RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/50
18 September 1998
(98-3558)
Council for Trade in Services
HEALTH AND SOCIAL SERVICES
Background Note by the Secretariat
I. INTRODUCTION
1. This Note forms part of the information exchange programme currently conducted by the
Council for Trade in Services.  Complementing simila r Notes on other sectors, it gives an overview of
recent economic and regulatory developments, including commitments under the GATS, in the
medical, health and social services sectors.  Delegations are recommended to read it in conjunction
with more detailed studies issued by international organizations such as the World Health
Organization (WHO), UNCTAD, World Bank and OECD.
2. Many recent discussions of sectoral policy developments have focused on the need to curtail
spiralling health care spending without sacrificing basic quality and equity goals.  A particular
concern for industrial countries has been the adverse impact of rising health care costs on the pursuit
of other policy objectives related to growth, employment and/or public sector retrenchment.  In many
developing countries, the non-availability of basic services to large population segments, and the
resulting social and developmental implications, have remained serious policy challenges.
3. Trade-related considerations have not proved a dominant policy concern, apart from issues
related to the international migration of staff.  Ev en in the most economically advanced countries, the
health services sector - a domestic economic giant representing, for example, close to 6 per  cent of
U.S. GDP – has remained a minor contributor to trade.  This seems to reflect the combined effects of
regulatory restrictions preventing movements of professionals and patients, institutional constraints
(monopoly and exclusivity arrangements) discouraging foreign commercial presence, as well as
technology-related barriers inhibiting the cross-border provision of many health and social services.However, the picture seems to be gradually brig htening over time, owing in particular to two
complementary developments:  first, regulatory regimes in various countries have been moving
towards stronger market orientation – opening space for increased private involvement, domestic and
foreign – and, second, technical changes are increasingly enabling certain services, or at least sub-
segments, to be transmitted electronically between countries and continents.
4. 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.  Increased liberalization may be supportive of
the changes indicated above while, in an appropriate environment, allowing developing countries to
strengthen their domestic services capacity and better using their competitive advantages.  While thisNote may help to stimulate discussion of these issues, it would need to be complemented by the
exchange of more specific information among Members in individual areas.
5. The main part of the Note is structured as  follows:  Section II provides some country
information on the economic role of the health sector and the importance of trade under individual
modes of supply.  Section III discusses basic institutional and regulatory approaches in the health careand health insurance sectors, the role of domestic regulation and recognition, and the ensuingS/C/W/50
Page 2
implications for market entry and competition.  Sector IV analyses the level and structure of current
commitments under the GATS.
6. Subject to the availability of information, the Note covers all health and social services as
defined in Division 93 of the United Nations Provisional Central Product Classification (CPC).  This
means that the coverage is wider than the delineation contained in the Services Sectoral Classification
List (MTN.GNS/W/120), which Members have generally used for scheduling purposes under the
GATS.  The definition of Health-Related and Social Services in this List does not include medical anddental services, veterinary services and the services provided by nurses, midwives etc., which have
been grouped separately under Professional Services.  From an economic and trade perspective,
however, this separation is not entirely convincing.  It disregards the strong complementarities that
may exist, for example, between medical services on the one hand and hospital services on the other.
Moreover, the criteria used for allocating certain activities, in particular veterinary and social services,
to either health-related services or professional services do not seem to be fully consistent (Annex).
II. MAIN ECONOMIC FEATURES
A. 
OBJECTIVES AND CONSTRAINTS GOVERNING PRODUCTION AND TRADE
7. Medical, health and social services may serve a multitude of different – developmental,
distributional, social and other – functions.  While they may all be considered highly relevant and
important, their relative weight may vary over time and between countries, depending on parameters
such as income, age, technology, and the prevailing set of economic and social (equity) objectives.Accordingly, such services may be core instruments in the pursuit of social and distributional justice
or could be viewed as important contributors to, or preconditions for, economic development.
Researchers may analyse them as genuine activities in their own right, focus on their resource
implications and budgetary consequences, or seek to explore supply and demand links with other
sectors of the economy.  Thus, in a nutshell, health and social services are subject to a panoply ofeconomic and non-economic goals, influences and constraints.
8. If there is one common denominator running throughout many current discussions, it is
efficiency considerations.  Prompted by budgetary constraints and/or supply bottlenecks in certain
areas, including specialized professionals, govern ments around the world have increasingly come to
recognize the need for more productive resource use.  Relevant initiatives in this context includeorganizational changes expected to yield economies of scale and scope, the introduction of monetary
incentives in hitherto tightly regulated areas (commercialization of hospital functions) or reforms in
public insurance and subsidy schemes to encourage more prudent resource use.  While many of these
initiatives may lead to greater market orientation, various countries have also introduced
administrative controls and other command-and-control measures to deter new entrants, curtail"excessive" demand for pharmaceuticals or hospital beds, or influence geographic patterns of supply
(Box I).
9. External opening may play an important role in any market-based reform strategy.  While
health and social services have long been considered as (a) non-tradeables to be provided by
(b) public institutions, there has been a change in policy perception in a number of countries.  More
efficient transport and communication technologies have enhanced the mobility of both professionals
and consumers and enabled the use of new modes of supply (telemedicine), overturning traditionalconcepts of space and distance.  At the same time, new forms of private sector involvement have
opened breaches for increased domestic and foreign participation.
B. HEALTH AND MEDICAL SERVICES :  CONTRIBUTION TO GDP AND EMPLOYMENT
10. Many analysts, especially in OECD countries, may be inclined to see the health sector not
predominantly as a "contributor" to GDP but as a drag on economic expansion.  Throughout theOECD area, health expenditure has been on the rise  over the past two decades, absorbing increasingS/C/W/50
Page 3
shares of private consumption and, in particular, government spending (Table 1).  In turn, this has
gradually narrowed the scope for other policy initiatives, possibly including tax cuts and broaderpublic sector reforms, which may be considered high-priority tasks for governments seeking to stem
rising unemployment and flagging economic growth.
1
11. In the mid-1990s, the OECD countries spent some US$2,000 billion annually on health,
which was close to 90 per cent of total world health expenditure.  In most OECD economies, health
care spending accounts for more than 8 per cent of GDP at present (1.5 to 5.5 per cent in the early1960s), as compared to some 5 per cent in developing countries.
2  This includes public and private
spending on both goods and services.  (Public health expenditure is defined to comprise recurrent and
capital spending from public budgets, external borrowings and grants, including donations, and the
spending of social or compulsory health insurance.)  While there are wide variations among countries,
hospital services tend to account for between 40 and 50 per cent of total health spending in the OECD
area, pharmaceuticals between 30 and 40 per cent, with the remainder consisting mainly of out-patient
medical and paramedical services.3
12. On a global scale, per capita health expenditure varies dramatically, between some US$5
per annum in some least developed countries, including Bangladesh, Ghana and Nigeria, and
US$3,500 and more in Switzerland and the United States.4  It is very difficult to assess, however, to
what extent such differences are actually reflected in the quantity and quality of medical supply and,
as a possible result, the health status of the population.  For example, Sri Lanka recorded an estimatedlife expectancy of 73 years in 1996, which is several years longer than in some other countries
spending 20 or 30 times more on health.
5
13. Health-related spending in the United States tends to exceed 14 per cent of GDP.  Medicare
alone, the public health-insurance scheme for the elderly and disabled, accounts for about 2.5 per cent
of GDP.  The funds involved rose more than  30-fold since 1970 to reach US$200 billion in 1997.
Nevertheless, the public share in total health spen ding has remained lower in the United States, at
some 45 per cent, than in any other industrial country.  The OECD average is in the order of three
quarters, as compared to some 50 per cent in developing countries.   
14. Studies by OECD experts have attributed a significant portion of U.S. health expenditure to
unusually high input prices.  Among OECD countries, the United States displays the largest gapbetween domestic prices in general which, at current exchange rates, are comparatively low in the
U.S., and prices for health inputs.  The opposite is true for Japan which, after adjustment for relative
price effects, records the highest "volume" of aggregate health expenditure per capita in the OECD
                                                     
