/or necessary. The proponents may support this with the claim that ‘there are more winners than losers’ and see inequality both as a necessary by-product of a well-functioning economy and as ‘just’, as one’s activities are related to subsequent ‘rewards’ (Coburn, 2000). The ideology is that the free market will generate wealth by stimulating economic growth so that both poorer nations and poorer people within nations will generally be better off. Poverty is claimed to be best reduced through growth-orientated rather than distributive policies.

Studies by the United Nations University/ World Institute for Development Economics Research (UNU/WIDER) and the United Nations Development Programme (UNDP) have indicated that benefits and costs of market liberalisation reforms have not been clear cut (Cornia, 1999; Jha, 2000; Singh & Dhumale, 2000; Taylor, 2000). Evidence suggests that for most countries, the last two decades have brought about slow growth and rising inequality (Braun, 1997; Shen & Wiliamson, 1997; Beyer et al., 1999; Cornia, 1999; Harrison & Hanson, 1999).

In a report on eighteen transitional and developing countries, evidence indicated that few, if any, found a sustainable growth path, that employment growth was slow to poor and that increasing income inequality was the rule (Taylor, 2000). Analyses have indicated that, compared to the two earlier decades of 1960–1980, economic growth over the last two decades of increasing trade liberalisation (1980–2000) slowed dramatically, especially in the less developed countries. Two exceptions were India and China where the increase in growth began a decade before their opening to trade (Weisbrot et al., 2000). Real GDP per capita in sub-Saharan Africa has halved in relative terms and in Latin America has fallen by 30 per cent from 1971 to 1996 (Woodward, 1996). World Bank evidence from poorer countries undergoing structural adjustment also points to stagnating per capita income, rising poverty and or declining life expectancy (World Bank, 1999).

The free market offer of escape from poverty through access to vast export markets does not necessarily advantage small farmers and manufacturers even where the markets are actually open to developing countries. Technologies of large-scale farming and manufacture are reinforced through the conviction that it is advantageous to only produce items you can produce more cost-effectively than elsewhere in the world and then trade them for whatever else you need. This benefits multinational corporations that are capable of investing in large, centralised production facilities which are increasingly concentrated in a few places like China where wages are low and regulations are lax and works against anything that can be done on a small scale or locally. (Venkat, 2003)

The argument that free markets enhance welfare by ensuring more efficient production ignores the fact that there are vast multitudes of people with little or no ability to participate in market processes. The more unequal the distribution of income, the fewer are the benefits of growth to poor people (UNDP, 2002). Social factors such as education and health influence economic participation.

2.2 Inequality and Health

Increasing inequality has serious ramifications for health, as inequality is the most powerful factor affecting population health. Socio-economic inequalities in mortality rates are observed in almost every country for which data is available. These inequalities are seen for over 75% of all causes of deaths and are found for all age groups (Najman & Davey Smith, 2000). The effect is linear rather than a threshold effect (Adler et al., 1993). Income inequality within a population is an important determinant of both individual and population mortality (Davey Smith, 1996; Wilkinson, 1996; Davey Smith et al., 2002). Cross-national research shows that the greater the degree of socioeconomic inequality within a society, the steeper the gradient of health inequalities (Daniels et al., 1999). In other words, inequality causes ill health.

The US is the ‘richest country’ in the world, but it is not the whole country that is rich - only the one per cent of the population who own 40 per cent of the wealth (Bezruchka, 2000). Of fifteen OECD nations, the USA has the highest level of income inequality (Anderson & Poullier, 1999a) and worse health outcomes. In the USA, life expectancy has consistently been lower and infant mortality higher than other developed nations in the OECD. In ranking for life expectancy of nations in 1997 the USA was 25th, behind all other rich nations and some poor nations (UNDP, 1999).

Kerala, one of India’s smaller and poorer states, provides an example of a poor community achieving high health outcomes and literacy levels through redistributive policies such as egalitarian social services and a land tenure system (Franke & Chasin, 1992; Kloos, 1994; Herring & Knight, 1999). There has been radical land reform, public food distribution, special measures for agricultural workers, employment opportunities for low-caste people and health service availability of 100% for urban and 91% for rural people. The literacy rate was around 90% (>86% for women), life expectancy 72 years (national average 61 years) and infant mortality rate of 17 per 1,000 in 1991. The life expectancy in Kerala approaches that of the United States and is greater than that for Washington DC (World Bank, 2000; Wilkinson & Bezruchka, 2002).

2.3 Government Regulation and Public Services

Resources generated through economic growth do not automatically help the poor or disadvantaged (UNDP, 2001). The free market does not deal with social justice, wealth distribution or inequities. Political, social and legal non-market forces do. Corporations are not society's custodians but commercial entities that act in the pursuit of profit. Their business interests may coincide with society's but this is not guaranteed. Governments are supposed to respond to citizens and act on their behalf (Hertz, 2001).

There is an increasing consensus among economists that while markets may be important for a successful economy, there is an essential role for the state (Shaffer et al., 2002). Government regulation is seen to play a positive role in economic growth. The recent much publicised view of Joseph Stiglitz, ex-chief economist of the World Bank, that institutions like the International Monetary Fund (IMF) and the WTO have mismanaged the global economy and exacerbated poverty and hunger in developing countries are an example (Stiglitz, 2002).

Governments have traditionally been responsible for distributing and channelling resources, for instance via public services such as health care. The World Bank’s World Development Report 2000/2001 Attacking Poverty stresses the importance of political, state and social institutions along with public investment in education and health in dealing with poverty (World Bank, 2000).The basis of public services is redistribution. Risks are pooled across society and entitlement is based on need not the ability to pay. Government action is required to direct resources towards public social services. FTAs, however, favour market-based as opposed to government-administered structures (Johnson, 2002).

2.4 The Free Market in Health Care

There are individual and social objectives in health care delivery. Health care reflects societal values and its delivery is influenced by philosophical viewpoints. There may arise a dichotomy between the view that health and health care are a shared civic good with community responsibility and the view that it is an individual responsibility best left to market influences (Siedlecky, 1999/2000). The balance between individual and community responsibility, private and public coverage and the extent of government involvement has been a matter for national policy and debate.

There has been a drive towards privatisation and market provision under the neo-liberal push of economic globalisation (World Bank, 1993; Buse & Gwin, 1998). The relatively recent free market definition of health care as a tradable commodity threatens public health strategies and universal health care delivery. It conflicts with public health principles and multiple international accords that define access to health care a basic public health and rights issue (United Nations, 1948; United Nations, 1969; United Nations, 1976; United Nations, 1979; United Nations, 1990).

