April 11, 2009

NAFTA And The Canadian Health Care System


Why doesn’t Canada have any US surgical health care facilities?

By Melvin J. Howard 

By the communication I have been receiving seeking additional information on this trade dispute. I have decided to devote most of the entries to our dispute with Canada. Example I get a lot of e-mails stating we had no idea of what a mandatory universal health care system looked liked until we came across your NAFTA dispute with Canada. I also get a lot of why are there not more US health care companies in Canada? So this post will serve as a peek behind closed doors of Canada’s health system. What’s important to understand is this is not a question about which health care system is better? Indeed the US is at the cross roads of reforming its own health care system, which I for one am in an agreement. But this cannot lead to protectionism, trade barriers and the status quo, which is rampant in the Canadian health care system, as I will expose. This dispute is about trade pure and simple as a matter of fact international trade and NAFTA specifically, is a mystery to many. So I will try to write in layman’s terms without all the legal jargon that can become confusing. In fact, Canadian health care policies are, at root, incompatible with the full application of free trade treaties. By establishing a public sector health insurance monopoly, and by regulating who can provide health care services and on what terms, the medicare system goes against the meaning of trade and investment agreements.

NAFTA reservation shields Canada only to the extent that they are related to health as a “social service for a public purpose. But since 1994 Canada has created greater commercialization and competitive elements in the financing and delivery of its health care services. Canada had to be aware that trade litigation to barriers to trade would soon appear. But I am sure they did not think it would come in this form of me. The "barriers" to international trade in services, which GATS seeks to remove, consist of local, state, and national regulations.

Both private and public services are subject to GATS. There is exclusion in GATS for public services "provided in the exercise of government authority" if they are "supplied neither on a commercial basis nor in competition with one or more service suppliers." This is not the case with Canada’s health care system any longer. Since 1994 some health services have been also provided in the private sector, or at least have commercial relationships with private suppliers.

Market access: A country cannot legislate or regulate the amount of services or how they are supplied, either by domestic or foreign-owned companies, and cannot limit the percent of foreign ownership. The market access rule of GATS provides foreign direct investment in health care that are currently public operated, because it prohibits regulations of the percent of foreign private ownership of services or how these services are supplied.

The World Trade Organization (WTO) is arbiter of trade rules. Countries that believe their companies are being barred from trade by another country for reasons that violate WTO rules can file a dispute with the WTO. Disputes among nations are currently resolved by panels appointed by the WTO, which are unaccountable to governments or courts. The panels can impose substantial financial penalties for noncompliance, as well as authorize countries to take trade sanctions against other countries that do not comply, including financial penalties and the boycott of products. 

The General Agreement on Trade in Services (“GATS”) of the World Trade Organization (“WTO”), the North American Free Trade Agreement (“NAFTA”), and other bilateral trade and investment agreements are all considered here. Of greatest relevance are Canada’s GATS commitments with respect to financial services, and the foreign investment obligations contained in Chapter 11 of NAFTA. 

What are the relevant obligations under each of these agreements?

Where a WTO Member has made market access commitments in its GATS Schedules of Specific Commitments, as has Canada in relation to financial services, and specifically health insurance and insurance-related services, measures limiting market access in these sectors are prohibited under GATS unless otherwise specified in its Schedule.  These prohibited measures include limitations on the number of service suppliers, whether in the form of numerical quotas, monopolies, or exclusive service suppliers.  Although Canada has claimed some reservations from its market access. Under NAFTA investment obligations, Canada would be required to pay compensation to U.S. and Mexican investors if Canada were to directly or indirectly nationalize or expropriate their investments or take measures that are tantamount to expropriation of their investments. 

Do these obligations apply to provincial regulations or programs?

Yes.  The GATS and NAFTA obligations discussed above apply to measures taken by federal, provincial and local governments.  Under GATS, the federal government is obligated to take reasonable measures as may be available to it to ensure that regional and local governments and authorities observe Canada’s GATS commitments.  Under NAFTA, Canada must ensure that all necessary measures are taken to give effect to the provisions of NAFTA, including their observance by provincial and local governments.  In the event of any alleged breach of Canada’s obligations under GATS or NAFTA, the federal government is responsible for responding to the allegations and when necessary, for providing compensation in the manner required under Canada’s treaty obligations.

Do NAFTA’s provisions allowing for the designation of monopolies and state enterprises, such as a public health system relieve Canada from its obligation to compensate investors?

No.  NAFTA does provide that nothing in the agreement shall be construed to prevent Canada from designating a monopoly or from maintaining or establishing a state enterprise.  However, this does not, avoid the requirement to provide compensation to investors where the establishment of a monopoly or state enterprise is determined to be an expropriation or a measure tantamount to expropriation of the investments of NAFTA investors.

What are the consequences for failing to comply with the obligations arising under these agreements?


In the case of an alleged violation of GATS, any WTO Member, including the European Union and the United States, could file a complaint with the WTO’s Dispute Settlement Body requesting that a Panel be established to review the consistency of any Canadian measures with the obligations and specific commitments under GATS.  The resolution of disputes under GATS and other WTO agreements is carried out on a government-to-government basis. The WTO Panel hearing the case would receive written submissions, conduct oral hearings, and in some cases receive expert testimony and reports.  After hearing the case, the Panel issues a report setting out its findings as to whether the measures in question offend GATS, and if so, its recommendations concerning compliance with GATS obligations.  Panel decisions are appealable on points of law to the WTO’s Appellate Body, which can uphold, modify or reverse the Panel’s legal findings.  WTO Members are expected to comply with Panel and Appellate Body reports.  Failure to comply with a report can result in the suspension of concessions extended to Canada by other WTO Members under GATS or other WTO agreements.