1Unless otherwise indicated, the data presented in following paragraphs are based on OECD (1995),
New Directions in Health Care Policy , Paris;  and Schieber, George (1997), The Social, Economic, and
Institutional Context of Hea lth Care Financing Reforms , paper presented at a World Bank-sponsored conference
on "Innovations in Health Care Financing", Washington D.C.
2It may be worth noting that health care spending – which includes the inputs provided by other sectors
– is significantly higher than the health sector's genuine contribution to GDP.  Estimates on a gross value-addedbasis indicate a share of health services in GDP, in 1994, of 5.6 per cent in the United States (private market andnon-market services), 3.6 per cent in France, 2.4 per cent in Germany and 2.1 per cent in Canada (market
services only).  According to OECD (1997), Services Statistics on Value Added and Employment , Paris.   
3These figures need to be interpreted with care as they are subject to serious definition problems.
4Annual average 1990-95, taken from World Bank (1998), World Development Indicators ,
Washington D.C.
Given the amounts spent on health care in some countries, the question may arise whether alternative
approaches aimed at improving the health situation (investments in environmental measures, traffic safety, non-
smoking and anti-drug campaigns, etc.) carry higher returns.  Moreover, rising taxes and charges, including
contributions to mandatory insurance schemes, may influence lifestyles in a way not necessarily conducive tohealth.  Efforts to maintain real disposable incomes may increase stress at the workplace.
5Sri Lanka's per capita expenditure on health is estimated at US$12 per annum.  An overview of health-
related indicators for broad country groupings is given in Table 2.S/C/W/50
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area.6  (However, the price gap betw een health/medical services and other components of domestic
consumption may be influenced by quality factors.  Health and medical services demanded andsupplied in the United States may simply be better, reflecting public regulation and/or private value
judgement, than the quality normally expected from other goods and services.)
7  Health care prices
also appear to be relatively low in Turkey and the United Kingdom.
15. Mirroring the general increase in spending, employment in the health sector has risen
continually over time.  It is estimated that within the EU as a whole, the sector represents about8 per cent of the workforce.  Of this, nurses and midwives are estimated to account for more than one
quarter and physicians for about one eighth (1991).
8
16. EU experts hypothesize continued demand expansion in the Union, at rates close to or slightly
higher than real GDP (about 3.5 to 4% per year).  However, the scope for price increases is expected
to be very limited.  This may help to stabilize total health expenditure at about 7.5  per cent of GDP in
the long run, although with a shrinking share of public financing.9
17. The trend of increasing real spending on health care has been attributed to a variety of factors.
These include on the demand side:
(a) expanded reach of mandatory insurance schemes as health care is increasingly
perceived, like education, as a basic social entitlement  (with the exception of the
United States, all OECD countries have achieved universal coverage);
(b) aging populations in many countries (the health care costs of persons above 65 tend
to be four times higher than in lower age groups);
(c) the emergence and/or discovery of new diseases as well as a shift towards chronic
and multi-faceted ailments;  and
(d) lack of incentives for patients to economize as the cost of treatment is (almost) fully
covered by insurance schemes.
On the supply side, experts have long noted:
(a) a similar lack of incentives to relate the cost of treatment to the expected benefits;
(b) the introduction, and sometimes unreflected use, of ever more sophisticated and
expensive technologies;
(c) insufficient health care planning and coordination, as reflected, for example, in "over-
equipment" and excess capacity of hospitals and practices;  and
(d) unfocused treatment by doctors ("variable practice patterns").  It has been estimated
that countries may waste 30 to 60 per cent of their health care spending on ineffective
or inappropriate treatment.10
                                                     
6OECD (1995), New Directions in Health Care Policy, Paris .
7In the early 1990s, the United States had less than five hospitals beds per 1,000 inhabitants as
compared to over15 in Japan.  However, the ratio of hospital staff per bed was 3.5 in the United States and 0.8
in Japan (OECD, 1995).
8European Commission (ed., 1997), Panorama of EU Industry , Luxembourg.
9European Commission (1997).
10Abel-Smith, Brian (1996), The escalation of health care costs:  How did we get there? , in OECD,
Health Care Reform – The Will to Change, Paris.S/C/W/50
Page 5
C. TRADE IN HEALTH AND MEDICAL SERVICES :  SOME EMPIRICAL EVIDENCE
18. Empirical evidence suggests, that the volume of international trade in medical and health
services is still relatively modest.  For example, U.S. "exports" of health care services, covering the
activities of U.S.-majority-owned suppliers abroad and the services provided to foreigners in the
United States, are estimated to amount to less than two per thousand of total domestic health care
spending.
19. A recent WHO publication points out the increasing importance of cross-border supply of
medical services.  For example, U.S. suppliers prov ide commercial telemedicine services to customers
in several Arab Gulf countries;  and Jordan has established telemedicine links with the Mayo Clinics
in the United States.  There is also some trade in telediagnosis services between costal provinces in
China (PR) and patients in Chinese Taipei, Macau and other South-East Asian economies;  and
several Central American countries have begun sending medical samples for diagnosis to Mexico's
public health hospitals.11
20. To date, telemedicine appears to have been used mainly to overcome geographical barriers
within individual countries and improve health care  in remote regions, for example in Norway and
Australia.  However, the above examples illustrate a significant potential for cross-border trade.  Such
trade may extend well beyond the area of health care per se  and include hospital management
functions, data collection for statistical or educational purposes, and back-up advisory facilities for
local staff abroad.  Not all of these activities may be classified as medical and health-related  servicesbut, as the case may be, as data base services, management consulting or education services.  The
GATS Annex on Telecommunications obliges Members that have committed on such activities to
ensure that their public telecommunications networks and services are made available on reasonable
and non-discriminatory terms and conditions.
21. Although there are no aggregate estimates available, it appears safe to assume that
consumption of health services abroad has remained a more economically relevant mode of supply.
Trade may take the form of patients moving  (a) from developing to developed countries, for examplewith better-off people seeking rapid access to high-quality services abroad;  (b) from developed to
developing countries, with patients demanding "exotic" therapies or, simply, less expensive treatment
in cases not covered by health insurers (e.g. cosmetic surgery) as well as  (c)  within the two countrygroups in cases, for example, where domestic suppliers are unable to provide a required service in
time or compete effectively in terms of price or quality.  In addition, individual countries, developing
and developed alike, may benefit from their natural endowment and climate.
22. A study cited by WHO experts suggests that India has considerable potential for attracting
foreign patients, both from neighbouring countries and from the wider Asia-Pacific region.Reportedly, Indian clinics may offer sophisticated treatment, including cardiovascular surgery, as well
as standard and specialized therapies at prices estimated at about one-fifth to one-tenth of those
charged in industrial countries for similar interventions.  In the same vein, a Cuban agency –
Servimed – has teamed up with travel agencies and tour operators abroad to promote package sales of
                                                     
11WHO Task Force on Health Economics (1997), Health Economics - Technical Briefing Note –
Measuring trade liberalization against public health objectives: the case of health services, Geneva;  and
Mandil, Salah H. (1998); Telehealth:  What is it?  Will it propel cross-border trade in health services?  in
Zarrilli, S., and C. Kinnon (ed), "International trade in health services:  a development perspective", Geneva(UNCTAD/WHO).    
Delegations may also benefit from the discussion in the WHO Briefing Note on broader equity, quality
and efficiency considerations related to the introduction and proliferation of telemedicine.S/C/W/50
Page 6
medical treatment and stays in resorts and spas.12  Nevertheless, industrialized countries, especially
the United States, have remained the prime suppliers of health services to foreign patients.
23. In 1996, U.S. exports of health care services – mainly in the form of foreign tourists obtaining
treatment during stays in the United States – amounted to an estimated US$872 million.  U.S. imports
of such services were estimated at some US$550 million, indicating a significant surplus.13  Canadians
represented some 50 per cent of the foreigners treated in the United States, followed by Europeans,
mainly from the United Kingdom and Germany, Mexicans, Australians and Japanese.  Although themajority of these foreigners fell sick while visiting the U.S., leading medical institutions like the
Mayo Clinics, Johns Hopkins Medical Center, and Massachusetts General Hospital are reported to
attract significant flows of patients genuinely travelling for treatment.  (The four Mayo Clinics
expected 10,000 patients from abroad in 1997).  The U.S. Department of Commerce sees an
increasingly promising market potential in Latin America, noting that Argentinians are estimated to
spend US$60 million annually on medical treatment abroad, and that more than 400,000 Mexicans
could afford treatment in the United States.
24. Establishment trade, i.e. the commercial provision of health services via foreign-invested
clinics or practices, is likely to occur especially between developed countries.  However, the
Secretariat has found quantitative information only for the United States.  Accordingly, U.S. exports
- i.e. sales by foreign-based affiliates of U.S. majority-owned health care providers - amounted to
US$469 million in 1995, representing a decline of 1 per cent over the previous year.  (Given therelatively modest numbers involved, annual fluctuations may be attributed to the completion of a few
large investments.)  This contrasts, in the same year, with services sales worth US$1.8 billion by
foreign-owned health care suppliers in the United St ates.  The U.S. deficit is ascribed mainly to the
activities of two hospital chains, owned by Paracelsus of Germany and the Australian Ramsey Group.
25. In addition, there is some evidence of regional networks being built up by health and medical
service providers in Asia.  For example, by the mid-1990s, the Singapore-based Parkway Group
Healthcare Pte. had acquired eleven hospitals, ten in Asia and one in Britain, and a majority share in a
dental surgery chain operating throughout South-East Asia.
26. The trade and developmental impacts associated with movement of health professionals may
be discussed from various perspectives, focusing either on the receiving or the originating country.
Relevant issues include, on the one hand, the contribution of immigration to filling supply gaps and/or
reducing cost pressures and, on the other hand, the economic losses, temporary or permanent,
associated with trained specialists seeking employment abroad ("brain drain").14  For example, partly
as a result of migration to the United States and Canada, 50 per cent of the posts for registered nurses
and 30 per cent of midwifery posts in Jamaica reportedly remained unfilled in 1995.15  While it has
been estimated that 56 per cent of all migrating physicians are from developing countries, the
destinations are not exclusively industrialized countries.  For example, a significant number of Indian
doctors and nurses have found (temporary) employment in the Gulf Sates and Middle Eastern
                                                     