Privatisation and deregulation pose barriers to population health. A UN report concluded that a comparatively high level of government involvement is required to ensure that health services are accessible, efficient and adequately funded (Saltman & Figueras, 1998). Major health accomplishments are products of government action, legislation and regulation (such as vaccination programs, access to safe housing, food and water, education, safety regulations for work places, living spaces, prescription drugs and consumer products) and not the result of unregulated market forces.

There are strong reasons why the public sector has generally been the main contributor in the delivery of health care services. These include market failure in the health care sector and that the competitive market does not deal adequately with issues of public interest and equity. In the delivery of health care there are often overriding benefits of public interest that bring about a common good. These factors are not taken into account in the private competitive market. The government has been considered to be the best provider in these circumstances to ensure access and equity. Other advantages of a public system are more effective controls of expenditure limits; monopsonic buying power; low administrative costs; and the ability to better serve population and public health needs as well as individual needs (Chernichovsky, 1995).

The situation seen in the USA indicates the failure of market provision of health services backed with only limited government subsidies and involvement. It is more expensive, less efficient, less equitable and has worse health outcomes (Woolhandler & Himmelstein, 1991; Pearson, 1994; Goldberg & White, 1995; Pollock & Rice, 1997; Woolhandler & Woodlander, 1997; Anderson & Poullier, 1999b; Anderson & Poullier, 1999a; Iglehart, 1999; Wagstaff et al., 1999; Anderson & Hussey, 2001).

The US health care industry is being destabilised by falling profits (Levit et al., 1998) and is intent on expanding its markets. Australia’s health care sector would provide a lucrative market. The Coalition of Service Industries (CSI), a coalition of US service corporations whose top 12 corporate members had combined revenues of around US$700 billion in 2000 (CNES, 2003), is a powerful lobby group that has been intensively pushing the US and other government representatives to decrease barriers in trade in services and delivery of services. Dr Supachai Panitchapakdi Director-General of WTO Services Negotiations has said that the “CSI has successfully served to advance and secure the interests of its members and, more importantly, in shaping US policies and promoting US interests within the international fora” (Panitchapakdi, 2002).

The CSI’s 1998 submission to the US Trade Representative (USTR) before the 1999 WTO Seattle Ministerial Meeting stated that in relation to health care services:

Three general objectives are to encourage more privatization, to promote pro-competitive regulatory reform, and to obtain liberalization. Specific objectives are:

• Transparent licensing of health care professionals and facilities, which do not place unnecessary or discriminatory burdens on US providers.

• Obtain market access and national treatment commitments allowing provisions of all health care services cross border.

• Allow majority foreign ownership of health care facilities.

• Obtain a commitment for the cross border provision and transfer of health care information.

• Seek inclusion of health care in WTO government procurement disciplines.

• Strengthen international cooperation to promote pro-competitive reform across countries.

• Negotiate Mutual Recognition Agreements (MRAs) for licensing of professionals and cooperative agreements on regulation of facilities.

• Develop principles to guide regulators so as to minimize unnecessary costs on trade and investment in the health care sector.

• Simplify regulations and provide transparency for the movement of personnel, both professionals and patients

(CSI, 1998)

2.5 Medicare and the Pharmaceutical Benefits Scheme (PBS)

In Australia, there is universal health care coverage with a mixed system of funding and provision from Commonwealth government, State governments and public and private sectors (Donato & Scotton, 1999). At the time of writing, Australia’s Medicare is a universal, national, compulsory system of health care financing. It is funded from general taxation and a Medicare levy. The government-funded Pharmaceutical Benefits Scheme (PBS) supports access to pharmaceuticals for all Australians (Duckett, 1995). Medicare coexists with a large, voluntary private health insurance industry subsidised by the government (Hall, 1999). Key principles behind Medicare are universality and the solidarity principle of paying according to means and receiving care according to need. Medicare recognises health care as a public good.

Universal health insurance schemes, such as Medicare, with risk pooling across society in both funding and service delivery, provide the most effective and efficient health systems (Chernichovsky, 1995; Goldberg & White, 1995; Saltman & Figueras, 1998; Schoen et al., 1998; Deeble, 1999; Blendon et al., 2002). The success of the PBS has been recognised internationally (Productivity Commission, 2001).

By international comparisons, Medicare in Australia performs well in overall health care costs, outcomes and equity issues (Donato & Scotton, 1999; Friends of Medicare Alliance, 2001a; Friends of Medicare Alliance, 2001b). Medicare’s administrative costs are relatively low. As a proportion of total funds, administrative costs of private health funds are around four times those of Medicare through the Health Insurance Commission (HIC) (Livingstone, 1997; Friends of Medicare Alliance, 2001a). Studies in Australia have shown public hospitals to be more efficient than private hospitals (Duckett & Jackson, 2000). The USA’s fragmented health care funding arrangements, with numerous insurers as opposed to a universal health insurance scheme, is considered to be contributory to their rising health care expenditure (Pearson, 1994; Goldberg & White, 1995).

The situation was different in Australia before the introduction of first Medibank and then Medicare. The 1969 Nimmo Report on Australia’s then voluntary private insurance system (the Earl Page Scheme) found many people had no insurance cover, insufficient insurance coverage was widespread and there was hardship for the low-incomed (Report of the Commonwealth Inquiry into Health Insurance (Nimmo Report), 1969). In 1973 a study in South Australia found failure to pay health care bills was the most common cause of imprisonment for debt (Gray, 1996).

Private insurance coverage with only limited safety nets for the ‘poor’ or aged as seen in the USA has resulted in many people not having access to health care and many more having inadequate coverage. In 1998, 43 million US citizens had no health insurance coverage (Feyerick, 1998). Inability to pay medical bills has been the greatest cause of personal bankruptcy in the USA (Pearson, 1994). Only the wealthiest portion of the US population are well served by their health system and the DRS does not want to see this situation reproduced in Australia.

The Pharmaceutical Benefits Scheme (PBS) has also served the Australian community well. It has kept prices down and enabled access to prescription medicines at affordable prices. The success of the PBS has been recognised internationally and is highlighted in the Productivity Commission’s 2001 research report International Pharmaceutical Price Differences (Productivity Commission, 2001). Support for maintaining the PBS on efficiency and equity grounds is further supported by research commissioned by The Pharmacy Guild of Australia and Eli Lily Australia conducted by independent economic consultants M-TAG Pty Ltd (The Pharmacy Guild of Australia, 2001). In comparison prices for pharmaceuticals are at least double in the USA and out of reach of many people. A study of seniors and prescription drugs in the US found that nearly one quarter skip medication doses or fail to get prescriptions filled because of cost concerns; one quarter spent $100 or more per month on their prescription medicines in 2001; and in some states, nearly one third were without prescription coverage (Safran et al., 2002).

Australia’s Medicare and PBS, however, may be at odds with the market driven principles which underlie FTAs. The Australian Government must protect Medicare and the PBS in FTAs allowing for policy flexibility and the right to regulate. This should not be just to maintain Medicare and the PBS at their current state but to allow for policy flexibility that enables expansion of services. The right to regulate the price of all drugs including those subject to patents should be protected.

3. THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

3.1 General

Service industries constitute by far the largest part of the global economy and the fastest growing area of world trade. Service sectors account for 76 per cent of Australia’s GDP and employ 81 per cent of the Australian workforce (Drake-Brockman, 2002). In Australia, Health Services expenditure comprises 8.5% of GDP of which around 71% is funded by governments (AIHW, 2002).

The General Agreement on Trade in Services (GATS) of the WTO is one of the free trade agreements of the WTO that deals specifically with services. The goal of the GATS is to remove “barriers to trade in services”. Social equity and democracy are not identified as goals. The agreement is dedicated solely to strengthening the ability of the private market system to generate wealth. Barriers to trade in services in contrast to trade in goods are largely domestic regulatory barriers rather than tariffs or barriers at the border (Sanger, 2001; Shaffer et al., 2002).

The scope of the GATS is extremely broad. The GATS applies to all government measures and covers all means of supplying a service across 160 service sectors. Measure is defined as “any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form” (GATS Article XXVIII, (WTO, 1994a). This applies to any level of government, by “central, regional, or local governments and authorities; and non-governmental bodies in the exercise of powers central, regional or local governments and authorities” (GATS Article I.3(a), (WTO, 1994a). The means of supplying services is covered by four “modes of supply”: cross-border; consumption abroad; commercial presence; and natural persons (GATS Article I.2, (WTO, 1994a).

The GATS has a set of general obligations and a set of specific obligations. Nation members of the WTO are committed to the full range of general obligations across all service sectors including health care. Each nation has a schedule of specific commitments to which they commit particular service sectors they are prepared to open up to competition from overseas service providers under Articles XVI Market Access and XVII National Treatment. Nations will come under increasing pressure to commit more of their service sectors to specific obligations under the requirements of Article XIX Progressive Liberalisation.

3.2 Exclusions and Exceptions

There are a few provisions within the GATS to exclude certain government measures from the general obligations of the GATS. These, however, are narrowly defined and unlikely to exempt most public services including health care from the provisions of the GATS (Sanger, 2001; Sinclair & Grieshaber-Otto, 2002).

Article I.3 of GATS defines the services covered in the agreement:

3. For the purposes of this Agreement:

(a) “measures by Members” means measures taken by:

(i) central, regional or local governments and authorities; and

(ii) non-governmental bodies in the exercise of powers delegated by central, regional or local governments or authorities;

In fulfilling its obligations and commitments under the Agreement, each Member shall take such reasonable measures as may be available to it to ensure their observance by regional and local governments and authorities and non-governmental bodies within its territory;

(b) “services” includes any service in any sector except services supplied in the exercise of governmental authority;

(c) “a service supplied in the exercise of governmental authority” means any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers. (WTO, 1994a)

There is ambiguity in I:3(c) and this has not been clarified by WTO jurisprudence. The phrases “on a commercial basis” and “in competition with one or more service suppliers” are both open to interpretation. Most government services are on a partial commercial basis and/or in competition with commercial service suppliers. The scope for interpretation of I:3(c) has potentially worrying results. A narrow interpretation of “government services” is quite possible.

Health care services in Australia involve both commercial provision and competition and therefore would not necessarily be exempt under this article. The presence in Australia of a private sector in competition with the public sector in health service delivery could undermine the “exemption”. The private sector could be said to compete with Medicare both in the sense of selling services as an alternative to Medicare funded care and as a provider of care under schemes such as the Public Private Partnerships (PPP). The Australian government’s promotion of the private health system in competition with the public system also serves to undermine the exemption (e.g. advertisements showing public versus private hospital beds racing down a road). The charging of privately insured and overseas patients in public hospitals in Australia and the government supplying public hospital services through private-for-profit hospitals such as Port Macquarie could be considered to be operating under a commercial basis.

The WTO has stated:

39. The hospital sector in many countries, however, is made up of government- and privately- owned entities which both operate on a commercial basis, charging the patient or his insurance for the treatment provided. Supplementary subsidies may be granted for social, regional and similar policy purposes. It seems unrealistic in such cases to argue for continued application of Article 1:3 and/or maintain that no competitive relationship exists between the two groups of suppliers or services. In scheduled sectors, this suggests that subsidies and any similar economic benefits conferred on one group would be subject to the national treatment obligation under Article XVII. [italics added] (WTO, 1998)

Members drew attention to the variety of policy objectives governing the provision of health and social services, including basic welfare and equity considerations. Such considerations had led to a very substantial degree of government involvement, both as a direct provider of such services and as a regulator. However, this did not mean that the whole sector was outside the remit of the GATS; the exceptions provided in Article 1:3 of the agreement needed to be interpreted narrowly. [italics added] (Minutes of a WTO Council for Trade in Services meeting from (Sanders, 2001)

The WTO clearly sees health care on the bargaining table and open for liberalisation as the following quotes demonstrate:

.…the health services sector - a domestic economic giant representing, for example, close to 6% of U.S. GDP - has remained a minor contributor to trade …. However, the picture appears to be brightening over time, owing in particular to two complimentary developments: first, regulatory regimes in various countries have been moving towards stronger market orientation - opening space for increased private involvement, domestic and foreign…. [italics added] (WTO, 1998).

The forthcoming round of negotiations under the GATS offers an opportunity for WTO Members to reconsider the breadth and depth of their commitments on health and social services which are currently trailing behind other large sectors. [italics added] (WTO, 1998).

Article XIV(b) General Exceptions allows Members to adopt measures “necessary to protect human, animal or plant life or health”. There is the proviso, however, “that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services”. In over 50 years of the General Agreement on Tariffs and Trade (GATT) with an identically worded exception clause (Article XXb), there has only been one recent case where a dispute panel has upheld an inconsistent measure on the basis of this exception (Sanger, 2001).

The DRS believes there should be clarity of definitions and exemption of public services and “governmental authority” that are not open to discretionary interpretation such as in Article I.3 c). There should be a self-defining exemption for health policies similar to the national security exceptions in the GATT (Article XXI) and the GATS (Article XIV bis) and all health related fields such as professional services, health insurance, electronic health services, research and development should be included in health care definitions.

