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date: 20 January 2022

# Globalization, Trade, and Health Economics

• Richard SmithRichard SmithFaculty of Public Health and Policy, London School of Hygiene and Tropical Medicine
•  and Johanna HanefeldJohanna HanefeldFaculty of Public Health and Policy, London School of Hygiene and Tropical Medicine

### Subjects

• Health, Education, and Welfare Economics

### Introduction

Following World War II, a key component of the new United Nations system was the General Agreement on Tariffs and Trade (GATT), which was to lead to successive reductions in global tariffs and other barriers to trade. GATT was superseded in 1995 by the World Trade Organization (WTO), which has a much expanded remit (Lee, Sridhar, & Patel, 2009). Although in recent years the focus has moved away from such global initiatives to more regional, multilateral, and bilateral trade and investment agreements, trade agreements remain the “glue” that holds trade together.

The WTO is the center of authority for the governance of global trade, providing the overarching legal and normative framework for trade between its 164 member states, and setting the “tone” for other agreements beyond its membership. Its role really is five fold (Lee et al., 2009):

1.

Provision of a forum for negotiations between WTO members about their multilateral trade relations in matters dealt with under WTO agreements.

2.

3.

Promotion of the transparency of WTO members’ trade policies and actions regarding the implementation of WTO obligations, through regular monitoring and surveillance.

4.

Provision of a process for WTO members to mediate and settle trade disputes.

5.

Working in cooperation with relevant international organizations to achieve greater coherence in global economic policymaking.

This is a concern for public health, as regional, and increasingly bilateral, trade agreements may be more detrimental to low- and middle-income countries (LMICs). This is because they create the potential for trade diversion, as the “most favored nation” principle does not apply in this sort of agreement. Furthermore, LMICs typically have less negotiating power, which may put them under more pressure and, as countries engaging in regional and bilateral trade agreements normally also take part in WTO agreements, their capacity to negotiate may be overstretched. Often, poorer countries engage in regional and bilateral agreements in the hope of securing their goods, access to the market, without taking into account the impact that engaging in such agreements could have on their health systems (Mattoo & Fink, 2004). In addition, a significant body of evidence has emerged over the past decade of trade and investment agreements including investor protection mechanisms that may allow corporations to seek to avoid public health regulations (Hawkins & Holden, 2016).

### Impact of Trade on Health Through “the Economy”

Trade affects health through its general macro-economic impact on countries, including government revenue, living standards, and types of employment and other determinants of health. Reducing barriers—financial or otherwise—to the movement of goods, services, capital, and people is termed “trade liberalization” (Smith, 2006). Although there is generally a positive relationship between trade liberalization and national income (Ben-David, 1993; Dollar, 1992; Feachem, 2001; Sachs, Warner, Åslund, & Fischer, 1995), there is increasing recognition, including among international financial institutions, such as the World Bank, that trade liberalization in the absence of other policies will not necessarily lead to higher growth (Winters, 2004). In recent years, especially in the aftermath of the global financial crisis from 2008, analysis has become more nuanced and less certain.

There is also considerable evidence that poverty and income inequality are associated with poorer health (Deaton, 2003). Thus, although trade liberalization generally is advantageous, the crucial factor in how advantageous and to whom is how countries manage the process of integrating into the global economies (Lall, 2004). For example, trade liberalization often triggers both employment creation and destruction within and across sectors, as firms adjust to the new competitive environment (Ghose, 2003). In order to ensure that the movement of labor is as smooth as possible and to avoid excessive unemployment, effective labor market policies will be required (Hoekman, 2005; Milanovic & Squire, 2005; Mundial, 2005; Winters, 2004; Wood & Ridao-Cano, 1999).

#### Effect of Trade on Government Revenue for Healthcare

Trade directly affects government revenue via taxes (tariffs) imposed on imports to the country. Where tariff revenues fall, trade liberalization will clearly reduce government income and hence the ability to finance or provide public services, including those related to health. Although it is important to note that lower tariffs on imports are not necessarily correlated with lower total revenue (as trade liberalization can increase the volume of international trade such that the base expansion may exceed the rate reduction and thus yield higher revenues, at least where tariffs are reduced rather than eliminated; Glenday, 2002). Lower import prices might also benefit the public provision of healthcare, as inputs into health services become cheaper and more available. Furthermore, consumers are likely to benefit from lower prices, enabling them to spend more on healthcare, education, and other beneficial services.