12Specialities reportedly include cardiovascular and ophthalmological surgery, treatment of pigmentary
retinopathy and vitiligo, orthopaedics, substance abuse rehabilitation, anti-stress therapies, and cosmetic
surgery.  See WHO Task Force on Health Economics (1997).
13The following observations are based on information contained in:  U.S. International Trade
Commission (USITC, 1998), Recent Trends in U.S. Services Trade , Washington D.C.;  U.S. Department of
Commerce/International Trade Administration (1998), U.S. Industry & Trade Outlook '98 . Washington D.C.;
and Warner, David C. (1998), The globalization of medical care , in Zarrilli, S., and C. Kinnon op cit.
14The following information is taken mainly from WHO Task Force on Health Economics (1997).
15The attendant losses of human capital would need to be set against potential gains in terms of migrant
workers acquiring skills and expertise which, on return, may benefit the home country or of savings andremittances that may be invested back home.  In addition, it is difficult to verify whether the alternative toemigration would have been employment in the health sector or, in the event of more lucrative job offers, inanother domestic industry.S/C/W/50
Page 7
countries.  And some developing countries register both significant outflows and inflows of medical
staff;  Jamaica, for example, is said to import nurses from Myanmar, Nigeria and Ghana.
27. Available sources also indicate a growing of number small-scale hospitals with Chinese
participation being opened in Asia, the Middle East, and CIS Republics.  In more than 100 joint
ventures (1995), the Chinese side normally provid es technology and labour while the local partner
contributes buildings and equipment.
Possible issues for discussion:
• The impact of trade liberalization on the quality and availability of health services in
developing countries.
• The impact of liberalization on the supply of health services and on health care costsin developed countries.
• How real are the risks for developing countries associated with the migration ofqualified personnel abroad:
What are the likely effects on the domestic provision of health services?
What are the wider developmental implications?
Is there a need for policy intervention in (a) the originating and/or (b) the receiving
country?  What measures might be taken?  Could they pose problems under the GATSand, if so, might Article XIV provide legal cover?
• Is there evidence of trade distorting export promotion strategies aimed at diverting
international demand for medical and hospital services?  If so, what remedies would
be available under the GATS?
III. REGULATORY STRUCTURE AND RESULTING TRADE EFFECTS
A. GENERAL CONSIDERATIONS
28. Health services are normally provided in an environment significantly different from the
textbook ideal of a market economy.  A host of imperfections, distortions and information problemsmay prevent consumers and producers from contracting on an equal basis, in full knowledge of, and
financial responsibility for, the ensuing results.  For example, since there is not normally a direct
relationship between the cost of medical treatment and an individual's contribution – reflecting basic
equity considerations – supply tends to fall short of demand.  However large a country's hospital
capacity, it is likely to be filled.  What observers have called Say's Law for Hospital Beds, describingthe fact that additional supply tends to induce ad ditional demand, may turn into a Health Minister's
nightmare.
29. In the same vein, additional competition does not necessarily entail quality and/or efficiency
gains for all population segments and interested groups.  For example, private health insurers
competing for members may engage in some form  of "cream skimming" leaving the basic public
system, often funded through the general budget, with low-income and high-risk members.  New
private clinics may well be able to attract qualified staff from public hospitals without, however,offering the same range of services to the same population groups.  The combination of free education
with lucrative remuneration of professionals may encourage "over-production" of qualified medical
staff, distort the structure of human capital formation and, given generally rigid price and wage
structures, boost health care costs.S/C/W/50
Page 8
Box I:  Overview of Policy Initiatives to Contain Health-Care Spending
PRICE AND/OR MARKET-ORIENTED
Measures promoting competition between insurance funds (e.g. through abolition of exclusivity rights, enhanced
mobility of insured persons, flexibility to modify policy conditions).
Co-payments by patients (pharmaceuticals, hospital spending, etc.).
No-claim rebates for insurance premiums.
Measures encouraging prescription or dispensation of cheap er alternatives (generally generics) in lieu of brand-
name products.
Sales of pharmaceuticals through alternative distribution channels (doctors, hospitals, mail order).
Removal of products and services from reimbursement.
Creation of larger purchasing entities with market power (health commissions, etc.).
Incentives to substitute home care for hospital nursing, in particular for older patients.
PRICE AND/OR BUDGET CONTROLS
Various forms of price approval, price setting, etc. for prescription drugs, hospital and doctor's fees.
Price effectiveness as an approval criteria for new pharmaceuticals.
ORGANIZATIONAL CHANGES
Reorganization of the hospital sector (e.g. creation of larger units and improved coordination/specialization).
Exclusivity arrangements between insurers and hospitals/practices.
RESTRICTIONS ON SUPPLY OR DEMAND
Negative/positive lists for pharmaceuticals.
"Good practice" recommendations for medical treatment.
Measures to discourage direct access to speci alist doctors (generalist as "gatekeepers").
Introduction of supply quotas (e.g. bed-day limits).
Caps on reimbursements (per patient, practice or clinic).
Caps on staffing (e.g. number of doctors or nurses per hospital bed).
Access restrictions for new practices, hospitals and pharmacies.
OTHERS
Legal changes influencing the waiting period for, and level of, wage compensation of sick employees.
Source:  WTO Secretariat .
30. These examples do not argue against market-based reforms.  However, they may indicate the
potential for misallocation in a sector that often operates at the borderline between public and private
sphere and is subject to a variety of – not necessarily compatible – objectives.  The challenge facing
health authorities is to define a consistent set of policy goals and, consequently, create a regulatoryframework encouraging efficient resource use in pursuit of these goals.  The relevant framework may
need to evolve over time, taking into account, for example, changing policy priorities and the
emergence of new communication technologies that may gradually undermine geographical barriers
to information, coordination and competition.
B. 
CURRENT INSTITUTIONAL ARRANGEMENTS
31. There are various institutional approaches to structuring the health care sector and defining
the scope for cooperation and competition between individual units.  The diversity of current regimes,
with otherwise similar countries opting for diff erent systems and sometimes moving in different
directions, suggests that there is no magic formula:  "Designing the rules under which people can buy
health care … is a deep and subtle issue of economics, ethics, and politics.  The right answer almost
certainly varies from country to country and from time to time."16.  Whatever the answer, it is likely to
                                                     
16Aaron, Henry (1996), Thinking about health care finance:  Some propositions , in OECD, Health Care
Reform op cit.S/C/W/50
Page 9
affect access conditions for health care providers as well as for related goods and services industries,
in particular pharmaceuticals and insurance.
32. While there may be many variants and combinations, it is possible to distinguish three
principle approaches normally used in the OECD area and, possibly, economically advanced
developing countries:17
(i) Under reimbursement systems, patients have wide scope for selecting and contracting
their preferred health care providers (doctors, hospitals, etc.).  The services are paid
for retroactively by the patient, who in turn  is reimbursed by his insurer, or directly
by the insurer.  The reimbursement approach is normally used in countries with
multiple insurers and multiple (often private)  suppliers, including  the United States,
Japan and Switzerland.  Closer contractual relationships and effective cost controls
may prove difficult to introduce in such systems, but consumer sovereignty (freedom
of choice) is generally well respected.
(ii) Contract systems involve some form of prospective agreement establishing the terms
and conditions of cooperation between third-party payers and specified health care
providers.  Insurers tend to have greater control over both the level and distribution of
funding than under a reimbursement system.  Contract systems are widespread in
countries where compulsory insurance is provided by a limited number of public or
non-profit agencies.  Hospitals are usually funded on the basis of per diem rates orfees per case or service;  they may be subject to budget caps (Germany and Belgium).
Consumer choice tends to be confined to a pre-selected range of hospitals, but some
systems also allow for treatment by additional providers under reimbursement
conditions.
(iii) In integrated health systems, one single institution fully controls the provision of
health services.  Medical personnel are paid salaries and other spending tends to be
bulk-funded.  This avoids the cost uncertainties and contractual complexities
associated with other systems;  however, innovation, flexibility and consumer choice
may suffer.  Integrated systems are used in the Nordic countries and Turkey (for
general practitioners  as well as hospitals) and - for public hospital services - in
France, Italy Australia, Greece, Iceland, and Portugal.18  Recent changes in the United
Kingdom and New Zealand have favoured contractual approaches, while the public
systems in Spain and Italy are said to have moved in the opposite direction. 19
33. A study for the OECD area notes that, overall,  the organization of health care has converged
in recent years towards contract-based systems.  The study emphasizes the importance of separatingpurchasers from providers, preferably combined with a significant degree of vertical integration, and
increasing the scope for performance-based reimbursement.
20
34. Gradual shifts towards systems with private participation may offer interesting business
prospects.  In this context, a recent publicati on by the U.S. Department of Commerce points out an
increasing trend in Latin American countries, in particular Chile and Brazil, and Central and Eastern
Europe (Czech Republic, Hungary and Poland) to decentralize and/or commercialize the health sector
in a bid to contain cost pressures.21  Some countries have preferred to retain the public insurance
                                                     