3.3 General Obligations with Specific Impacts on Health Care

VI Domestic Regulation

Article VI Domestic Regulation is of concern. It covers general non-discriminatory regulation which covers the processes of service delivery that are conceived to be potential barriers or obstacles to trade. These include professional qualifications and licensing, and licensing and accreditation of facilities, financing and funding of services and overall administration. Article VI. 4 states:

4. With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia:

(a) based on objective and transparent criteria, such as competence and the ability to supply the service;

(b) not more burdensome than necessary to ensure the quality of the service; [italics added]

(c) in the case of licensing procedures, not in themselves a restriction on the supply of the service. (GATS Article VI .4)

Member nations would have to show that regulations were "not more burdensome than necessary”. Further interpretation by the WTO in relation to health and social services states that this is not clear and would be open to interpretation:

42. Three types of regulation seem to be particularly relevant as they may directly affect supply or demand of medical and health services. These are, first, qualification and licensing requirements for individual health professionals; second, approval requirements for institutional suppliers such as clinics or hospitals; and, third, rules and practices governing reimbursement under mandatory (public or private) insurance schemes.

…. Since health-related quality criteria may differ significantly between individual activities, Member’s scope for operating qualification and licensing requirements under these provisions would need to be assessed case-by-case. (WTO, 1998)

Worrying aspects of the Domestic Regulation Article are that it applies to non-discriminatory measures or regulations; that the subject matter covered is very broad and not only covers the four broad categories but all measures relating to them such as subsidies conditional on technical standards or levels of accreditation; the development of ‘necessity tests’; and the likelihood of trade tribunals deciding whether professional requirements are unnecessary, burdensome, or restrictions on the supply of a service. (Pollock & Price, 2000; Sinclair & Grieshaber-Otto, 2002; Shaffer, 2003)

The GATS Working Party on Domestic Regulation (WPDR) has been established to develop the ‘necessary disciplines’. The WTO Secretariat has directed that potential necessity tests should require that regulations be both necessary to achieve a legitimate objective and not be more trade restrictive than necessary (WTO Secretariat, 2000). In WTO dispute decisions made on the basis of existing necessity clauses in other WTO agreements, the WTO Appellate Body has interpreted “necessary” as tending to mean “indispensable” (Gould, 2002).

The CSI testimony to the US Congress on the GATS stated they wanted across-the-board disciplines so that “onerous” regulations could be challenged if they were “more burdensome than necessary.” Among the standards identified as problems were “Excessive privacy and confidentiality regulations” in the health care field (O'Hare, 1999).

VIII Monopolies

Article VIII Monopolies and Exclusive Service Suppliers is a general obligation but only some sections apply to all services. Other sections apply only where specific commitments have been made. Article VIII states:

1. obliges governments to ensure that the actions of monopolies, public or private, conform with the most-favoured nation obligation and a government’s specific commitments.

2. obliges governments to ensure that a monopoly supplier—where it supplies services outside the scope of its monopoly rights, but that are covered

by a government’s specific commitments—does not “abuse its monopoly position.”

3. stipulates that, if a government grants a monopoly in sectors where it has previously made GATS commitments, it must negotiate compensation with other member governments or face retaliation.

5. Finally, all these provisions “also apply to cases of exclusive service suppliers, where a member formally or in effect a) authorizes or establishes a small number of service suppliers, and b) substantially prevents competition among those suppliers in its territory”.

Although it is possible for governments to maintain monopolies there are several restrictions and concerns. Monopolies are inconsistent with GATS in committed sectors unless an exception was listed in the schedule at the time. If a government wants to designate a new monopoly in a committed sector compensation has to be negotiated with affected member governments or face trade sanctions. Existing government monopolies may be charged with competing unfairly in listed services outside the scope of their monopoly. For example, although DFAT contends otherwise, compulsory public health insurance is generally considered a monopoly supplier. Consequently, any plan to expand coverage of Medicare to areas where Australia has made specific commitments such as health insurance and dental services could result in claims for compensation from member governments of affected international corporations. In potential disputes under WTO/GATS rules, self-definition does not apply. (Sinclair & Grieshaber-Otto, 2002)

The DRS believes there should be adequate provisions in trade agreements for governments to designate and maintain monopolies and allow for policy flexibility that enables expansion of services.

XV Subsidies

There is concern that government funding of public services is perceived as a subsidy. Article XV on Subsidies is a general obligation and applies to all 160 service sectors including health care and includes the statement:

1. Members recognize that, in certain circumstances, subsidies may have distortive effects on trade in services. Members shall enter into negotiations with a view to developing the necessary multilateral disciplines to avoid such trade-distortive effects. (WTO, 1994a)

Subsidies to services may be threatened and open to legal challenge if governments are not allowed to discriminate between government and overseas service providers. The DRS believes from the negotiations there should be a clear definition of subsidy such as in the Agreement on Subsidies and Countervailing Measures (SCM) of the WTO that clearly excludes public health care systems.

3.4 Specific Obligations

Articles XVI Market Access and XVII National Treatment apply to areas where governments have made specific commitments. In the area of health care the Australian Government has already made commitments to liberalise dental services, podiatry and chiropody services and health insurance (WTO, 1994b).

Article XVI. 2 Market Access states:

2. In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as:

(a) limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

(b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;

(c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;

(d) limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test;

(e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and

(f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign share-holding or the total value of individual or aggregate foreign investment.

These market access obligations apply to non-discriminatory measures. The WTO Secretariat has stated:

Another confusion that sometimes arises is the idea that only discriminatory measures should be scheduled under Article XVI. This is not the case. Article XVI covers all measures that fall within the six categories listed, whether they are discriminatory or not. (WTO, 1999b)

Article XVII on National Treatment states:

1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.

2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member.

Australia has committed to liberalise dental services with no limitations on market access and national treatment for cross-border supply, consumption abroad and commercial presence. Health insurance, which is classified under financial services, has also been committed to liberalisation with no limitations on national treatment and no limitations on market access for commercial presence. (WTO, 1994b)

Fundamental protection for public health insurance is undefined and may be open to interpretation (Sanger, 2001). The Understanding on Commitments in Financial Services attached to the Schedule of Specific Commitments states “Each Member shall list in its schedule pertaining to financial services existing monopoly rights and shall endeavour to eliminate them or reduce their scope” (WTO, 1994b).

It is not assured that the WTO would consider Medicare as “part of a statutory system of social security” under the GATS Annex on Financial Services 1. b) ii) and thus exempt from specific commitments on health insurance as DFAT has claimed. Public compulsory health insurance is more likely to be considered a public service than as social security. In potential disputes under WTO/GATS rules self-definition cannot be relied upon.

There are two other grounds for concern. First, whether Medicare is a monopoly supplier and therefore any future expansion of Medicare coverage to encompass dental services and health services currently covered by private health insurance such as allied health would be open to challenge under rules restricting monopolies (Article VIII.4). Second, the potential ramifications of the market access and national treatment commitments that already apply to dental services and health insurance.

These commitments put present and future public dental programs in jeopardy. Governments could be required to match support of public dental services with support for dental services offered by overseas corporations. Implementation of Article XVI would mean government regulation of dental care and health insurance is lost to market forces. This takes no account of distribution of services, access or equity issues.