Perhaps more indirectly, government revenues are increasingly compromised through tax avoidance by major corporations, typically transnational corporations with headquarters based in “tax havens,” such as the Cayman Islands, where they pay little, if any, corporate tax. Developments in global telecommunications, and the increased liberalization of the movement of capital, have eased the manner with which large corporations can operate within a country but pay minimal tax in that country, but this contributes also to the reduced levels of government revenue available to spend on health, with the irony that some of the corporations operating in this way are those with significant negative health impacts, such as alcohol and mining companies.

### Impact of Trade on Risk Factors for Disease

Trade also affects health through its direct impact on risk factors for disease either by acting as a “vector” for pathogens, or by increasing or limiting availability of goods that affect health. This is through the pathogens that travel with goods, including livestock and plants, and through commodities traded that have clear health effects, such as medicines, alcohol, and tobacco.

#### Trade Liberalization and Communicable Disease

The most worrisome scenario remains the impact of trade—in terms of the rapid and widespread movement of people, animals, and goods—on possible pandemic disease. The prospect of an infection emerging with the transmissibility of the common cold but with a much higher pathogenicity is the public health community’s worst nightmare. This fear was stoked especially by the severe acute respiratory syndrome (SARS) outbreak in 2002, with emergence since then of possible pandemic influenza strains raising visions of the Spanish flu, which killed around 40 million people in 1918–1919, and the recent outbreaks of Ebola and Zika.

The International Health Regulations (IHR) have historically coordinated the public health response to infectious disease threats. Although countries were originally obliged to report outbreaks only of cholera, plague, and yellow fever (Liverani & Coker, 2012), substantial review and revision from 1995 widened their remit beyond the three diseases (World Health Organization, 2002). SARS provided the impetus for the final push, and the final revision was endorsed at the 2005 World Health Assembly and came into effect in June 2007. Under the revised IHR, countries are obligated to report any “public health emergency of international concern”—basically, any adverse health event that has potential to spread beyond borders. The IHR also allow notification from nongovernmental as well as governmental sources. However, compliance remains notoriously weak because of the economic consequences of notification, in the form of trade barriers.

The movement of goods, including livestock and food, also has important implications for health. This is primarily in two ways. One is the link with the rise in the noncommunicable diseases (NCD) epidemic (Friel et al., 2013; Hawkes & Thow, 2008; Thow, 2009; Thow & Hawkes, 2009). Second, attention has been on the transmission of disease through livestock and food. This is regulated by the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), which sets out that countries have the right to protect human, animal, and plant health on the basis of scientific evidence; that is, it is possible to ban products that are thought to endanger health in such a way. Similarly, the Codex Alimentarus by the Food and Agriculture Organization (FAO) is a set of international standards that ensure food products are safe and can be traded. Recent attention has also focused on the role of trade in livestock and food products in transmitting resistance to antimicrobials (Hanefeld, Khan, Tomson, & Smith, 2017).

#### Trade Liberalization and Noncommunicable Disease

Trade affects health not only through the revenues generated and its general macroeconomic impact, but also through commodities traded. This can be in the form of increased availability of commodities improving population health. This includes, for example, fresh fruit and vegetables. It also extends to harmful commodities traded. Much recent literature on trade and health has focused on the negative health impacts related to trade in tobacco, alcohol, and food.

Strengthening of controls in Western Europe and North America, coupled with the reduction in trade barriers by LMICs, and expanded advertising by transnational corporations (TNCs), has shifted market share toward emerging economies across Asia, Latin America, the Middle East, and Eastern Europe (Hsieh, Hu, & Lin, 1999; Chaloupka & Corbett, 1998; Grise, 1990; Hagihara & Takeshita, 1995). Given the inverse relationship between price and consumption, as well as the positive relationship between advertising and demand, cigarette smoking and tobacco use can be expected to increase as tobacco markets become more open, all else being equal. As a result, the mortality and morbidity attributable to tobacco use can also be expected to increase.

