This document was submitted to the Department of Foreign Affairs and Trade by the Doctors Reform Society

in January 2003. It was prepared by Dr Tracy Schrader.

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 welcomes this opportunity to contribute our views on a proposed free trade agreement (FTA) between Australia and the United States of America. We believe negotiations in FTAs should be open to full informed public debate and scrutiny before agreements are made.

The DRS has addressed health implications of economic globalisation and the General Agreement on Trade in Services (GATS) in previous submissions to the Department of Foreign Affairs and Trade (DFAT) on World Trade Organisation (WTO) negotiations. In this submission, the DRS would like to highlight our concerns in relation to health care ramifications from FTAs in general and specifically a proposed agreement with the USA. We propose measures and guidelines to protect Australia’s Health Care System in the interests of the Australian population.

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. The free market definition of health care as a tradable commodity is a relatively recent concept which conflicts with an array of international accords that construe access to health care as a basic public health and rights issue. Protecting population health requires adequate funding for public health systems and universal coverage for individual medical care. There is sound international evidence that 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 (Blendon et al 2002, Chernichovsky 1995, Goldberg & White 1995, Saltman & Figuerus 1998, Schoen et al 2000). The success of the PBS has been recognised internationally and is highlighted in the Productivity Commission’s 2001 research report International Pharmaceutical Price Differences. The failure of market provision of health services is clearly demonstrated in the USA (Anderson & Hussey 2001, Goldberg & White 1995). Recent experience in Australia confirms the spiralling costs associated with increased reliance on private provision of health care.

Prime objectives of FTAs are the liberalisation of trade in goods and services and the protection of direct foreign investment and intellectual property rights through limiting government regulation. FTAs generally favour market-based, as opposed to government-administered, structures in areas of obligations. A serious threat of FTAs is reducing the right and power of governments to regulate. FTAs equate government regulations and public services with barriers to trade such as tariffs and as such they warrant elimination.

From a public health perspective, the evidence suggests the reverse, namely that privatisation and deregulation from FTAs pose barriers to population health. A UN report found a comparatively high level of government involvement is required to ensure 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. The free market notion that health is a commodity and, as such, has a price and can be traded off against other commodities threatens public health strategies, universal healthcare and the concept that health is a human right.

Specifically in relation to an FTA with the USA the DRS is concerned that Australia is in a position of unequal bargaining power and US interests will be favoured at the expense of our own. We believe that public services such as health care and water services will be targeted and future policy flexibility compromised. 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". As US services firms already have access to commercial services in Australia the targets would be public services such as health care.

US firms have their sights on overseas service industries including health. The free market system of providing healthcare has failed in the USA. The US healthcare industry is being destabilised by falling profits (Levit et al 1998) and is intent on expanding its markets. Australia’s healthcare sector could be seen as a lucrative market. The Coalition of Service Industries (CSI), a coalition of US service corporations, is a powerful lobby group that has been intensively pushing US and other government representatives to decrease barriers in trade in services and delivery of services. In relation to healthcare, the CSI’s 1998 submission to US trade representatives before the Seattle meeting stated:

There is growing consensus among economists that while markets may be important for a successful economy, there is a vital role for the state. Governments have traditionally been responsible for distributing and channelling resources, for instance via public services such as healthcare. 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.

Services must not be traded off for agriculture gains. Health care services must be exempted from international trade agreements. Export interests in the health sector are minor in relation to the importance of the domestic health care sector. Inclusions in health care services definitions should be comprehensive to include professional services, health insurance, electronic health services and research and development. There must be evidence of benefit to economic growth and equitable distribution of wealth before including any other services.

The Australian government should closely examine 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 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. 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 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 would never had come into existence.

There have been a number of cases where investors have challenged non-discriminatory regulatory measures as expropriatory such as S.D. Myers versus Canada; Metalclad Corporation versus Mexico; Pope and Talbot versus Canada; Ethyl Corp versus Canada; Crompton Inc versus Canada; and Methanex versus USA. In California a resolution regarding concerns with international investment agreements such as Chapter 11 of NAFTA was passed in the California legislature. This resolution serves as a strong statement from the California legislature that investment agreements such as Chapter 11 threaten democracy and should not be included in future trade agreements.

In FTAs 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 welcomes the opportunity to present our views but we hold concerns at the short time frame given for submissions. Again we stress that FTAs should be open to full informed public debate and scrutiny before agreements are made and we hope for continuing discussion, clarification and feedback during this important process. The potential ramifications to Australian society are huge. In the long term interests of the Australian population, sovereignty and democracy we hope that the issues raised in this submission are given proper consideration.

Schoen C, Davis K, DesRoches C, Donelan K, Blendon R, & Strumpf E (1998) ‘The Commonwealth Fund 1998 International Health Policy Survey: Health Insurance Markets and Income Inequality: Findings from an International Health Policy Survey’ in Health Policy April 2000

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