Free Trade, 'Trade Creep' and the Risks to our Public Health

Trade agreements are not based on natural laws or inevitable necessities, but represent political values and choices that governments make. How could current negotiations on transatlantic trade agreements affect the UK government's sovereign power to protect its citizens health and the public interest?

Meri Koivusalo
16 May 2013

The current international trade negotiations could have serious impacts for national capacities to regulate health systems, promote public interest and implement further public health policies. The negotiation of these agreements (between the European Union and Canada, and the European Union and United States) has been accompanied by high estimates of economic and commercial “gains”, as emphasised by interest groups and those responsible for trade and commercial policies. However, there has been very little discussion on how these agreements affect the public interest, public services and national policy space for regulation.  Indeed, it is now necessary to examine how these new agreements affect democratic accountability and the balance between public and corporate interests.

This is of particular importance to European Union Member States. While negotiations are taken at European level, it is unclear whether National Parliaments and local and regional decision-makers responsible for health systems are adequately aware of how negotiations could affect health systems and policies for health protection.

‘Trade-creep’ and the ‘right to regulate’

Health has been an important matter of concern in relation to trade and investment agreements. Governments need to intervene and regulate healthcare, not only for public health and safety purposes, but also to ensure quality and equitable and sustainable financing of health care. The need to maintain policy space for regulatory measures and adequate cross-subsidisation has been part of the reason why many governments have been largely unwilling to include health services as part of trade agreements.

However, the negotiation of new bilateral trade agreements has gained ground in recent years, extending deeper into areas of national policy far beyond tariffs on imported goods. A new generation of more “comprehensive” and “ambitious” free trade agreements is now being negotiated between wealthy countries. These new agreements have a specific focus on so called non-tariff negotiations, such as services, investment, intellectual property rights and “innovation”. They focus particularly on government procurement and "regulatory cooperation” across the Atlantic. This could have significant impacts on the domestic regulation of health services, pharmaceutical policies, standard-setting, health promotion and health protection.

The negotiations towards the EU/Canada agreement are nearing their conclusion - and give a useful insight into the possible direction the forthcoming EU/US negotiations could take. Campaigners in Canada have been pushing hard for health to be excluded very broadly from its agreement. However there has been less discussion of the health policy implications of the agreement for European Union Member States.

The European Parliament has emphasised governments’ right to regulate and recommended the exemption of "sensitive sectors". Article 12 of a parliamentary resolution on June 08. 2011:

"Stresses that the investment chapter should promote high-quality investments which respect the environment and encourage good working conditions; furthermore calls for the investment chapter to respect the right of both parties to regulate, in particular in the areas of national security, the environment, public health, workers' and consumers' rights, industrial policy and cultural diversity; calls on the Commission to exclude from the scope of investment agreements sensitive sectors such as culture, education, national defence and public health…"

However, it is not entirely clear at this stage, whether the European Parliament will have effective say over the more detailed content of what has been actually negotiated in the agreements, nor whether domestic parliaments will have such oversight.

From the health policy point of view there are three major areas for concern, if health is not excluded.

Firstly, trade and investment agreements could severely restrict the ability of national governments – including the UK - to control costs and regulate outsourced health services,  and the ability to bring services back in house if commercialisation fails. A shift in policy away from health care markets could be challenged in the context of commitments made on ‘investment liberalisation’ or ‘investor protection’.

Secondly, an agreement could seriously open up the risk of corporate challenges and compensation claims from legitimate public health regulation, health protection and health promotion policy measures. For example, expropriation claims have already been used by the tobacco industry to challenge Australia plain packaging law, and have been raised in relation to a Canadian national court decision on a medicine patent.

Thirdly, clauses on intellectual property and pharmaceutical policies could limit scope for using pricing and reimbursementpolicies, and technology assessment, to achieve better economic and clinical value from pharmaceuticals.

Access to medicines could be affected

The issue of access to medicines has traditionally been seen as a problem for developing nations, but it also affects richer countries who are increasingly concerned over very high prices for new cancer medicines. There is an active focus on pharmaceutical policies and intellectual property rights in the new trade policy agenda. Trade negotiators have sought to delay the availability of lower-priced generic drugs as part of the EU/Canada FTA, a move which met with opposition from Canadian activists and the generics medicines industry.These provisions would add an estimated $2 billion a year to the cost of medicines in Canada.