As early as the 1980s, the United States used bilateral trade agreements to exert pressure on countries such as Thailand, Taiwan, and South Korea to open their domestic economies to U.S. cigarette imports. It was estimated that U.S. market share in these countries was around 600% higher, on average, in 1991 than it would have been had these markets remained closed (Chaloupka & Laixuthai, 1996). Since the WTO replaced the GATT in 1995, it has significantly reduced tariff and non-tariff barriers to tobacco trade, in relation to “plain-packaging” requirements and minimum sizes for health warnings (which some condemn as unjustifiably encumbering trademark rights; Bettcher et al., 2003; Callard, Chitanondh, & Weissman, 2001). Pressure has also been brought to bear in manufacturers’ home countries to include tobacco in negotiations to liberalize the agricultural sector and to reduce tobacco-control measures under the terms of trade agreements.

Tobacco companies have also sought to use provisions within trade agreements to fight national tobacco-control policies. An example of this has been the use of intellectual property rights relating to trademarks to contest plain packaging for cigarettes, for example, in Australia (Gleeson & Friel, 2013; Thomas & Gostin, 2013). Here, trade agreements provide the opportunity for companies to contest the issues in national court. Another avenue is to contest public health regulation through trade agreements and to report countries to the WTO dispute settlement mechanism or to bilaterally threaten or impose sanctions. Again, these mechanisms have been employed by transnational tobacco companies (Alemanno & Bonadio, 2011).

Evidence such as this has meant that the regulation of trade in tobacco has been a high priority for the public health community for many years, with two competing views on the best way to regulate tobacco under international trade rules: first, that tobacco be excluded from schedules of liberalization and treated as a special product for stricter regulation or even prohibition (Weissman, 2003): and second, that tobacco be regulated like any other good, in accordance with international treaties, such as those of the WTO (Bettcher et al., 2003; McGrady, 2007). In the end, the latter approach was adopted, through the WHO Framework Convention on Tobacco Control (FCTC).

Excess consumption of alcoholic beverages has many detrimental effects on health, and various proposals have been made to prevent excess consumption: for example, imposition of a minimum legal purchasing age, restrictions on hours or days of sale, outlet density restrictions, public service educational campaigns, and alcohol taxes. Of these measures, a common call is to tax alcoholic beverages so that they become more expensive and hence less accessible. However, “national treatment” provisions embodied in many trade treaties make it clear that governments must be careful not to tax products, including alcohol, in ways that (even unintentionally or incidentally) protect domestic production from foreign competition. Although governments may appear to have the option to discourage alcohol consumption by imposing taxes, they face challenges in doing so in practice. An alternative is to regulate the time, place, and manner in which alcohol is sold. For example, as a general matter it is permissible for a government to restrict the hours or days during which alcohol can be sold, require retail businesses to obtain licenses (authorization) before selling alcohol, or require retail businesses to demand proof of age from those seeking to purchase alcohol. Again, policymakers must be careful to design such measures so as to avoid discrimination, indirectly or inadvertently, based upon the national origin of the product.

The regulation of advertising is another way for governments to prevent harm caused by alcohol. In 2001 the European Court of Justice (preliminary ruling C-405/98) ruled that Sweden’s law limiting alcohol advertising affected foreign alcohol products more adversely than more familiar domestic products. However, the court also held that the ban could be justified if it were proportionate to the public health objective and not a disguised restriction on trade, and allowed the case to be further processed within the Swedish court system. Sweden’s domestic court ultimately upheld the ban, finding that it was indeed “proportionate” to its purpose (Center for International Environmental Law, 2003). This example illustrates that trade treaties can accommodate appropriately designed policies intended to further public health objectives.

The issues with strongest relevance for alcohol policies within the WTO system are now covered by the discussions under General Agreement on Trade in Services (GATS). These negotiations do not cover the products themselves but rather the services related to the products (such as sales and marketing). For example, GATS provisions provide a framework for how, when, and why governments can impose regulations on alcohol licensing procedures, state monopolies, the number of suppliers or outlets, and advertising and promotion activities. Alcohol is treated like any other good under WTO law, and any regulatory action must meet the nondiscriminatory principles. However, recognition of the harmful effects of trade in alcohol has led to the inclusion in some regional trade agreements of provisions that allow some restrictions on alcohol trade. For example, Association of Southeast Asian Nations (ASEAN) trade agreements have enabled its members to exclude alcohol and guns from the list of goods subject to trade liberalization (Onzivu, 2006).