Decisions regarding those qualified to practise in dental care are open to interpretation and possible legal challenge. The United Nations Central Product Classification (CPC) used in the GATS describes dental services as involving the “diagnosis and treatment services affecting the patient’s teeth…” with no reference made to the qualification of the professionals involved (UN Statistical Papers, Series M No.7). This is in contrast to general and specialised medical services that specify diagnosis and treatment by “doctors of medicine”. (WTO, 1998)

The commitments made by Australia expose Australia to the threat of trade challenges that restrict options for health reform. The DRS is concerned the risk of compensation or lengthy legal challenges could deter any such policy initiatives.

3.5 Progressive Liberalisation

Under the provisions of the GATS, WTO members are committed to progressively ‘liberalise’ their service sectors. The GATS mandates WTO members to return to the negotiating table on a regular basis and expand their GATS commitments (World Trade Organization, 1994; WTO Secretariat, 1999). The process involves regular rounds of negotiations where governments progressively negotiate away their regulatory authority. Article XIX in Part IV, “Progressive Liberalization” clearly sets the agenda on liberalisation:

Members shall enter into successive rounds of negotiations, beginning not later than five years from the date of entry into force of the WTO Agreement and periodically thereafter, with a view to achieving a progressively higher level of liberalization. (Article XIX.1.(WTO, 1994a)

The process of progressive liberalization shall be advanced in each such round through bilateral, plurilateral or multilateral negotiations directed towards increasing the general level of specific commitments undertaken by Members under this Agreement. (Article XIX. 4.(WTO, 1994a)

Committing governments to repeated efforts to enlarge opportunities for international trade in services,….. Article XIX is a guarantee that the present GATS package is only the first fruit of a continuing enterprise.… (WTO Secretariat, 1999)

Each government’s schedule of liberalization commitments to trade in services is only a first step..… Among the most important elements in the GATS package is the promise that successive further rounds of negotiations will be undertaken to continue opening up world trade in services. (WTO Secretariat, 1999)

The DRS believes there should be documented evidence that liberalisation has achieved economic growth, equitable distribution of wealth and measures of population health as a condition of further liberalisation. The DRS is concerned that under the GATS agenda of ‘progressive liberalisation’ and aggressive free market principles, health care will be progressively open for negotiation.

The European Commission (EC) has stated in its draft responses to GATS that it will not make further undertakings regarding health services. We believe the Australian government should give such a commitment but also insist on a general exception for health care in the GATS negotiations applying to all WTO members and for health care not be targeted in future rounds of negotiations. The diversity of national health care systems means that the exception must be self-defining.

3.6 The Right to Regulate and Dispute Resolution

The GATS and FTAs aim to restrict the regulatory ability of governments so as to allow a freer flow of services to facilitate international business (Campbell et al., 2002).

As barriers to trade in services are largely domestic regulatory barriers (Sanger, 2001; Shaffer et al., 2002), the GATS extends far beyond traditional trade matters to influence how a government regulates within its borders (WTO Secretariat, 1999). The GATS is thus more than just an economic trade agreement, it is explicitly political. The WTO has stated of the GATS:

… because such a large share of trade in services takes place inside national economies, that its requirements will from the beginning necessarily influence national laws and regulations. (WTO Secretariat, 1999)

Articles XVI.2 on Market Access and XVII on National Treatment, which apply to specific commitments, are examples of the undermining of government regulation of services. Implementation means government regulation is lost to market forces.

Regulations are clearly listed among government measures restricted by the GATS. The right of governments to regulate over specific commitments cannot be assumed. The affirmation of the right to regulate in the GATS preamble has limited legal effect and does not exempt a government from conforming to their GATS commitments. Legal advice is that the preamble does not provide enforceable rights or obligations but provides a context in which the rights and obligations of the GATS should be interpreted. Governments retain their freedom to regulate only to the extent that the regulations they adopt are compatible with the GATS, a judgement made not by governments but by appointed WTO dispute panellists. (Sinclair & Grieshaber-Otto, 2002; CNES, 2003) The WTO has stated that the GATS recognises

the right of Members to regulate, and to introduce new regulations on the supply of services within their territories in order to meet national policy objectives, provided the relevant measures are compatible with the GATS. [italics added] (WTO, 2001)

The Appellate Body of the WTO has repeatedly quoted the Vienna Convention on the Law of Treaties (VCLT) (1969) that “a treaty interpreter must begin with, and focus upon, the text of the particular provision to be interpreted. It is in the words constituting that provision, read in the context, that the object and purpose of the state parties to the treaty must first be sought.” A basic principle of treaty law is pacta sunt servanda, “agreements are to be kept”. The Appellate Body has taken a strongly textual approach and tended to favour market-based solutions in dispute settlements. (Johnson, 2002; Sinclair & Grieshaber-Otto, 2002)

Rules under the GATS have not yet been fully tested. The WTO has stated -

The fact that the GATS rules are still necessarily untested, and that the services schedules are much more complex than those for goods, adds to the difficulty of assessing exactly what rights and obligations WTO members have assumed under the services package. (WTO Secretariat, 1999)

To date, two cases have gone to the full panel of the WTO courts under the GATS. In each case, the defendant government has lost (EC over distribution of bananas (WTO, 1997b); Canada over motor vehicle trade services (WTO, 2000)). Another case between the USA and Mexico in relation to telecommunications is currently before the WTO courts (WTO, 1997a). WTO trade tribunals tend to interpret rules restrictively. The disputes panel, according to the context of WTO agreements, is obliged to give priority to free trade over other issues in the dispute process. Defendant nations must demonstrate that measures under dispute are the least trade restrictive. The WTO Agreements set out binding international norms.

Unlike with most international bodies, the WTO dispute settlement is both compulsory and binding and held in secret. Member states have no choice but to accede to it and accept the consequences of the WTO ruling. The panel’s decisions are building up a body of trade law precedents on an ad hoc basis which can undermine legitimate national regulation in areas like health and safety, the environment and industry development policy. Democratic and accountable policy making is undermined by transferring responsibility for balancing the public interest with commercial considerations from elected governments to appointed tribunals or WTO panels. Foreign commercial interests are placed above the public interest.

DFAT’s reassurances that a dispute has not already occurred and is unlikely in the future are unconvincing. This does not mean that such a dispute is not possible. Although the objective of maintaining public health would not be likely to be challenged, the particular means a government adopted to pursue its objective could be. It could be challenged that the objectives could be achieved through less burdensome means to trade (Gould, 2002).

To say that one does not need to worry unless a challenge occurs appears incongruous. It is imperative that that the Australian Government protects our health care system before it can become a target of a trade challenge. We believe it is irresponsible for the government and its relevant departments not to prepare for this possibility.