17For a more detailed discussion see OECD (1995).
18Reports suggest that private hospitals are integrated  in the Italian national health system;  90 per cent
of the beds in these hospitals may be used for patients covered by the system. (Panorama of EU Industry, 1997)
19Jönsson, Bengt (1997), Government Financing and Social Insurance , paper presented at a World
Bank-sponsored conference on "Innovations in Health Care Financing", Washington D.C.
20Jönsson, Bengt (1996), Making Sense of Health Care Reform , in OECD, Health Care Reform op cit.
21U.S. Department of Commerce/International Trade Administration (1998).S/C/W/50
Page 10
monopoly but allow for competition between private and public health care providers.  Other
countries have started introducing competition between integrated systems.  Models recentlydiscussed in Argentina and Colombia allow for competition between health care providers and
insurance companies, with the latter being partly funded through wage taxes and direct budget
transfers.
22
Possible issues for discussion:
• How can WTO Members ensure that ongoing reforms in national health systems are
mutually supportive and, whenever relevant, market-based?
• Given the breadth and depth of these reforms,  would it be helpful to provide a forum
in the WTO to exchange information, regardless of the existence of specific
commitments at present?
C. RELEVANT DISCIPLINES UNDER THE GATS ( OTHER THAN PART III)
35. As indicated above, the provision of health services, even in the most "liberal" systems, is
subject to a significant degree of regulatory interv ention.  Measures may be targeted at the individual
health care providers (doctors, physiotherapists, nurses, midwives, etc.), companies and organizations
operating in the system (clinics, hospitals, nursing homes) as well as in commercially related sectors
(suppliers of medical equipment and pharmaceuticals, insurance funds, etc.).  These measures, and the
underlying policy intentions, may be extremely di verse.  For example, professional licensing
requirements may be used to ensure the qualification and personnel integrity of a doctor, regulateaccess to the profession for cost-related reasons, protect current incumbents from new entrants
(domestic and/or foreign), or ensure an adequate distribution of supply across the country and/or
social groups.  There is hardly any measure governing the organization of the sector or the provision
of individual services that would not affect, directly or indirectly, access conditions under one of the
four modes covered by the GATS.
36. To facilitate the interpretation of current commitments scheduled by WTO Members
(Section IV), the following discussion focuses on measures not directly reflected in limitations under
Articles XVI and XVII.23
Disciplines related to the organization of the health sector
37. The institutional arrangements governing the provision of health, medical and social services
may vary widely, from complete government ownership and control to full market orientation.  On the
one hand, there is the possibility of services being provided "in the exercise of governmental
authority", meaning, according to Article I:3. (c) of the GATS, that they are supplied neither on a
commercial basis nor in competition.  A case in point of such activities - not covered by the GATS - isthe provision of medical and hospital treatment directly through the government, free of charge.  In
contrast, other systems may allow for full private participation without access controls, apart from
quality- and qualification-related regulation, at freely negotiated prices.  (Price negotiations may
                                                     
22Jönsson (1997).
23Measures falling under Article XVI of the GATS typically include quota restrictions or economic
needs tests used to regulate the number of hospital beds, doctors, nurses, etc.  Measures subject to schedulingunder Article XVII may include nationality requirements as well as any other measure which, while not falling
under Article XVI, adversely affects the competitive conditions of foreign services or service suppliers.  A case
in point is the non-coverage of health services co nsumed abroad by certain public insurance schemes.
In non-scheduled sectors Members are free to operate  any measure, regardless of restrictiveness, as
long as a set of basic requirements is respected, including in particular most-favoured-nation treatment andcertain information and consultation obligations.S/C/W/50
Page 11
involve the sector in general, with representatives of the medical professions and hospital
owners/operators confronting the health insurers.)
38. Such prototypical arrangements are likely to be the exception rather than the rule.  For
example, although a country may guarantee free treatment in government-owned hospitals, there may
nevertheless be scope for private activities unless these are prohibited per se .24  In particular, private
hospitals may offer non-conventional alternatives to "traditional" treatment, capitalize on bottlenecks
in the public system, or provide special services for a wealthy clientele.  The co-existence of privateand public hospitals may raise questions, however, concerning their competitive relationship and the
applicability of the GATS:  in particular, can public hospitals nevertheless be deemed to fall under
Article I:3?  Those holding this view may argue that public hospitals (and their services) constitute a
sector distinct from, and not in competition with, private hospitals (and their services).  Given the
perceived advantages of private over public hospitals - the absence of waiting periods, use of modern
equipment, etc. - the two groups might not be considered to provide "like" services.
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 be tween the two groups of suppliers or services.  In
scheduled sectors, this suggests that subsidies and any similar economic benefits conferred on onegroup would be subject to the national treatment obligation under Article XVII.
40. In addition, there may be various types of direct private/public-sector cooperation, for
example with private companies operating public health facilities.  Under so-called
Build-Operate-Transfer (BOT) arrangements, governments may invite private investors to build
hospitals through offering them certain exclusivity rights on a temporary basis.  The legal status ofsuch arrangements under the GATS may vary, depending on the rights and obligations conferred in
individual cases.  BOT arrangements, for example, may be viewed as some form of government-
regulated commercial activity or as government procurement of the services involved.  In the former
case, for example, the authorities would be required to extend MFN treatment under Article II and –
in scheduled sectors – to ensure that the relevant access criteria are "objective and transparent"(Article VI:4).
25  In the latter case, Article XIII of the GATS would provide legal cover against
infringements of MFN, Market Access and National Treatment obligations.
41. The situation may be somewhat different for the 25 Member economies currently covered by
the Agreement on Government Procurement (GPA).  Actual application of the relevant rules,
committing signatories to non-discrimination among each other if a purchase exceeds certainthreshold values, is closely circumscribed.  Covered are only those procuring entities and categories
of goods and services that are included in Member-specific Annexes to the GPA.  BOT-type
arrangements may involve a variety of different services, possibly including architectural,
construction and real estate services.  Health and medical services as such have been included by only
one Member, the United States,  in the relevant Annex.
26
                                                     
24It is difficult to see the rationale of such prohibitions, except possibly for cases where distributive
equity and/or the public hospitals' exclusive access to  scarce resources (e.g. doctors) are the dominant policy
objective.
25Other relevant provisions may include Article VIII:2 of the GATS which obliges Members to ensure
that monopoly positions are not abused in areas outside the scope of the monopoly;  the supplier concerned mustbe prevented from acting in a manner inconsistent with the Member's specific commitments.  (BOT
arrangements may be considered to confer temporary monopoly rights, at least on a regional basis, on individual
suppliers.)
26Given the predominantly private structure of this sector in the U.S., the inclusion under GPA may be
considered as less economically impor tant than it might have been for other Members which provide for a
greater measure of direct government participation.  For a more detailed discussion of the issues potentiallyS/C/W/50
Page 12
Regulatory arrangements and recognition problems
42. Three types of regulation seem to be particular 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.  While such rules and requirements may have restrictive effects onservices trade, they may be covered by the relevant provisions of Article VI and, as domestic
regulatory measures, not be reflected in schedules.  (Article VI provides, inter alia , that the measures
be administered in a "reasonable, objective and impartial manner" and not be "more burdensome than
necessary to ensure the quality of the service").  Since health-related quality criteria may differ
significantly between individual activities, Members' scope for operating qualification and licensing
requirements under these provisions would need to be assessed case-by-case.  For example, it might
be argued that a university degree or a comparable level of education must be a precondition forcertain health professionals, for instance those entitled to issue prescriptions, but not for others.
27
Value judgements may come into play as well.  A society's expectations concerning the "quality of aservice" are likely to be influenced by income, history and culture.
43. Recognition measures applying to foreign licences, qualifications or standards (including for
medical and hospital treatment) may determine the economic value of commitments under the GATS.Such measures could affect insurance portability (t hus determining the ability of patients to consume
foreign hospital services) or the possibility for professionals of working abroad without undergoing
additional tests and examinations.  Recognition m easures may gain prominence in future as the
gradual opening of health insurance and health care markets in certain regions, such as Latin America,
tends to enhance the regulatory conditions for trade, including via improved cross-border mobility ofpatients.
44. At professional level, there are various initiatives aimed at harmonizing education and
certification standards.  Cases in point are a Trilateral Initiative for North American Nursing,
involving groups from Canada, Mexico and the United States, and efforts in Central, South and
Eastern Africa towards establishing common standards and competencies for nursing.
28
45. Recognition measures may involve a risk of discrimination and distortion to the detriment of
third parties.  However, such measures are subject, inter alia,  to the disciplines of Article VII:3, which
requires Members not to accord recognition in a manner which would constitute a means of
discrimination or a disguised restriction on trade.  Yet it may prove more difficult for affected
countries to furnish proof of such infringements than in cases of outright discrimination.29  Although a
                                                                                                                                                                    