Trade liberalization has the potential to influence food-related nutrition and health issues through a series of pathways, and measures designed to liberalize trade influence the entire food supply chain (Walls, Cornelsen, Lock, & Smith, 2016). These measures include those to: reduce financial and regulatory barriers to food imports and exports across national borders; harmonize or remove national food-related regulations; remove limits on the percentage of domestic companies that can be owned by foreign businesses; decrease government support to domestic food production; and support the development of infrastructure and capacity for trade and investment, such as transportation routes and storage facilities. They create changes along the food supply chain that influence the environment in which consumers make food choices—that is, the availability of foodstuffs (amount, type, and nutritional quality), the safety of that food, what it costs, and how it is marketed. These factors, established as important components of national and household food security, influence the choices people make about the food they eat. This affects the diets of consumers and, therefore, the prevalence of malnutrition, diet-related noncommunicable diseases, and foodborne illness (De Vogli, Kouvonen, & Gimeno, 2014; Popkin, 2001; Stuckler, McKee, Ebrahim, & Basu, 2012). There are also a range of indirect effects through which trade liberalization could affect human nutrition and health. These include the inadvertent entry of emerging human, animal, and plant diseases, as well as effects on income employment and industry restructuring in response to trade liberalization.

Similar to tobacco and alcohol, food has seen major shifts in patterns of trade across the world. According to the Organisation for Economic Co-operation and Development (OECD), the share of global agri-food trade between countries with regional trade agreements rose from 20% to 40% between 1998 and 2009 (Bureau & Jean, 2013). Between 1980–1981 and 2006, world agricultural trade rose from $243 billion to$945 billion (Wesley & Peterson, 2009, p. 100). Between 1970 and 2001, gross world food imports, measured in terms of calorie equivalents, rose by almost 60%. The share of agricultural production that is exported increased from 19% in 1971 to 40% in 2003.1 Exports from high-income OECD countries—responsible for the vast majority of trade in processed products—more than doubled, increasing from $169 billion in 1995 to$363 billion in 2008. Exports from LMICs increased even more, tripling and even quadrupling during this time.

While increased trade can make energy- and nutrient-rich food more available, with benefits for the undernourished, it also carries risks associated with overconsumption. Reductions in prices of unhealthy foods—that is, calorie-rich, nutrient-poor, high in saturated fats and salt—compared with those of healthy foods, increased desirability and availability of unhealthy foods, worsening asymmetry between consumers and suppliers of foodstuffs, and growing urbanization and changes in lifestyle are all possible means by which trade liberalization could affect popular diets, especially those of poor populations. For instance, changes in trade policy in Central America can be directly associated with changes in the availability of meat and dairy products, processed foods, and temperate (imported) fruits (Thow & Hawkes, 2009). Similar trends have been observed with the lowering of trade barriers between Mexico and the United States following the signing of the North American Free Trade Agreement (NAFTA), after which imports of corn, soybeans, sugar, snack foods, and meat products into Mexico increased significantly (Clark, Hawkes, Murphy, Hansen-Kuhn, & Wallinga, 2012). Such an impact has been especially documented in the Pacific Islands, where several studies have noted displacement of traditional diets with high-fat imported foodstuffs and a concomitant increase in obesity rates and chronic diseases (Cassels, 2006; Evans, Sinclair, Fusimalohi, & Liava’a, 2001; Hughes & Lawrence, 2005; Thow & Snowdon, 2010)

Although the effects of the liberalization of food trade on food safety, availability (volume and variety), prices, quality, and marketing are not straightforward, and depend on the nature of implementing legislation and other contextual factors (Thow, 2009), it clearly plays a major role in influencing food prices. Prices are important because they affect incentives for food production and consumption. In practice, the effect of trade liberalization has been variable, but trade has generally led to a lowering of the relative cost of energy-dense foods and diets (Drewnowski, Hanks, & Smith, 2010).

Finally, increased trade in advertising and other telecommunications services facilitates the commercial promotion of highly processed foods (Nestle, 2006). The ability to advertise and promote is a major pull factor for inward investment by large transnational food corporations into developing countries. Processed foods are commonly advertised and marketed all over the world, using a wide range of communications channels and marketing techniques. Estimates from Asia suggest that food makes up a significant proportion of child-targeted advertising, ranging from 25% in the Republic of Korea to 70% in Malaysia (Escalante de Cruz, Phillips, Visch, & Bulan Saunders, 2004). Studies in Latin America suggest that a high proportion of advertising during children’s programming is for processed foods, such as sweetened beverages, candy, sugar-sweetened cereals, and chips (Chopra, Galbraith, & Darnton-Hill, 2002).