The EU/US negotiations are likely to focus on pharmaceuticals.  A background study for the negotiations of EU/US agreement has suggested pricing policies and technology assessment as potential areas for negotiation interest. Technology assessment has been crucial, for example, for the work of National Institute for Health and Clinical Excellence (NICE).

The United States trade policies have put pressure on countries who take legitimate public policy measures to control drug costs.  For example Finland, a European Union member state, is on the United States ‘301’ blacklist as result of ‘reference pricing’ of pharmaceuticals. Governments use reference pricing to establish a common reimbursement level for medicines based on a reference price of lowest or average price of the medicine or group of medicines. The pharmaceutical industry has claimed that such practices to promote generic and lower prices of medicines hinder innovation. Will trade negotiations cave into pharmaceutical industry lobbying on both sides of the Atlantic, benefiting large multinational pharmaceutical industry corporations at the cost of national health care systems and patients?

Public health measures dendangered

Another worrying possibility is the use of trade and investment agreements against health-related regulation – such as against asbestos, or on tobacco or food labelling. Trade and investment agreements may restrict the extent to which governments can regulate for health. Agreements may allow existing regulatory measures as a baseline, but make more market restrictive or tighter regulations harder to impose in future. Negotiators need to ensure both that existing health-related regulations are protected, and that governments will have the policy space to regulate further if necessary.

Public health measures frequently place restrictions on the marketing of products with safety or health concerns. Health promotion measures seek to educate consumers to reduce their consumption of unhealthy products. The European Union has previously stressed the importance of the precautionary principle, which would allow further measures irrespective of trade implications,  if there are reasonable grounds for concern that potential hazards may affect the environment or human, animal or plant health.

However, trade negotiations tend to increasingly favour a narrow risk assessment approach, which can fail to adequately capture environmental and health risks, for example, for chronic, low-level, novel or production process-related exposures and hazards. The European ban of the use of hormones in meat products has already been challenged by United States and Canada in the context of WTO dispute settlement.

The introduction of an investor-state-arbitration mechanism, giving corporations broader right to sue governments using a specific arbitration mechanism, will create further challenges for public interest, environmental and public health regulation in other sectors.

Article 168 of the Lisbon Treaty obliges the European Union to ensure a high level of health protection in all policies. This should in principle apply also to negotiations in trade policies as well as on investment protection and arbitration. Worryingly, it has been reported, on the basis of a leaked negotiation document from the EU/Canada negotiations, that EU negotiators do not want to exempt even “good faith, non-discriminatory measures to protect public health, safety and the environment from prohibitions against so called indirect expropriation".

Locking in commercialisation, restricting cost-control and equity

Health services need to be excluded comprehensively from ‘liberalisation’ and ‘investment protection’  provisions of trade agreements. In the case of NHS and section 75 regulations this is particularly important as the new regulations expand contracting out within NHS. If this is an expensive failure, it would be difficult, if not impossible to backtrack from commercialised service provision, if health is not excluded from services and investment liberalisation.

Even if excluded from investment and services liberalisation, ‘investment protection provisions' could make it more difficult and costly to shift back to public provision. When such measures would reduce future investment or profit opportunities for private companies, this could be challenged as direct or indirect ‘expropriation’ from the point of view of any company operating in UK health care markets. The worst case scenario for the NHS would then be that commercialisation becomes “locked in”, sealed by the threat of huge compensation claims by investors.

Finally, without appropriate exemptions, a governments’ ability to regulate professional standards and qualifications could be restricted. Whilst there could be a place for improving professional mobility between states, it could be dealt better with cooperation between administrations responsible for oversight on professional practice and qualifications within countries, than as part of trade and investment agreements. The impacts of professional mobility have already resulted in a WHO Global Code of Practice on the International Recruitment of Health Personnel. 

Why could health services be affected by these free trade agreements?

The European Union/Canada free trade agreement (CETA) has been in under negotiation for several years, whilst formal EU-US agreement negotiations are just starting. In contrast to previous multilateral agreements, such as the General Agreement on Trade in Services (GATS), the CETA, controversially, is based on negative listing. Negative listing includes everything that has not been explicitly excluded. Equally worrying are sweeping ‘horizontal provisions’ that can apply across all service sectors, or to domestic regulation requirements in general. Standstill clauses in trade agreements usually imply that governments commit not to introduce new legislation, which would not be compatible with treaty provisions. Finally, there are so called ratchet mechanisms, which can gradually bring previously excluded services into the agreement  without further negotiation.