involved in government procurement of services, see the relevant Secretariat Note S/WPGR/W/3 of 8 November
1995.
27The sector description contained in CPC already imp lies certain basic qualification requirements.  For
example, general medical services (CPC 93121) as well as specialized medical services (CPC 93122) aredefined, respectively, to comprise "services consisting in the prevention, diagnosis and treatment by doctors of
medicine of … diseases" and "diagnosis and treatment services by doctors of medicine  of diseases of a specific
nature …".  By contrast, dental services consist of "diagnosis and treatment services affecting the patient's teeth
…";  and no reference is made to the qualification of the professionals involved.  The same is true for veterinary
services.
28See Oulton, Judith A. (1998), International trade and the nursing profession , in Zarrilli, S., and C.
Kinnon op cit.
29Consider the following two scenarios:  (i) Health insurers in country A are legally required to
recognize treatment in a specified group of other countries for reimbursement purposes; and (ii)  A's insurance
legislation stipulates general hospital standards equivalent to those in B on which basis A's insurers recognize,
or are required to recognize, treatment in B.  It appears th at in the first case, A's law is in direct contravention of,
and could be challenged under, Article II of the GATS.  In the second case, it may prove more difficult for anadversely affected Member to obtain a ruling requiring changes.  The Member may first request consultations
under Article VII:2 in order to demonstrate that its standards should be recognized as well.  If theseS/C/W/50
Page 13
number of recognition measures may exist in health-related areas, autonomously or through mutual
agreement, the Council for Trade Services has received only one notification under the relevantprovisions of Article VII:4.  (The notification, S/C/N15, essentially concerns Macau's recognition of
professional qualifications obtained from Portuguese institutions.)
46. The co-existence in Member economies of diverging regulatory regimes may prove a further
source of friction.  Institutional arrangements may determine the applicability of GATS provisions,
including Article II, in individual cases.  These provisions apply only to measures affecting servicestrade that have been taken by governments or non-governmental bodies in the exercise of delegated
powers.  This suggests, for example, that arrangements between private market participants – e.g.
reimbursement conditions negotiated between insurance companies and hospitals – are not covered inprinciple, while similar conditions involving government-mandated insurers and private hospitals  -or
private insurers and exclusive hospital operators - would be within the remit of the Agreement.
30
However, Article IX establishes consultation and information requirements which may be invoked inthe event of private market participants engaging in practices that restrain competition and therebyrestrict trade.
47. Rules and practices in "regulated areas" may be used to, or have the effect of, distorting "open
markets":  public hospitals may be required not to accept insurance cover from foreign-based
companies or a regulated domestic insurer may be prevented from reimbursing the cost of treatment
abroad.  Such concerns seem vindicated by sign ificant disparities in the level of commitments
undertaken by WTO Members in relevant areas.  For example, of the 59 Members that have
committed on medical or hospital services, 19 have not committed on health insurance services.
Conversely, of the 76 Members with commitments on health insurance services, 35 have not
committed on medical or hospital services (Table 3).  However, Article VIII protects the rights of
(potentially) affected suppliers, requiring Members to ensure that their monopoly or exclusivesuppliers do not act inconsistently with obligations under Article II and specific commitments.
                                                                                                                                                                    
consultations remain inconclusive, action may be taken under Article VII:3.  In this context, the Member would
need to show that recognition had been granted "in a manner which would constitute a means of discrimination
... or a disguised restriction on trade".
30For example, a consortium of San Antonio hospitals recently signed contracts with the four largest
Mexican health insurers recognizing these hospitals as preferred providers eligible to receive patients (Warner,
1998).  In the absence of further information, it appears that these were entirely private arrangements.S/C/W/50
Page 14
Box 2:  The European Union – Towards an Internal Market for Health Care Services?
In many areas, the EU Single Market process may be co nsidered a test case for wider international integration.
It may give an idea of the economic benefits and rewards, but also of the problems and challenges, associated
with multilateral liberalization.  In health care services, the Union's experience has not been unequivocally
encouraging to date.  Cross-border investment is hampered by diverging institutional structures, limiting the
scope for private market participation, while labour mobility may suffer from cultural and language barriers.  On
the positive side, however, there are recent rulings by the European Court of Justice which may enhance
consumer mobility across national borders (between Member Sates) and, by the same token, limit the ability of
national insurance regulators to segment demand for health care services.
The organization of the hospital sector is said to "largely reflect national regulatory environments and national
heritage".  While some Member States rely predominantly on public infrastructure, owned and operated by
governments, others have increasingly provided room for private hospitals, clinics, day centres and nursing
home facilities.  At present, while private hospitals account  for the majority of hospital beds in the Netherlands
(mostly owned by non-profit organizations) and about 30 per cent in Greece, their share in Denmark is
estimated at 0.5 per cent.
There is a large body of EU legislation intended to ensure free movement of health service professionals,
including nurses for general care, based essentially on mutual recognition of professional qualifications.  In the
event of significant disparities, the receiving Member States may require the professional concerned to perform
additional tests or undergo an adaptation period.  Cultural differences (language) may also inhibit migration.
Serious shortages of nurses in some Member States have not yet led to significant migration.
In two rulings given on 28 April 1998 (Kohll and Decker) the European Court of Justice outlawed national
authorization requirements governing purchases of medical goods (spectacles) and consumption of medical
services (dental treatment) in other Member States.  Th e latter case revolved around a decision by the social
security medical supervisors in Luxembourg who had dec lined to extend insurance cover to treatment sought in
Germany.  On the one hand, the ruling underscored that, in the absence of Community harmonization, it was for
the individual Member States to determine membership conditions in their social security schemes and the
conditions for entitlement to benefits.  On the other hand, however, the Court held that the authorization
requirement operated in Luxembourg constituted a barrier  to the freedom to provide services, guaranteed in
Articles 59 and 60 of the EC Treaty, which was not objectively justified.  In this context, the Court also
discussed, and denied, the existence of conflicting public health requirements, including the need to provide a
balanced medical service accessible to all.
The ruling may have significant implications for several national insurance regimes.  For example, press reports
suggest that Germany's basic health insurance funds (Gesetzliche Krankenkassen) are also legally prevented
from contributing to the cost of dental treatment provided abroad (situation in March 1998).
An additional ECJ ruling, also bound to affect national insurance regulation, concerned a mandatory care
insurance scheme (Pflegeversicherung) introduced in Germany in 1995.  The scheme is intended to ensure the
provision of home care, nursing home and hospital car e.  Home care may be provided directly through
authorized bodies or thro ugh persons/ bodies to be selected by the beneficiary who then receives a monthly
allowance.  Financial cover is also granted for some related expenses.  Any person insured in Germany against
sickness – including cross-border commuters from other Member States – must contribute to the system, whose
benefits, however, remain limited to persons residing in Germany.  The ECJ was requested to decide on whether
the asymmetry implied was compatible with relevant EC Treaty provisions, including those concerning the free
movement of workers.  The Court's verdict confirmed Member States' right to subject foreign residents working
on their territory to mandatory social security schemes, but required that any ensuing cash benefits also be
granted regardless of residency status.
Source: WTO Secretariat based on Panorama of EU Industry (1997), Judgments of the European Court of
Justice (Cases C-120/95, 158/96 and 160/96) and Zeitschrift des Bundesverbandes der Betriebskrankenkassen,
No. 3/98.S/C/W/50
Page 15
Possible issues for discussion:
• With the gradual opening of a number of health care and health insurance markets,
how can recognition problems be prevented from frustrating the expected gains in
market access?
• Is it necessary in this context to distinguish between recognition measures related to:
(a) the quality of treatment as such (prime concern:  compliance with minimum
standards in terms of equipment, training of staff, hygiene, etc.) and
(b) a provider's qualification for reimbursement (prime concern:  cost effectivenessor protection of established suppliers)?
• Would it be helpful to define priority areas for discussion and/or future work (e.g.
international portability of insurance entitlements, recognition of professional and/or
of hospital standards)?
• How can national administrations be encouraged to focus more closely on possiblelinks - complementarities as well inconsistencies  - between ongoing regulatory
developments in the health care and the health insurance sectors?
• Are the officials involved in regulating and reorganizing these sectors sufficientlyinformed of existing commitments under the GATS?  Are they aware of the possibility
of capitalizing on market-oriented reforms in future services negotiations?
• Do Members see a need to encourage notification of existing or impending
recognition agreements of quality standards, licences, etc. under Article VII:4 of the
GATS?
• Article VII:5 calls on Members to extend recognition on multilaterally agreed criteriaand, in appropriate cases, work towards th e establishment of common international
standards.  Is there need for action under these provisions?
IV. CURRENT COMMITMENTS UNDER THE GATS
A. M
ARKET ACCESS AND NATIONAL TREATMENT OBLIGATIONS
48. For the purposes of this Note, it appears preferable to discuss the commitments applying to
modes 1 to 3 - cross-border supply, consumption abroad and commercial presence - separately from
the commitments for mode 4 governing the presence of (foreign) national persons.  While Members'
scheduling practices in the former areas tend to reflect technical and economic specificities of theactivities covered, most entries with regard to mode 4 simply extend existing horizontal commitments
and restrictions.  This does not imply that there are no sector-specific effects, but – as argued below –
that those effects are likely to ensue predominantly from the economic objectives and constraints
governing production and trade in the sector rather than from scheduling per se .
49. As in other services areas, it is necessary to add a note of caution:  schedules do not
necessarily provide an accurate, let alone comprehensive, picture of actual trade and market
conditions.  The fact that a Member has not (fully) committed on a sector may be ascribed to a range
of policy considerations, for example ongoing domestic reforms that have not yet sufficiently
materialized or lack of negotiating interest on the pa rt of trading partners.  This implies that, in the
absence of additional information, non-commitments (or the scheduling of strict limitations) must notbe equated with limited or non-existent access opportunities.S/C/W/50
Page 16
(a) Commitments for Modes 1, 2 and 3
50. Members generally found it easier to make commitments on health-related professional
services (medical and veterinary services, etc.) than on "genuine" health and social services classified
as Sector 8 in the Sectoral Classification List.  While 49 Members have undertaken commitments on
Medical and Dental Services, only 39 Members have committed on Hospital Services.  Moreover, it is
interesting to note that within the two broad groups of medical and health-related services, the level of
commitments seems to be positively related to the capital and/or human-capital intensity of theactivities concerned.  Medical and Dental Services as well as Hospital Services have drawn
significantly more commitments than, for example, Services Provided by Midwives, Nurses etc.
(CPC 93191) or Social Services (CPC 933).
51. A closer look at Table 4 also reveals that many developing countries, including least
developed countries, have made wide ranging commitments for various health and medical services.
A large majority of the Members with full commitments across modes 1 to 3 – without exclusions
from sectoral coverage or any limitations on market access and national treatment – are developingcountries.  On the one hand, they may have seen the scheduling process as an opportunity to create,
and lock in, stable market conditions with a view to attracting foreign health care providers and, in
particular, their skills and expertise.  On the other hand, some of these countries may have found it
easier, in terms of domestic policy pressure, to commit on areas where large-scale inflows are unlikely
to occur, given the absence of attractive commercial opportunities.
52. The interpretation of the entries for mode 1 is subject to an element of uncertainty related to
the question of cross-border tradability.  For example, of the 39 Members that have committed on
Hospital Services, 11 have undertaken full bindings for mode 1 ("none"), while 27 have not
undertaken any commitments ("unbound").  Of these, 13 Members felt, according to their schedules,
that cross-border supply was not technically feasible. 31
53. In the Scheduling Guidelines developed for scheduling purposes under the GATS, Members
are called upon to use such entries (i.e. "unbound due to lack of technical feasibility") whenever
relevant.  In the event of misjudgement or future technical change, these entries continue to mean
"unbound".  If a Member had failed to commit because of a misperception of what is technically
possible, its schedule would look more restrictive than it was intended to be.32  For example, among
the 13 countries which indicated that cross-border trade in hospital services was not technically
feasible, three (Bolivia, Panama, and Swaziland) assumed full commitments under modes 2 and 3.
This might indicate that these Members, and possibly some more, had undertaken commitments for
mode 1 as well, had they felt that cross-border supply was possible.33
54. Few Members have limited consumption abroad (Mode 2) of the medical, health and dental
services covered by this Note.  This may come as a surprise, as governments may be tempted to
constrain their nationals' ability to consume such services abroad:  for example, they may consider it
too difficult to prevent waste and abuse and/or may not  want to confront national suppliers, already hit
by cost-cutting initiatives, with further income lo sses.  (Poland and Bulgaria have made limitations
                                                     