### Impact of Trade on the Health System

Trade also affects health systems: through the movement of workers and trade in medicines and health services. This is a comparatively less explored aspect of the relationship between trade and health. Yet, it is very important, including for efforts to achieve universal health coverage.

Over the last few decades, the pharmaceutical industry, as a mainstay of modern medical care, has grown in size and concentration. At the turn of the 21st century, the industry earned some $500 billion in global sales, but by 2013 this had increased to$950 billion (Hanefeld, 2015). It is an industry dominated by TNCs, with the top 10 earning more than half of the total revenues (increasing from earning just a third in 1995).

In general, however, despite increases in production and consumption of pharmaceuticals in LMICs, the pharmaceutical industry retains a strong focus on high-income countries (HICs), where both production and consumption remain concentrated, and many companies retain a national base and even identity, with 75% of the industry concentrated in Europe, North America, and Japan. Importantly, the size and concentration of the industry create specific issues for trade policy and governance, compared to other areas discussed, which tend to be more diffuse and national in character.

A critical issue is the business model of pharmaceutical research and development, which front-loads the costs of drug discovery, development, and licensing, with returns coming only once this substantive investment has been made, through the temporary monopoly provided by intellectual property (IP) rights. IP rights—and patents more specifically—grant legal excludability as a compromise to remove the disincentive to invest in research, but they provide only a limited time (e.g., 20 years) to recoup costs before the product is made cheaper (Smith, 2003). Patents have been the mainstay of policy to ensure investment in pharmaceutical research and development, acting as guarantor of monopoly rents (although it should be noted that the patent system itself has come under substantial criticism for not encouraging major innovation, but rather the pursuit of “evergreening”—whereby patents are extended due to minor reformulations—or the development of discoveries made at universities using public monies, rather than compensating for major research costs in innovation). This clear tension between the need for incentivizing private sector funding of research and using the drugs developed as widely as possible to meet public health was expressed from the 1970s when, on one side, multinational pharmaceutical producers based in HICs expressed growing concern over alleged “misappropriation” of their patented technology by enterprises based in LMICs. At the same time, LMICs expressed deepening concern about the imbalance between technological capacity and ownership of technology as an imbalance between developed and developing countries. This resulted in entry into force of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) on January 1, 1995 (Smith, Correa, & Oh, 2009).

The TRIPs agreement was the catalyst for the change from the GATT to the WTO, as it moved beyond goods and into services trade. TRIPs established minimum standards for protecting and enforcing nearly all forms of IP (patents, trademarks, and copyrights) for WTO member states across all products, with standards derived from legislation in HICs.

However, there is a clear conflict between TRIPs and public health. A flashpoint soon came, toward the end of the 1990s, concerning HIV/AIDS medications. The annual cost for treatment with life-saving medication at the beginning of the 2000s was around \$12,000 per year, putting it beyond the reach of most public health systems and patients in LMICs where the greatest burden of HIV is found (Roemer-Mahler, 2010). At the same time, the patent provisions within TRIPs initially prevented the export and use of generic, cheaper versions of such drugs from India, where the largest capacity for generic manufacturing exists. Even in countries where domestic manufacturing capacity existed, notably in South Africa, drug companies initially sought the protection of their IP by taking the government to court in 1998. However, in 2001 the South African government sought to amend the South African Medicines and Related Substances Control Amendment Act, which would allow the import and use of cheaper generic versions of prescription drugs required to treat HIV/AIDS. The key clause stated that the government could find and “parallel import” the cheapest drug available globally and also grant “compulsory licensing” to other companies to allow them to make copies of the patented drugs. The government argued that this was justified and acceptable under Article 8 of TRIPs, which states that in framing national laws, members “may adopt measures necessary to protect public health and nutrition, and to promote the public interest”; the prevalence of HIV/AIDS was such that the South African government felt that this applied in this circumstance. Thirty-nine pharmaceutical companies, including GlaxoSmithKline, Merck, and Roche, launched legal action against this amendment, arguing that it was a direct violation of their patent rights. Supported by NGOs such as Health Action International and Médecins Sans Frontières, the case generated huge public pressure, and the industry eventually withdrew the case. However, it left a lasting legacy on TRIPs.