The Australian government has stated that they ‘will not agree to any diminution of our overall right to regulate that would constrain our ability to pursue legitimate policy objectives in the regulation of services sectors, or compromise the capacity of governments to fund and maintain public services’ (DFAT, 2003) but has not stated how this will be pursued.

3.7 Flexibility

Although it has been said that governments have ‘remarkable flexibility’ to open their service sectors at their own pace and place limitations on their specific commitments there are serious limitations to this flexibility (WTO, 2001). There is pressure under Article XIX Progressive Liberalization for member nations to progressively expand their GATS commitments and liberalise more of their services. Most governments have already made substantial commitments and all limitations have to be scheduled at the time the commitment is made.

There was no phase-in period during which governments could consult, reflect or add to their limitations. Recognising how and when to make an exception and impose limitations when sectors are committed requires an unrealistic level of foresight and capacity. Identifying all potential non-conforming measures in a sector or sub-sector is enormously difficult. Errors and inconsistencies are widespread within nation schedules including limitations. Limitations cannot be added for non-conforming measures that may have been overlooked and poorly drafted limitations that do not provide the protection that was intended cannot be revised. Limitations can only apply to existing measures not future measures. (Sinclair & Grieshaber-Otto, 2002) The WTO Secretariat has said that: “(B)indings undertaken in the GATS have the effect of protecting liberalization policies, regardless of their underlying rationale, from slippages and reversals…” (WTO, 1999a)

While GATS Article XXI Modification of Schedules (WTO, 1994a) allows a government to change the commitments it has made after three years, the conditions imposed are so difficult, it is unlikely ever to be used (Sinclair & Grieshaber-Otto, 2002). The nation modifying or withdrawing a commitment is required to make ‘compensatory adjustments’ to other nations whose service suppliers are allegedly adversely affected. This may go to a disputes panel and if not adhered to, result in trade penalties or retaliatory sanctions.

The overall effect of binding of commitments is to “lock in” liberalisation and make it irreversible. Sectors are “locked in” as they are progressively liberalised, thereby denying nations policy flexibility (CNES, 2003). EC Trade Commissioner, Pascal Lamy has admitted that it is effectively an irreversible process (PSI & EPSU, 2003). This is an erosion of democracy. A single government can bind all future governments. It does not allow for reversal of policy even if found to have negative consequences. It does not take into account change in government or public opinion. The GATS thus interferes with the usual fluctuations in policy-making in democracies. Democratic choice is diminished (Sinclair & Grieshaber-Otto, 2002). The increasing privatisation of health care may become almost impossible to reverse under GATS rules even if subsequent events demonstrate negative consequences for public health.

The GATS is more of a governance agreement than a trade agreement.

4. A PROPOSED AUSTRALIA - UNITED STATES FREE TRADE AGREEMENT (FTA)

The DRS believes benefits for Australia from an FTA with the USA are doubtful and the potential cost to the community great. The predicted economic gains from an Australia-US FTA determined in a study by the Centre for International Economics (CIE, 2001) are extremely modest, less than half a percent of GDP per year if all trade barriers are removed. The study’s conclusions are hedged with many qualifications and it is conceded that all trade barriers are unlikely to be removed so predicted benefits are likely to be far less than predicted.

The DRS is concerned that in negotiating a bilateral FTA with the USA, Australia has an unequal bargaining position against the economic might of the USA. The US would be in a position to maximise its demands on Australia with US interests favoured at the expense of our own. The focus of US policy has lately shifted strongly towards bilateral and regional agreements as the provisions go far beyond what has been possible to negotiate in the WTO. The US agreement with Singapore provides far stronger protection to US patent holders and investors than offered through the WTO (Watkins, 2002).

The DRS believes that public services such as health care and water services will be targeted that could result in a compromise of public policy. It is concerning that DFAT has stated that aims of an FTA with the USA “will be to liberalise trade in goods and services, to facilitate trade and investment and to address government-level impediments to increased commercial exchanges”. US Trade Ambassador Robert Zoellick has also stated that they seek "enhanced access for US services firms to telecommunications and any other appropriate services sectors" (USTR Robert B. Zoellick, 2002). As US services firms already have access to commercial services in Australia the targets would be public services such as health care.

The Australian Pharmaceutical Benefits Scheme is clearly in the sights of the USA. The PBS was a target of US interests at the US Congressional hearings into the FTA held in Washington DC. US drug industry lobbyist Joe Damond lobbied that Australia’s PBS meant new US medicines were being priced the same as older products (Allard, 2003). Assistant US trade representative Ralph Ives, head of the US negotiating team, confirmed at the conclusion of the first week’s negotiations in Canberra that the scheme was on the agenda at the behest of the Pharmaceutical Research and Manufacturers of America (PhRMA). Steven Haynes, the director of strategic relations for Medicines Australia, PhRMA’s Australia counterpart, confirmed meeting with US trade negotiators. There is strong community opposition, however, to any proposals that seek to include public services of community benefit such as the PBS and Medicare in trade agreements. A recent opinion poll, undertaken by UMR research and commissioned by trade deal opponents, showed that 89% of respondents would oppose a trade deal if that "could make it more expensive to buy prescription drugs." (Burton, 2003)

Australia should closely examine and heed the experiences of both Canada and Mexico as well as the USA in the North American Free Trade Agreement (NAFTA). NAFTA has encompassed rules to open services markets, created legal rights for foreign investors, adopted competition policies for government monopolies and set rules for technical standards and recognition of qualifications. The scope of bilateral or regional agreements such as NAFTA has been wider than that of WTO agreements.

Chapter 11 of NAFTA on Investment has been of particular concern especially in relation to expropriation and compensation and the provision for investor/state dispute settlement procedures. This allows foreign companies to make claims for compensation for nationalisation or expropriation of their services directly to the relevant national government. The definition of expropriation is broad covering direct and indirect expropriation as well as any government administrative measures, policies or laws that are ‘tantamount to expropriation’. It includes compulsory compensation for losses that include the loss of future or potential earnings. This means that private corporations are allowed to sue over any government act that may diminish their profits bypassing national courts and nullifying local laws and regulations designed to enforce local planning, health, and environmental policies.

NAFTA Article 1110 ‘Expropriation and Compensation’ with the enforceable requirement for compensation makes expansion of the public component of the health system expensive and impracticable and deregulation irreversible. This greatly diminishes policy flexibility as expansion of public services is only possible with monetary compensation. If Australia had been privy to an agreement with such a provision and the accompanying investor/state dispute settlement procedures at the time, Medibank or Medicare may never have come into existence.