31In the United Nations Provisional Central Product Classification, CPC 9311 - Hospital Services - is
defined as covering "Services delivered under the direc tion of medical doctors chiefly to in-patients, aimed at
curing, reactivating and/or maintaining the health status of a patient.  Hospital services comprise medical andparamedical services, nursing services, laboratory an d technical services including radiological and
anaesthesiological services, etc.".  It may be worth noting that this definition does not require the simultaneousphysical presence of both doctor and patient.
32In turn, this implies that in Table 4 the third column ("unbound") under Cross-border supply is
artificially inflated and gives too negative an impression of Members' actual policy stance.
33A further example is New Zealand which, while 17 Members undertook full bindings for cross-border
supply of veterinary services, made no commitments on the grounds of technical non-feasibility.  On the otherhand, New Zealand committed, without limitation, access under modes 2 and 3.S/C/W/50
Page 17
concerning the non-coverage by public medical insurance schemes of services provided abroad.)34  On
the other hand, consumer movement may prove a partial substitute for the movement of personnel(mode 4, see below), help contain the adverse cost effects, in high wage countries, of protected
domestic labour markets, and be viewed as a "safety valve" in systems that cannot ensure immediate
treatment domestically.
35
55. By contrast, limitations on market access and/or national treatment are far more frequent
under mode 3, commercial presence.  This applies in particular to Medical and Dental Services,
Hospital Services and Social Services.  The limitations are intended to provide cover, inter alia , for
economic needs tests intended to contain health costs, nationality requirements, equity ceilings, joint
venture requirements and not further specified licensing and approval procedures.  The picture for
Social Services is strongly influenced by the Members of the European Union which were among the
relatively few countries to undertake commitments on these services at all;  however, given the
existence of sector-specific exclusions from covera ge, these commitments are recorded as "limited" in
Table 4.
56. As noted in another Background Note (Legal Services, S/C/W/43), the scheduling of
licensing requirements and procedures is somewhat surprising.  If licensing is intended to implement
restrictions affecting market access or national treatm ent, it is these restrictions that would need to be
scheduled.  Otherwise, if the relevant requiremen ts and procedures as such do not comply with GATS
provisions, they would need to be brought into conformity.  Scheduling would not exempt them from
compliance, for example, with Article VI.
Possible issue for discussion:
• To improve clarity and comparability of sche dules, would it be helpful to develop a
common understanding among Members of the activities and circumstances in which
trade is not technically feasible?
(b) Commitments for Mode 4
57. As in other areas, the level of mode-4 commitments, governing the presence of national
persons, trails far behind the commitments undertaken for the three other modes.
58. Among the 55 Members that have committed on medical, dental and/or veterinary services,
whether for the entire sector or sub-classes, only two countries, Guinea and Haiti, have not made any
limitations for mode 4.36  Five Members have not undertaken any commitments for that mode, 32
have maintained horizontal limitations, and 16 have scheduled sector-specific entries.  In the latter
context, 12 Members have further narrowed existi ng horizontal commitments;  most frequently, they
have added nationality and/or residency requirements.
59. In evaluating the economic effects of such limitations, it is worth bearing in mind the sectoral
environment within which they apply.  The impact of "standard" horizontal entries is far from being
uniform, but may vary significantly across sectors.  Such variations are likely to depend in particular
on the prevailing mode(s) of supply, the factor-intensity of production (e.g. its human capital andbasic labour requirements) and the degree to which foreign personnel is able to substitute for
nationals.  In the latter context, factors such as professional expertise or language may play a role.
                                                     
34The partial commitments recorded for mode 2 in Ta ble 4 mainly reflect exclusions of specified sub-
segments from full sectoral coverage.
35For example, in Norway, a waiting-list system covers 40 per cent of all patients.  They are classified
according to three levels of priority with those at the highest level being guaranteed treatment within no more
than six months.  (According to the Norwegian Minister of Health;  see OECD, 1996.)
36The picture for health related and social services is largely similar.S/C/W/50
Page 18
60. It appears reasonable to assume that for many medical, health and social services, mode 4
restrictions are particularly significant.  This is based mainly on three observations:  (i) the scope for
other modes of supply, especially cross-border trade and consumption abroad, tends to be limited;
(ii) the activities concerned are generally labour and/or human capital intensive and, in a similar vein,
(iii) while commercial presence may be highly relevant in some sectors, the most significant benefits
from trade are unlikely to arise from the construction and operation of hospitals, etc., but their staffing
with more skilled, more efficient and/or less costly personnel than might be available on the domesticlabour market.
(c) Additional considerations
61. As discussed before, trade in medical, health and social services is strongly influenced by
measures not normally considered to be "trade measures".  These may include (i) licensing and
qualification requirements designed to ascertain the quality of the services provided and the integrity
of professionals;  (ii) restrictions on the range of goods and services professionals and hospitals are
allowed to provide
37;  (iii) controls or incentives intended to ensure the adequate provision of services
in all regions and for all population groups; and (iv)  the direct provision, on social policy grounds, of
minimum services to economically disadvantaged groups.
62. Despite their restrictive or discriminatory (side-)effects, views may differ among Members
whether these measures would need to be scheduled in all cases.
Possible issues for discussion:
• Article XVII covers all measures that modify the "conditions of competition" to the
detriment of foreign suppliers of like services.  Does the Article also apply topotentially discriminatory measures, such as language requirements, which may be
necessary to ensure the quality of certa in services, including those provided by
general practitioners?
38
• Exclusions from public insurance schemes of treatment predominantly provided by
foreign specialists (e.g. herbal medicine):   problems under Articles II, XVI and VII?
• The status of regional policy interventions under the GATS: in what circumstances is
it necessary to schedule measures discouraging access to overcrowded regional
markets, regional branching requirements, etc?
• How do Members interpret the criteria contained in Article I:3 (services suppliedneither on a commercial basis nor in competition):  Would the levying of a charge orthe existence of private hospitals preclude cover?
(d) MFN exemptions
63. Among the MFN exemptions listed by WTO members in the context of the Uruguay Round
or recent accessions, eight cases relate to professional services in general – thus extending to the four
categories covered by this Note – or to individual health and social services.  The exemptions have
been listed by Bulgaria, Costa Rica, Cyprus, Do minican Republic, Honduras; Panama, Turkey and
Venezuela.  In a clear majority of cases, the intended purpose is to provide legal cover for some type
of reciprocity requirement governing market access for professionals (Table 5).  In one case (Cyprus),
it is not possible to identify the precise nature of the MFN problem expected to be covered.  In
                                                     