Attempts to address continued concerns related to public health protection under TRIPs led to the Declaration on the TRIPs Agreement and Public Health—known as the “Doha Declaration”—in November 2001. This affirmed the right of WTO member states to interpret and implement TRIPs in a manner supporting the protection of public health and, in particular, access to medicines. Critically, it gave rights to countries to grant compulsory licenses and engage in parallel importation where a “public health crisis” made this necessary.

However, countries have remained reluctant to use these available “TRIPs flexibilities” due to political pressures (Songkhla, 2009). The comparatively limited application by countries of the TRIPs flexibilities has been repeatedly noted, including by the UN Secretary-General’s High Level Panel on Access to Medicines, and countries’ right to use these flexibilities was explicitly affirmed as a target 3B in the Sustainable Development Goals:

Support the research and development of vaccines and medicines for the communicable and noncommunicable diseases that primarily affect developing countries, provide access to affordable essential medicines and vaccines, in accordance with the Doha Declaration on the TRIPS Agreement and Public Health, which affirms the right of developing countries to use to the full the provisions in the Agreement on Trade Related Aspects of Intellectual Property Rights regarding flexibilities to protect public health, and, in particular, provide access to medicines for all.

(UN Sustainable Development Goals)

Specific concern centered on countries unable to access medicines due to their lack of manufacturing capacity. As a result, a waiver was introduced to the TRIPs Agreement that allowed countries with limited or no manufacturing capacity to import medicines produced under a compulsory license. It is hoped that this significant step will lead to much greater uptake of TRIPs flexibilities by the poorest countries facing the greatest barriers to access of medicines.

Trade not only affects healthcare through goods, but also services, which cover a wide range of areas. These are typically categorized according to the classification used in the WTO GATS, which covers four modes of supply of services (Blouin, Drager, & Smith, 2006). Table 1 summarizes these different modes and associated trade.

#### Table 1. Characterizing Trade in Health Services by GATS Modes of Supply

Trade in Goods Associated With Health Services

Mode 1: Cross-border supply

Distance medical education and training

Healthcare equipment

Medical transcription, back office

Drugs

Medical research tools and databases

Medical waste

Medical insurance

Prosthesis

All activities associated with health tourism (e.g., transport, hotel, restaurant, paramedical, local purchases, etc.)

Medically assisted residence for retirees

Local medical education and training of foreign nationals

Expatriates seeking care in country of residence

Emergency cases (e.g., accident when abroad)

Mode 3: Commercial presence

Foreign participation or ownership of hospital/clinic or medical facilities (e.g., capital investments, technology tie-ups, collaborative ventures)

Mode 4: Presence of natural persons

Movement of doctors and health personnel for the purpose of commercial medical practice

Movement of doctors and health personnel for other purposes (e.g., education or training)

##### Mode 1: e-health

Mode 1 refers to the cross-border provision of medical services. This is primarily telemedicine, where diagnosis or expertise is provided by, for example, a physician in a different country, or where medical records are transcribed by a service provider in another country (Smith, Chanda, & Tangcharoensathien, 2009). A recent review of telemedicine found that examples documented in the literature mainly relate to telepathology, telesurgery, emergency and trauma telemedicine, and teleradiology, and that exchanges across borders were mainly between physicians consulting on patient cases, rather than between patient and physician (Saliba et al., 2012). It identified cross-border supply of health services as driven by the need to address shortages in expertise, predominately in LMICs, highlighting the positive potential of this form of trade.

##### Mode 2: Medical Tourism

Mode 2 is defined as the consumption of health services abroad, commonly referred to as medical travel or medical tourism, where a patient leaves his or her country of residence to travel abroad with the explicit purpose of accessing diagnostics, treatment, and rehabilitation and follow-up services. However, accurate numbers on volume and flows are much debated, and it is important to point out that reliable data are elusive (Lunt, Horsfall, & Hanefeld, 2015).

Trade in Mode 2 of health services is driven by differences in cost, quality, and availability of treatment across countries, as well as factors such as natural endowments, existence of alternative medicines and treatment procedures, long waiting lists for treatment in the source country, and cultural, linguistic, and geographic proximity between sending and receiving countries. An in-depth study of outbound UK patients revealed that while factors such as cost, perceived quality, availability (including regulation and laws around treatment), and cultural affinity are important, so are interpersonal networks in determining where patients travel for treatment (Hanefeld, Lunt, Smith, & Horsfall, 2015). In the absence of “hard” data, an initial common assumption has been that patients from HICs travel to LMICs to access cheaper health services (Lunt, Horsfall, Exworthy, Smith, & Hanefeld, 2013).