Trade and investment agreements may also have different services and sectors included on the basis of legislation and market access within the sector. If there are no limitations on market access or for foreign investors, the sector could become included as part of the trade agreement. It is important to understand the implications of different exceptions and exemptions in a given trade and investment agreement, and what kind of policy space they allow for governments in future. It is also important to know if an exception covers any measures or still requires compliance with such policy measures, which have been agreed on other horizontal provisions in the agreement, such as, for example, domestic regulation requirements.

Negotiation practices can thus seek to include all services on the basis of their existing legislation with a ‘standstill’ on any further regulation not compatible with treaty provisions. This is particularly inappropriate for recently commercialised sectors, including, increasingly, the English NHS – it is in fact more, not less, important, for the government to retain the right to regulate the providers of such services.

A particular concern is the negotiation of expropriation and investor-state-arbitration, which would allow corporations and foreign investors to challenge national legislation. Investor state arbitration mechanisms have been criticised for their impacts on democratic decision-making, accountability and transparency. They have also been criticised for their "chilling" impacts on health and environmental regulation. A panel of legal experts have cautioned the expansion of current investment regimes and emphasised that: “The award of damages as a remedy of first resort in investment arbitration poses a serious threat to democratic choice and the capacity of governments to act in the public interest by way of innovative policy-making in response to changing social, economic, and environmental conditions”.

The danger is that sweeping investment protection  covers all services and negates any exceptions made for health services from the agreement. If exceptions made for health services do not apply also to investment protection provisions, this may give a false reassurance that governments could indeed bring health services back in house, when in fact this would be against the protection of foreign investor interests.

What can be done?

It is vitally important to analyse implications of trade and investment agreements, not merely in relation to benefits for the commercial sector, but in terms of their implications on public policies, citizens, health, and broader public interests. 

It is entirely possible – and from health policy perspective desirable -  to exclude health services from commitments made in relation to trade in services, investment liberalisation, government procurement and domestic regulation.

It is also entirely possible to remove both health services and other health-related regulations from investment protection parts of the agreements or substantially limit the scope and use of expropriation clauses. Whether this is done in practice is ultimately a political decision.

In practice this may be difficult, due to the complexity, fragmentation and use of precedence for negotiation of further agreements.  The different layers of commitments made in trade and investment agreements are also becoming increasingly difficult to understand and manage. There is thus a danger of a slippery slope through consequent negotiations towards a regulatory context essentially defined by corporate and investor demands.

Preamble promises are not sufficient guarantee

Trade and investment agreements often make declarations in the preamble, which emphasise the “right to regulate”. For example, the General Agreement on Trade in Services  (GATS) has a preamble which emphasises: “ Recognizing the right of Members to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives“.

These type of declarations are necessary reminders, but insufficient in themselves. Whilst setting the context, they are not likely to bear the same weight as the actual articles of the agreement, which will still restrict how governments can regulate and where they are exposed to risk of compensatory claims by foreign investors.

Broad regulatory measures and aims, such as universal service provision, can also be made conditional to compliance with an agreement. “Regulatory rights” may also be defined very narrowly.  Regulatory needs for public health, health promotion and health systems can’t be reduced to a narrow risk assessment approach to public health or safety standards. There is a need for sufficient regulatory freedom to ensure safe production processes, equity, containment of costs within health systems, to ensure adequacy of professional qualifications, and to address other environmental, public health and safety hazards.  

A different kind of co-operation is neccessary

The responsibility for health care financing and regulation is currently a matter largely for decision by EU Member States, and at state level in United States and Canada. The danger is that trade will hear more clearly the needs of industry and corporate lobbyists in comparison to health care users or those who remain accountable and responsible for oversight and regulation.

In contrast to current negotiation priorities, we urgently need to enhance actual international cooperation on the basis of public health and health policy needs. We need to ensure governments are free and able to address crucial health policy needs, including access to medicines, equity and universal access to services.  Countries need to be able to cooperate to ensure they obtain quality and value for money from publicly financed products and services, in particular from multinational pharmaceutical and health care industries. Any broad partnership negotiations between the US and the EU should also consider issues like the regulation of multinational industries in general, addressing such concerns as access to knowledge, tax avoidance and the use of financial transaction taxes.

Trade agreements are not based on natural laws or inevitable necessities, but represent political values and choices that governments make. Foreign investors do not vote. If governments are accountable to the people, this should be reflected also in decisions on trade and investment policies. It is increasingly important that governments understand how these negotiations affect and what they imply for their sovereign power to protect health and the public interest. 


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