37Typical examples are "positive" or "negative lists" of goods and activities, which may have been
issued for budgetary reasons.
38Iceland has scheduled under Article XVII a language requirement for veterinaries.S/C/W/50
Page 19
another case (Bulgaria), the description of the measure seems to indicate that consumers rather than
suppliers of health and medical services are subject to an element of discrimination.
V. INTERNATIONAL ASSOCIATIONS AND OTHER SOURCES OF INFORMATION
64. Given time and resource constraints, this presentation is necessarily impressionistic in nature.
It may be criticized by health policy experts for over-emphasizing trade and commercial policy
objectives and not paying sufficient attention to fundamental equity and other social policy
considerations essential to the work of national and international organizations in the sector.  Thepurpose of the Note, however, was to provide background information on economic and regulatory
factors governing trade in health and social services, including commitments under the GATS, rather
than presenting and analysing the full range of objectives and constraints policy makers may be
confronted with.  Interested delegations may find such material in recent publications issued,
separately or jointly, by WHO and UNCTAD experts or in relevant studies by the World Bank and
OECD.  A starting point could be a 1997 Technical Briefing Note prepared by the WHO Task Force
on Health Economics (op cit.) and supplementary literature referred to in this Note.S/C/W/50
Page 20
ANNEX
RELEVANT TERMS AND DEFINITIONS
Division 93 of the United Nations provisional Central Product Classification (CPC) is
designed to cover all health and social services, including services provided by professionals (doctors
etc.) in practices.  Division 93 forms part of larger Section 9, which is devoted to Community, Social
and Personal Services.  This structure differs somewhat from the sectoral pattern underlying theSectoral Classification List (MTN.GNS/W/120), on which most Members have based their schedules.
The Classification List's definition of Health Related and Social Services does not cover medical and
dental services;  veterinary services;  and services provided by midwives, nurses, etc.  The latter three
categories figure under Professional Services which, in turn, are a sub-sector within Business Services
(Table A1).
The distinction in the Sectoral Classificati on List between, on the one hand, Health-Related
and Social Services and, on the other hand, Medical and Dental Services depends mainly on whether
the relevant activities include some type of institutional nursing.  For example, while hospital services
are understood to be destined "chiefly" for in-patients, services provided by out-patient clinics are
considered to fall under Medical or Dental Services.  However, a similar distinction has not been
made for veterinary services and social services.  All veterinary services, regardless of whether theyare provided in hospitals or not, are grouped under Professional Services, while all social services,
including those provided without accommodation, figure under Health Related and Social Services.
Given the multitude of individual functions that may be performed by a doctor, veterinary,
clinic or social institution, it is not surprising that this classification (and, possibly, any alternative)gives rise to questions:
(i) Would boarding kennels be considered to fall under Veterinary Services?
The answer is likely to be negative, since veterinary services are defined in CPC as
being aimed at "curing, reactivating and/or maintaining the health status of theanimal".  In contrast, Services Incidental to Agriculture (CPC 8811) are defined to
include "animal boarding, care and breeding services".
There appears to be an element of confusion, however, resulting from the United
Nations International Standard Industry Classification;  in ISIC, Rev. 3, boarding
kennels are defined as veterinary services (ISIC 8520).  At the same time, the relevantCorrespondence Table between ISIC and CPC establishes full concordance between
the Health and Social Services industry, covered by ISIC 85, and the relevant product
definition in CPC (CPC 93).
(ii) Can treatment on "beauty farms" or plastic and similar types of surgery be classified
as medical or hospital services?  Again, the crucial question seems to be whether such
activities may contribute to "curing, reactivating and/or maintaining" a patient'shealth or otherwise be health related.  What, however, if a service is provided mainly
for aesthetic purposes?  Could it nevertheless be considered to constitute some form
of health or medical treatment and, thus, be captured by CPC 9319 and, consequently,
category 8.D in the Sectoral Classification List?
39
                                                     
39One possibility is to classify such services as "residential health facilities services other than hospital
services" (CPC 93193).   These services are defined in CPC to cover combined lodging and medical services not
carried out under the supervision of a medical doctor lo cated on the premises.  Would this class also cover
services provided without any medical supervision?
Austria has specified in its schedule that commitments on CPC 93193 include health resort hotels and
therapeutic bath services.S/C/W/50
Page 21
(iii) What is the intended coverage of "Other" Health Related and Social Services
(category 8.D) in the Sectoral Classification List?  Given that the definition of the
preceding health and social services categories is non-exhaustive, it is difficult to see
the need for a residual group.40  (While no Member has committed separately on these
services, two Members have undertaken commitments across the full range of Health
Related and Social Services, thereby including 8.D.)By the same token, it is possible that the – not further specified – "other" category
under Professional Services (1.A.k.) covers some medical or similar services as well.
In the absence of further information, it remains unclear whether the two Members
that have undertaken full commitments on these "other" services, intended to include
health-related activities.
Possible questions:
• Scheduling techniques:  What categories in the Sectoral Classification List do
Members consider to cover:(i) non-medical services for animals (including kennels) and
(ii) medical services for humans (e.g. plastic surgery for aesthetic reasons) which are
not primarily health-related or intended to prevent, diagnose and treat diseases?
• Do Members see a need, for the sake of clarity and transparency, to specify the
coverage of those "other" categories in the Sectoral Classification List that have no
CPC equivalents?
                                                     