However, a small but increasing number of regional and national studies have shown a much more diverse pattern (Bustamante, 2014; Crush & Chikanda, 2015; Hanefeld, Horsfall, Lunt, & Smith, 2013; Lautier, 2008; Noree, Hanefeld, & Smith, 2016). It is common for affluent patients in LMICs to seek specialized high-quality treatment overseas in HIC hospitals or in neighboring LMICs with superior healthcare standards (Hanefeld et al., 2013). For example, since about 2007 there has been an increase in Nigerian patients seeking treatment in the United Kingdom, and in patients from the Middle East seeking treatment in Thailand (Noree et al., 2016). It is also common for persons in HICs to seek quality treatment at a fraction of the cost in developing countries, or to seek alternative medicines and treatments and take advantage of natural endowments in LMICs. For instance, patients from developed countries such as the United States and the United Kingdom can get bypass surgeries or transplants at a quarter or less of the cost in high-quality corporate and super-specialty hospitals in middle-income countries such as India, indicating the tremendous scope for gains from trade due to cost differences. Equally, legislation or the availability of types of treatment has led to certain countries becoming known for areas of treatment, such as, for example, fertility treatment and surrogacy in India (Whittaker, 2010).

In addition to this travel of more affluent patients from high- to low- or low- to high-income countries, increasing evidence suggests that a significant amount of cross-border trade in services is between LMICs, where people cross land borders in search of treatment either at very-small-scale private providers or in the public sector. Research suggests that these patients are far from the empowered affluent consumers commonly associated with medical tourism and, rather, are poor sections of the population seeking to access services and medicines unavailable in their countries of origin. Studies here have, for example, focused on patients from Indonesia accessing services in Malaysia (Ormond, 2013), or patients from neighboring countries seeking treatment in South Africa (Vearey et al., 2016; Walls et al., 2016). In addition to this trade in health services driven by individual motivation, there are also government schemes, where a country seeks to import health services for its population to address unmet need. This has been the case, for example, for small island states such as the Maldives, as they seek to achieve universal health coverage (Suzana & Chongsuvivatwong, 2015).

In sum, the different types of trade in health services under Mode 2 and the pathways by which people travel or services are imported vary greatly and so does the health and health-systems impact associated with them. Concern has arisen about the equity impact on health systems of countries receiving medical tourists (i.e., exporting health services). This has focused on potential cost increases in the private sector for domestic patients (Noree, Smith, & Hanefeld, 2014), on an internal brain drain within countries from the public to the private sector serving wealthier medical tourists (Lautier, 2008), and on the ethical issues where gametes or organ donations are sought from poorer people in LMICs (Whittaker, 2011). A persistent challenge to addressing some of these issues has been the lack of an international governance structure tackling the issues arising in Mode 2 (Hanefeld, Mandeville, & Smith, 2017).

##### Mode 3: Commercial Presence/Foreign Direct Investment

Health services can be traded through commercial presence or Mode 3, wherein hospitals, clinics, diagnostic and treatment centers, and nursing homes may be established across countries. There may be joint ventures, alliances, and management ties between healthcare organizations across countries and regional networks of healthcare providers that may be engaged in delivering healthcare through modes 1 and 2. Such arrangements may involve acquisition of facilities, management contracts, and licensing arrangements with some degree of local participation.

HICs have been the leading sources and destinations for foreign investment in health services. However, over the past decade, a growing number of developing and least developed nations have also emerged as host nations. The growth in foreign commercial presence in health services has been mainly driven by the opening up of the health sector to participation by foreign hospitals, diagnostic centers, and clinics, as well as privatization and deregulation of the healthcare sector in many countries. The impact of foreign commercial presence in health services pertains to the effects on capacity, quality, and equity. Literature indicates that these effects are shaped by the existing structure of the health system, the public-private mix of the health system, as well as the national regulatory environment. There are pros and cons in each case. With regard to the efficiency implications, mode 3 in health services can augment a country’s health resources by bringing in additional financial resources, enabling capacity expansion, and alleviating the pressure on government budgets. However, it could also create inefficiencies by encouraging overinvestment of resources in high-end and highly capital-intensive and specialized treatments and procedures with lower cost-effectiveness, while diverting funding from basic healthcare services. There could also be long-term outflows of payments to foreign investors, along with direct and indirect subsidization costs for incentives given to foreign investors.