Since the agreement’s enactment the majority of the investor-to-state cases filed have had little to do with the seizure of property. Corporate investors in all three NAFTA countries have challenged a variety of national, state and local environmental and public health policies, domestic judicial decisions, a federal procurement law and even a government’s provision of parcel delivery services as NAFTA violations. Such cases where investors have challenged non-discriminatory regulatory measures as expropriatory include S.D. Myers, Pope and Talbot, Ethyl Corp, Crompton Inc, United Parcel Service of America Inc, Sun Belt and Ketcham versus Canada; Metalclad Corporation, Azinian, et al, Waste Management, Karpa and Adams versus Mexico; and Methanex, Loewen, Mondev and ADF Group versus the USA (Bottari et al., 2001; Mann, 2001). In the S.D. Myers case, Canada was ordered to pay out US$3.8 million plus interest in compensation for a temporary ban on exporting Canadian polychlorinated biphenyl (PCB) wastes for disposal (Chase, 2002).

Action has also been threatened by the US tobacco giant Philip Morris against Canada claiming Canadian anti-smoking health proposals were NAFTA-illegal trade barriers. In 1994 this was against generic packaging of cigarettes (the proposal was later dropped) and in 2002 against a plan to ban the words ‘light’ and ‘mild’ from cigarette packaging (Mokhiber & Weissman, 2002; Public Citizen, 2002). In a submission to the Canadian government, Philip Morris argued that the proposed ban of the descriptors ‘light’ and ‘mild’ would be “tantamount to an expropriation” of its tobacco trademarks containing those words. Philip Morris argued that if the Canadian regulation was to go into effect, the company would deserve compensation under NAFTA Chapter 11 from Canadian taxpayers because it had invested millions “developing brand identity and consumer loyalty” (Philip Morris, 2002).

Government decision-making in relation to the public interest can be compromised as a result of the current interpretations of NAFTA’s Chapter 11. In Canada, only two new environmental laws have been adopted at the federal level since NAFTA came into force, and both have been successfully challenged under Chapter 11. This critical impact arises as governments have been required to compensate investors for any costs or losses they incur as a result of adopting new laws (Mann, 2001).

Investor-state provisions in bilateral agreements signed by Latin American governments have had damaging impacts on democratic control of critical services such as water supply. Examples include a subsidiary of the US-based Bechtel corporation threatening Bolivia with an investor-state lawsuit over the cancellation of its contract to take over the water supply of the city of Cochabamba; and under a France-Argentina investment treaty, Compagnie Générale des Eaux (a subsidiary of the French transnational Vivendi) launching an investor-state suit against Argentina for US$300 million in compensation for rate caps and regulatory fines imposed by local authorities over a sewer and water services contract in the province of Tucuman. This was despite having signed a contract that said conflicts would be resolved by provincial tribunals. (Gould, 2001)

There have been reservations in Canada over investment provisions in free trade agreements. After public consultation and obtaining legal opinions on the impacts of trade agreements, the regional authority in Vancouver, Canada decided against proposals to contract out their water filtration system to a short list of corporations that included Bechtel and Vivendi (Gould, 2001). The Canadian government has called for clarification or reform of Chapter 11 (World Trade Online, 1999).

In California a resolution regarding concerns with international investment agreements such as Chapter 11 of NAFTA was passed in the California legislature (2002). This resolution serves as a strong statement from the California legislature that investment agreements such as Chapter 11 of NAFTA threaten democracy and should not be included in future trade agreements.

These provisions have been long-standing objectives of US foreign economic policy and key features of bilateral investment treaties that the USA has pursued with trading partners around the world (USTR, 1998; Sinclair, 2001). The US Trade Representative Robert Zoellick, has indicated that he would not consider shrinking the regulatory rights given to corporations under NAFTA’s Chapter 11 (World Trade Online, 2001). Worryingly, despite concerns and objections, the draft Free Trade Agreement of the Americas (FTAA) chapter on investment basically replicates NAFTA Chapter 11, including its “investor-state” provision (Gould, 2001; Hemispheric Social Alliance, 2001).

It can be seen that free trade agreements such as NAFTA, the GATS and the proposed FTAA and Australia-US FTA are likely to create a lot of work for lawyers and problems for every level of government accused of protectionism by private corporations or other governments.

The DRS strongly believes that trade agreements should not include investment provisions like chapter 11 of NAFTA. There should be no provisions for compulsory compensation or investor-state dispute settlements that allow investors to directly challenge public policy measures. Any agreement should not include a narrow definition of expropriation so that public expansion of Medicare or the PBS could be interpreted as an expropriation.

5. IMPACT ON DEVELOPING NATIONS

The DRS has concerns about potential impacts of the Australian Government’s GATS requests of developing nations. The Doha round of negotiations emphasised the need for all peoples to benefit from the GATS and placed the needs and interests of developing nations at the heart of the Work Program adopted in the Ministerial Declaration. Australia must consider the consequences of its requests on health care delivery within developing nations.

The DRS believes Australia’s involvement should strengthen the role of government rather than markets in the provision of health services. The World Health Organisation’s universal health for all should be a guiding principle. If Australian companies are seeking market access in developing countries assisted by the Department of Foreign Affairs and Trade there should be obligations to progress the Doha Development round and universal health care access. This should include support for government service provision as well as capacity building in developing countries. This could be facilitated via an integrated approach to the Australian overseas aid program.

In the 1990s, international financial institutions such as the World Bank and International Monetary Fund encouraged developing countries through ‘structural adjustment programs’ to privatise health care, leaving only the poorest population in the public sector. The resulting privatisation of formerly public health systems has diverted funds and other resources from critical health needs to administration. Co-payments and other mechanisms have driven up the cost of care, increasing family spending on health care, and presenting barriers to access. (Shaffer et al., 2002) Private companies have failed to deliver to the poorest and neediest while filtering benefits to the richest sections of society (UNISON, 2002). The policies have undermined the rights of public sector workers and lead to a decline in wages and employment (PSI, 2001).

At the same time the WTO has promoted developing nations to export health services by attracting foreign patients to domestic hospitals and doctors, or by temporarily sending their health personnel abroad (Panitchapakdi, 2002). This can lead to brain drain of key professionals and a revolving pool of temporary immigrant workers who can effectively maintain the depressed state of the host labour market (PSI & EPSU, 2003).

The GATS can serve as an excuse to continue the structural adjustment programs and force many developing nations to dismantle their public services and allow foreign-based corporations to provide services such as health care on a for-profit basis. The liberalisation of trade in services under FTAs and the GATS assumes the existence of private markets and encourages privatisation. (UNISON, 2002)

Developing nations under the GATS are deprived of the ability which developed nations had to develop their public services under the cover of protection. Flexibility and the ability to choose what to liberalise depends on a fair process conducted on an equal footing. There have been cases where developed nation governments have threatened to withhold aid if their companies are not granted concessions from a particular regulation (UNISON, 2002).