40As already mentioned, CPC 9319 covers human health services not elsewhere classified, while 93319
and 93329 are intended to cover "other" social serv ices provided either with or without accommodation.S/C/W/50
Page 22
Table A1: Health and Social Services in  the GATS Scheduling Guidelines and CPC
Sectoral Classification List Relevant CPC No. Definition/coverage in provisional CPC
1.  BUSINESS SERVICES
A.  Professional Services
 […]
 h.  Medical and dental services
 i.  Veterinary Services j.  Services provided by
midwives, nurses, physio-therapists and paramedicalpersonnel
k.  Other
 a9312
932
93191
n.a.Services chiefly aimed at preventing,
diagnosing and treating illness through
consultation by individual patients withoutinstitutional nursing…Veterinary services for pet animals andanimals other than pets (hospital and non-hospital medical, surgical and dental
services).
Services such as supervision duringpregnancy and childbirth  … nursing(without admission) care, advice andprevention for patients at home.
n.a.
8.  HEALTH RELATED AND
SOCIAL SERVICES
A.  Hospital Services 9311 Services delivered under the direction of
medical doctors chiefly to in-patients aimed
at curing, reactivating and/or maintaining thehealth status…
B.  Other Human HealthServices9319 (other than
93191)Ambulance Services;  Residential health
facilities services other than hospitalservices;
Other human health services n.e.c.
b
C.  Social Services 933 Social services with accommodation;c  social
services without accommodationd
D.  Other n.a. n.a.
n.a. Not availablea Relates to all professional services  (including sub-sectors (a) to (g)).
b Services in the field of :  morphological or chemical pathology, bacteriology, virology, immunology,
etc., and services not elsewhere classified, such as blood collection services.
c Welfare services delivered through residential institutions to old persons and the handicapped
(PPC 93311) and children and other clients (93312) ;  other social services with accommodation
(93319).
d Child day-care services including day-care services for the handicapped (93321);  guidance and
counselling services n.e.c. related to children (93322);  welfare services not delivered throughresidential institutions (93323);  vocational rehab ilitation services (excluding services where the
education component is predominant) (93324);  other social services without accommodation(CPC 93329).S/C/W/50
Page 23Table 1:  Health Care Expenditure in OECD Countries, 1970-1992
(Per cent of GDP)
1970 1975 1980 1985 1990 1991 1992
Australia 5.7 7.5 7.3 7.7 8.2 8.5 8.8
Austria 5.4 5.3 7.9 8.1 8.4 8.6 8.8
Belgium 4.1 5.9 6.6 7.4 7.6 8.1 8.2
Canada 7.1 7.2 7.4 8.5 9.4 10.0 10.3
Denmark 6.1 6.5 6.8 6.3 6.3 6.6 6.5
Finland 5.7 6.4 6.5 7.3 8.0 9.1 9.4
France 5.8 7.0 7.6 8.5 8.9 9.1 9.4
Germany 5.9 8.1 8.4 8.7 8.3 8.4 8.7
Greece 4.0 4.1 4.3 4.8 5.3 5.3 5.4
Iceland 5.2 6.2 6.4 7.0 8.2 8.4 8.5
Ireland 5.6 8.0 9.2 8.2 7.0 7.6 7.1
Italy 5.2 6.1 6.9 7.0 8.1 8.6 8.5
Japan 4.6 5.6 6.6 6.5 6.6 6.7 6.9
Luxembourg 4.1 5.6 6.8 6.8 7.2 7.3 7.4
Netherlands 6.0 7.6 8.0 6.0 8.2 8.4 8.6
New Zealand 5.2 6.7 7.2 6.5 7.3 7.7 7.5
Norway 5.0 6.7 6.6 6.4 7.5 8.0 8.3
Portugal 3.1 6.4 5.8 7.0 5.4 5.9 6.0
Spain 3.7 4.8 5.6 6.7 6.6 6.5 7.0
Sweden 7.2 7.8 9.4 8.9 8.6 8.5 7.9
Switzerland 5.2 7.0 7.3 8.1 8.4 9.0 9.5
Turkey - 3.5 4.0 2.8 4.0 4.7 4.1
United Kingdom 4.5 5.5 5.8 6.0 6.2 6.6 7.1
United States 7.4 8.4 9.2 10.5 12.4 13.4 14.0
Source: OECD, (1995).S/C/W/50
Page 24
Table 2:  Basic Health Indicato rs for Different Co untry Groupings
HEALTH EXPENDITURE (1990-95) PHYSICIANS HOSPITAL BEDS LIFE EXPECTANCY AT BIRTHCOUNTRIES% of GDP Per capita (US$) Per 1000 people (1994) 1980 1996
Low income 4.2 22 1.0 1.6 58 63
  (excl. China and India) (3.1) (18) (0.4) (1.5) (51) (56)
Middle income 5.1 209 1.6 4.6 63 68
Low and middle income 4.5 83 1.2 2.7 60 65
   East Asia & Pacific 3.6 27 1.4 2.1 65 68
   South Asia 5.0 21 0.4 0.7 54 62
   Middle East & North Africa 4.5 433 n.a. 1.8 59 67
   Sub Saharan Africa 2.9 55 n.a. 1.2 48 52
   Latin America & Caribbean 6.7 248 1.4 n.a. 65 70
   Europe & Central Asia 5.4 138 3.1 9.1 68 68
High income 9.6 2,404 2.5 7.4 74 77
n.a. Not available.
Source:  World Bank, World Development Indicators 1998 , Washington, D.C.S/C/W/50
Page 25
Table 3:  Summary of Specific Commitments on Medical, Health-Related, Social, and Health Insurance
Services
Professional Services Health-Related and Social Services
MembersMedical
and Dental
ServicesVeteri-
nary
ServicesNurses,
Midwives
etc.Hospital
ServicesOther
Human
Health S.Social
ServicesOther Health
Insurance
Antigua and
Barbudax
Argentina x
Aruba x
Australia x x x x
A u s t r i a xxx xxx
Bahrain x
Barbados x
Belize x x
Bolivia x x
B o t s w a n a xxx
Brazil x
Brunei
Darussalamx x
Bulgaria x x x
Burundi x x x x
Canada x
Chile x
Colombia x
Congo RP x x
Costa Rica x x
Cuba x
Cyprus x
Czech Re public x x
Dominican
Republicx xxx x
Ecuador x x
Egypt x
EC (12) x x x x x x
Finland x x
Gabon x
G a m b i a xxx xxx x
Ghana x
Guinea x x
Guyana x x
Haiti x
Honduras x
Hong Kong,
Chinax
Hungary x x x x x x
Iceland x x
India x
Indonesia x
Israel x
Jamaica x x x x
Japan x x
Kenya x
Korea, Rep. of x
K u w a i t xxx
L e s o t h o xxx x
Liechtenstein x
Macau x
Malawi x x x x
Malaysia x x x
Malta xS/C/W/50
Page 26
Professional Services Health-Related and Social Services
MembersMedical
and Dental
ServicesVeteri-
nary
ServicesNurses,
Midwives
etc.Hospital
ServicesOther
Human
Health S.Social
ServicesOther Health
Insurance
Mauritius x
Mexico x x x x x
Morocco x
New Zealand x x
Nicaragua x
Nigeria x
N o r w a y xxx x
Pakistan x x x
Panama x x
Paraguay x
Peru x
Philippines x
P o l a n d xxx x x
Qatar x x x
Romania x
Rwanda x
Saint Lucia x
Senegal x x
Saint Vincent and
the Grenadinesx
S i e r r a  L e o n e xxx xxxxx
Singapore x x x
Slovak Republic x x x
Slovenia x x x x
Solomon Islands x
South Africa x x x x
Sri Lanka x
Swaziland x x
Sweden x x x x
Switzerland x x x
Thailand x
Trinidad and
Tobagoxx x
Tunisia x
Turkey x x
United Arab
Emiratesx
USA x x
Venezuela x
Zambia x x x x
T O T A L 4 93 72 6 3 91 31 9 3 7 6
Note: EU Member States are counted individually.
Source:  WTO Secretariat.S/C/W/50
Page 27Table 4:  Overview of Commitments for Modes 1,2 and 3 on Medical, Health-Rel ated and Social Services
(Number of Members)
SectorNumber of
Members
(Full commit-
ment for
Modes 1-3 )aCross border supply
(Mode 1)Consumption abroad
(Mode 2)Commercial presence
(Mode 3)
FullaLimited Unbound FullaLimited Unbound FullaLimited Unbound
Medical and
Dental services49
(12)b1 7 62 6 3 87 41 9 2 4 6
Veterinaryservices37
(10)
c1 7 21 8 3 31 31 9 1 4 4
Midwives,
nurses, etc.26
(4)d6 4 16 21 5 0 10 16 0
Other (incl.medical serv.)3
(1)
e2 1021012 0
Hospital
services39
(9)f1 1 12 7 3 15 31 8 1 7 4
Other human.health services13
(6)
g6 1665284 1
Social services 19
(2)h301 641 32 51 3 1
Other  health
and social serv.3
(2)i2 1021021 0
a Full commitments for both market access and national treatment and no limitations in sectoral coverage.
b Brunei Darussalam, Burundi, Congo, Gambia (subject to horizontal limitations for mode 3), Guinea, Hungary, Iceland (subject to  language requirement), Malawi,
Norway, Rwanda, South Africa; Zambia.
c Australia, Burundi, Congo, Finland, Gambia (subject to horizontal limitations for  mode 3), Lesotho, Qatar, Singapore, South A frica, Saudi Arabia (subject to
horizontal limitations for  mode 3).
d Gambia (subject to horizontal limitations for  mode 3), Malawi, Norway, Zambia.
e Iceland.f Burundi, Ecuador, Gambia (subject to horizontal limitations for  mode 3), Hungary, Jamaica, Malawi , Saint Lucia, Sierra Leone , Zambia.
g Burundi, Gambia (subject to horizontal limitations for  mode 3), Hungary, Malawi, Sierra Leone, Zambia.h Gambia (subject to horizontal limitations for  mode 3), Hungary, Sierra Leone.i Hungary, Sierra Leone.
Source:  WTO Secretariat.S/C/W/50
Page 28
Table 5:  MFN exemptions applying to professional services in  general and/or specified medical, health or social services
 Country and sector Measure Countries covered
BULGARIA
Medical and dental servicesBenefits under public medical insurance, subsidization and
compensation schemes covering me dical and dental services are
extended to foreigners staying in Bulgaria on the basis of reciprocity.Current and future signatories to bilateral agreements
COSTA RICA
Professional servicesForeign professionals may become members of professional colleges
only if a reciprocal agreement with the home country exists and/or in
certain cases if Costa Ricans may exercise the profession in similar
circumstances in the country concerned.All countries
CYPRUS
Human health services and socialsecurityHuman health services:
Measures governing the provision to Cypriots of medical treatment nototherwise available in Cyprus.
Public social security:
Measures covered by bilateral agreements on social security.All countries with whom medical co-operation might be
desirable (agreements currently exist with medical centresin Greece, United Kingdom and Israel).
Austria, Canada (Quebec) and any country with whom an
agreement may be concluded in future.
DOMINICAN REPUBLIC
Dental, physiotherapy, medical,
paramedical and nursing servicesDentists, physiotherapists, doctors, paramedical personnel and nurses
may exercise their profession only on the basis of reciprocity.All countries
HONDURAS
Professional servicesAuthorization to exercise a profession is granted on the basis of
reciprocity.All countries
PANAMA
Professional servicesAuthorization to exercise a profession is granted on the basis of
reciprocity.All countries
TURKEY
Professional servicesPossibility of prohibiting the supply of services in Turkey if the
supplier's home country maintains legal and administrative conditionsadversely affecting Turkish citizens who supply similar services.All countries
VENEZUELA
Professional servicesLaws governing the supply of professional services by foreigners
(including physicians and veterinary surgeons) may specify as acondition that Venezuelans must receive the same treatment in the
applicant's home country.All countries
Source: WTO Secretariat based on documents GATS/EL/122, 22, 25, 28, 38, 124, 88 and 92.
__________