In terms of quality, foreign commercial presence in hospitals and health management may improve the quality of national health systems through the introduction of better management techniques and information systems; better technology, equipment, and infrastructure; improved standards; and accreditation.

##### Mode 4: Migration of Healthcare Workers

Health services can also be traded through the temporary movement of health personnel, including doctors, specialists, nurses, paramedics, midwives, technicians, consultants, trainers, health management personnel, and other skilled and trained professionals. It is, however, important to note that much of cross-border mobility of health providers does not constitute mode 4 (which is explicitly about temporary movement), as it concerns more permanent migration. Mode 4 trade in health services is a subset of such movement, which is temporary in nature, usually under bilateral contracts between institutions or governments and aimed at addressing shortages, such as of nurses or specialists, in the receiving market (Kingma, 2007).

As well as benefiting importing countries in addressing shortages, temporary movement may help exporting countries also, through exploiting their comparative advantage in semi-skilled and unskilled labor (and, for some, in more highly skilled labor) through intracorporate transferees (i.e., secondments) or independent contractors (professionals). Many such workers provide significant foreign income (termed remittances) to their country of origin, typically sent to family. A potential professional benefit of the temporary movement of healthcare professionals is the promotion of knowledge spill-overs—enhancement in human capital gained from their time overseas.

Mode 4 trade remains somewhat limited due to a number of stringent regulatory barriers imposed by recipient countries that seek to protect domestic labor markets. Policy restrictions also respond to the fear that temporary admission may lead to overstays and permanent or even illegal migration. Such barriers include immigration rules, work visa requirements, discriminatory treatment of foreign providers, and the nonrecognition of foreign qualifications. Virtually all countries impose quantitative restrictions (i.e., quotas) on temporary migration, and such quotas rarely satisfy the demand for entry. But although there are issues facing importing countries, the most critical potential drawback of mode 4 trade faces exporting countries—that temporary mobility may encourage movement of a more permanent nature, such that healthcare professionals needed domestically, and often trained at considerable local cost, depart from their home country (the so-called brain drain).

This brain drain or “skills drain” is often driven by a combination of “pull factors” in destination countries, such as better remuneration and living conditions—and “push factors” in source countries—including lack of infrastructure, few training opportunities, and low wages. Whatever the reason, high levels of migration are driven by global shortages of health workers in all countries. Shortages in HICs have led the drive for importation. In 2006, it was estimated that 25% of all doctors and 5% of nurses who trained in sub-Saharan Africa were working in the Organisation for Economic Co-operation and Development (OECD; World Health Organization, 2006). There are, for example, more Malawian doctors in the United Kingdom than in Malawi (Wismar et al., 2011). Estimating the cost of lost human capital as a result of this brain drain is elusive, but there is agreement that the loss from sub-Saharan Africa alone is in the billions of dollars (Mills et al., 2011).

The seriousness of health worker migration, undermining a core “health system pillar,” has led to significant work by groups such as the Global Health Workforce Alliance, and specific guidance for countries, embodied by the WHO Global Code of Practice on the International Recruitment of Health Personnel, but also national initiatives such as the UK code of practice for international recruitment.

As with other modes of health services trade, it is difficult to estimate the value of mode 4 trade in health services, as statistics that clearly delineate temporary from permanent cross-border movement in the health sector are rare. However, notwithstanding data limitations, existing mobility patterns clearly indicate that both developed and developing countries are engaged in health services trade via mode 4.

An important aspect of mode 4 in health services is managed mobility through bilateral and regional trade and economic cooperation arrangements. Some arrangements focus on facilitating movement of health providers, while some go beyond the issue of mobility to address a wide range of issues, including recruitment, return, and reintegration, recognition of qualifications, harmonization of standards and training, and capacity building.

### Conclusion

A core area for further research on trade and health that has received limited attention from researchers so far is the role of trade in health services and its effect on health systems and outcomes. This includes the role of trade in achieving the Sustainable Development Goals and universal health coverage—core goals of the development agenda for the coming decades.

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### Notes

• 1. Calculation based on statistics of the Food and Agriculture Organization of the United Nations (FAO) for agricultural exports.