The European Commission has committed ‘to make progressive liberalisation of trade in services not only consistent with, but also supportive of, sustainable development, while ensuring that WTO members can adequately protect their national policy objectives’. The DRS is alarmed, however, that the EC’s requests have included bids to liberalise the distribution of tobacco in developing countries such as Mexico, Korea, and China (which leads to increased consumption) and to remove restrictions on alcohol distribution (which threatens alcohol control policies designed to protect public health).

6. TRANSPARENCY, ACCOUNTABILITY, EVALUATION AND CONSULTATION

WTO agreements affect many areas of government policy and should be open, publicly discussed and accountable before agreements are signed. There has been inadequate analysis of costs and benefits of trade agreements. This should go beyond purely economic considerations but should examine the social, health and environmental impacts. Community interests and concerns need to be taken into account as there will be profound long-lasting consequences for Australian society.

Despite declarations of transparency, secrecy abounds in WTO procedures with meetings still held behind closed doors. The disputes process of the GATS, unlike most national and international judicial processes, is also conducted privately with limited public access to documents.

The incident of leaked documents from the European Commission (EC) on WTO GATS negotiations in February 2002 is an illustration of negotiations occurring behind closed doors. The EC condemned the publication of the documents stating they were confidential and their release could influence the negotiating process. Strong input from the European Services Forum (the European industry services lobby organisation), however, had been actively sought in the preparation of the documents. It appears business input is prioritised over the views of individual Member States and civil society groups. The DRS believes this is an example of secret negotiations conducted within the WTO involving a high level of industry involvement to the exclusion of public debate.

There is frequent communication between the EC and the European Services Forum about the GATS negotiating agenda. In 2000 the EC Trade Directorate gave the European Services Forum a grant to finance a conference on how to promote GATS (Cohen, 2001). The EC has said on its website that GATS is "not just something that exists between governments, but it is first and foremost an instrument for the benefit of business" (Joy et al., 2001).

The German parliament has shown concern in that, with the votes of the coalition partners, it passed a resolution demanding more transparency in the GATS negotiations sharply criticising the dealings of the EC (Fritz, 2003).

Adequate mechanisms do not currently exist to ensure that both the WTO and the Australian government are accountable for decisions that are taken. The DRS believes the WTO and member nations have largely failed to engage with the wider community on the issues. Usually only governments are heard by the disputes panel. Panels are not bound to consider evidence of public interest groups in spite of environmental organisations having established a legal right to appear as amicus curiae representing the broader public interest.

The DRS is concerned that very limited information has been made available to the public of the current proposals or their ramifications. This is both of requests made to and from Australia and of the government’s intentions. In DFAT documents both requests and proposals are generalised with no specific details given.

7. CONCLUSIONS

The DRS believes there must be adequate protection of public services and provision for governments to determine issues of national concern in trade treaties. In all trade treaties there should be adequate provisions for governments to designate and maintain monopolies, provide subsidies to public services, maintain public policy flexibility and regulate in the public’s interest. Nebulous definitions that are open to narrow discretionary interpretation such as in the GATS Article 1.3 c) should be excluded.

The DRS strongly believes health care services should not be negotiated in trade agreements.

The DRS believes services must not be traded off for agriculture gains. Health care services must be exempt from international trade agreements. Export interests in the health care sector are minor in relation to the importance of the domestic health care sector.

The Australian Government must protect Medicare and the PBS allowing for policy flexibility and the right to regulate. This should not be just to maintain Medicare and the PBS at their current state but to allow for policy flexibility that enables expansion of services. The right to regulate the price of all drugs including those subject to patents should also be protected. The DRS is concerned that decisions by one government cannot be reversed by a future government.

National governments must take responsibility for ensuring equity in health and access to health care in the 21st century. This is the only way to adequately ensure accountability to citizens when health systems and services involve a multitude of players such as private companies, non-governmental organisations and the public. The free market notion that health is merely a commodity and, as such, has a price and can be traded off against other commodities threatens public health strategies, universal health care delivery and the belief that health is a human right.

The looming crisis in international health, with increasing inequities and worsening access to health care for the world’s most vulnerable populations requires global solutions. The DRS believes an international organisation such as the World Health Organisation (WHO), rather than the World Trade Organisation (WTO), is more appropriate to take a leadership role in coordinating international health initiatives and in setting the direction of international health policy. The world needs a strong body to take the lead in health matters, to act as an advocate for equity in economic and social development, to set priorities for the use of limited resources, to provide neutral territory for debating sensitive issues and to give technical advice and support (Sterky et al., 1996).

IN NEGOTIATING INTERNATIONAL FREE TRADE AGREEMENTS THE DRS CALLS ON THE AUSTRALIAN GOVERNMENT TO ENSURE:

· Greater participation and full public scrutiny in the negotiating process. All proposals and requests must be made public. Adoption of the UN treaty making process in which negotiating sessions are open and all documents are public;

· Health care consumers, advocates, researchers and representatives from all major sectors involved in Australia’s health care system are involved and informed;

· Safeguarding Australia’s public service sector including health care will take precedence over free market agreements and securing market access for Australian exports;

· Clarity of definitions and exemption of public services and “governmental authority” that are not open to discretionary interpretation such as in Article I.3 c) of the GATS;

· Effective exceptions for health care systems are incorporated into any treaties or trade agreements;

· A self-defining exemption for health policies in all international trade and investment agreements similar to the national security exceptions in the GATT (Article XXI) and the GATS (Article XIV bis);

· Inclusion in health care definitions are all health related fields such as professional services, health insurance, electronic health services, research and development;

· The protection of Medicare and the Pharmaceutical Benefits Scheme (PBS) are paramount and any possible ramifications for these are thoroughly investigated;

· Public health insurance is explicitly shielded from any commitments to health insurance;

· Steps are taken to reverse Australia’s commitment on liberalisation of dental services and prevent its application;

· The ability for governments to designate and maintain monopolies;

· A clear definition of subsidy such as in the Agreement on Subsidies and Counterveiling Measures (SCM) of the WTO that excludes public health care systems;

· A narrow definition of expropriation in any agreement so that public expansion of Medicare or the PBS is not interpreted as an expropriation. This should not include compulsory compensation;

· There are no investor-state dispute settlements procedures that allow investors to directly challenge public policy measures;

· Provisions for the ‘right to regulate’ should be explicit and decisions on “legitimate domestic political objectives” should not to be determined by trade tribunals;

· Professional Qualifications and Licensing standards rules should not be determined by trade tribunals;

· That the necessity of any measures “necessary to protect human, animal or plant life or health” should be determined by a central, regional or local government body, or designated non-government authority rather than a trade tribunal;

· Alternative avenues for dispute resolution to trade tribunals;

· Dispute panels are not held in secret;

· The primacy of international human rights law over international trade and investment treaties is recognised;

· Support for measures to promote and protect the right to health.

8. REFERENCES

(1969) Vienna Convention on the Law of Treaties (VCLT). Geneva: United Nations International Law Commission.

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