Under NAFTA, the compensation paid to U.S. and Mexican investors must be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place.  NAFTA also provides for the use of certain valuation criteria, such as going concern value, asset value including declared tax value of tangible property, and "other criteria, as appropriate, to determine fair market value".  The compensation must be paid to affected U.S. and Mexican investors without delay and must be fully realizable.  The compensation must include interest at a commercially reasonable rate from the date of expropriation until the date of actual payment.  Furthermore, the compensation paid to U.S. and Mexican investors must be freely transferable without delay in accordance with NAFTA's obligations pertaining to transfers of profits, proceeds, and other payments.

The NAFTA dispute settlement provisions apply to the Canadian government, and not the provincial governments.  Accordingly, if any required compensation under NAFTA is not provided to investors, the federal government will be responsible for the payment of any award arising out of an investor-state dispute. In closing I leave a cautionary tale that the US should be very careful on reforming health care where we end up rationing every part of the health care system. The Canadian system is built on rationing even down to much needed medical technology. There has been a lot of publicity surrounding actress Natasha Richardson’s care after her ski accident in Canada. Could she have had a better chance of survival if she were in the US? Well you be the judge and ask yourself what would you pick?


Richardson: Stood far better chance in US.


COULD actress Natasha Richardson s tragic death have been prevented if her skiing accident had occurred in America rather than Canada?

Canadian health care de-emphasizes widespread dissemination of technology like CT scanners and quick access to specialists like neurosurgeons. While all the facts of Richardson's medical care haven't been released, enough is known to pose questions with profound implications.

Richardson died of an epidural hematoma -- a bleeding artery between the skull and brain that compresses and ultimately causes fatal brain damage via pressure buildup. With prompt diagnosis by CT scan, and surgery to drain the blood, most patients survive.Could Richardson have received this care? Where it happened in Canada, no. In many US resorts, yes.

Between noon and 1 p.m., Richardson sustained what appeared to be a trivial head injury while skiing at Mt. Tremblant in Quebec. Within minutes, she was offered medical assistance but declined to be seen by paramedics.

But this delay is common in the early stages of epidural hematoma when patients have few symptoms -- and there is reason to believe her case wasn't beyond hope at that point.

About three hours after the accident, the actress was taken to Centre Hospitalier Laurentien, in Sainte-Agathe-des-Monts, 25 miles from the resort. Hospital spokesman Alain Paquette said she was conscious upon reaching the hospital about 4 p.m.

The initial paramedic assessment, travel time to the hospital and time she spent there was nearly two hours -- the crucial interval in this case. Survival rates for patients with epidural hematomas, conscious on arrival to a hospital, are good.

Richardson's evaluation required an immediate CT scan for diagnosis -- followed by either a complete removal of accumulated blood by a neurosurgeon or a procedure by a trauma surgeon or emergency physician to relieve the pressure and allow her to be transported.

But Sainte-Agathe-des-Monts is a town of 9,000 people. Its hospital doesn't have specialized neurology or trauma services. It hasn't been reported whether the hospital has a CT scanner, but CT scanners are less common in Canada.

Compounding the problem, Quebec has no helicopter services to trauma centers in Montreal. Richardson was transferred by ambulance to Hospital du Sacre-Coeur, a trauma center 50 miles away in Montreal -- a further delay of over an hour.

Because she didn't arrive at a facility capable of treatment (with the diagnosis perhaps still unknown) until six hours after the injury, in all likelihood by that time the pressure buildup was fatal. The Montreal hospital could not have saved her life.

Her initial refusal of medical care accounted for only part of the delay. She was still conscious when seen at a hospital and her death might have been prevented if the hospital either had the resources to diagnose and institute temporizing therapy, or air transport had taken her quickly to Montreal.

What would have happened at a US ski resort? It obviously depends on the location and facts, but according to a colleague who has worked at two major Colorado ski resorts, the same distance from Denver as Mt. Tremblant is from Montreal, things would likely have proceeded differently.

Assuming Richardson initially declined medical care here as well, once she did present to caregivers that she was suffering from a possible head trauma, she would've been immediately transported by air, weather permitting, and arrived in Denver in less than an hour.

If this weren't possible, in both resorts she would've been seen within 15 minutes at a local facility with CT scanning and someone who could perform temporary drainage until transfer to a neurosurgeon was possible.

If she were conscious at 4 p.m., she'd most likely have been diagnosed and treated about that time, receiving care unavailable in the local Canadian hospital. She might've still died or suffered brain damage but her chances of surviving would have been much greater in the United States.

American medicine is often criticized for being too specialty-oriented, with hospitals "duplicating" too many services like CT scanners. This argument has merit, but those criticisms ignore cases where it is better to have resources and not need them than to need resources and not have them.

Cory Franklin is a physician who lives outside of Chicago. 2009 Chicago Tribune; distributed by Tribune Media Services.