International Status of Medical Services Trade

  January 16, 2022   Read time 3 min
International Status of Medical Services Trade
The service sector grows because there is demand for it. That demand is both domestic and international in origin. When services (and related goods) are sold to residents of other countries, then the industry is classified as an export and has balance of payments implications. 

Increasingly, services are being traded across borders. Indeed, trade of services grew by 6 percent per year during the 1980s and 1990s. Its share in total world trade grew from 15.6 percent in 1980 to 18.9 percent in 1999.27 According to the World Bank, exports of services experienced one of the fastest rates of growth in the world: over 17 percent per year (more than twice the rate of domestic services).

International trade in services is a relatively new concept. According to Adlung and Carzaniga, “Unlike the bulk of agricultural and industrial production, services have long been considered not to be tradable across borders . . . The only signifi cant exceptions have been services directly related to the exchange of goods (transport, insurance, etc.) and, more recently, to tourism.” Slowly, the service trade began to expand. It expanded to technical support, fi nancial services, airline reservations, and catalog sales that were shipped overseas.

There is a growing trend to do the same for legal work, as companies and law firms outsource legal work to Indian lawyers. This is part of BPO services. According to the World Bank, in 1997 some 96 percent of all software exports from India were in the form of information technology services while BPO services (including medical transcriptions) were only 4 percent. Four years later, BPO services grew to 24 percent, experiencing an average annual growth rate of over 1000 percent in the last five years.

This growing international trade in services gave rise to growth in scholarly attention to trade as well as the establishment of rules regulating trade. With respect to the former, an entire literature has sprung up devoted to the difference between trade in goods and in services (asking if traditional trade theories, based on trade in goods, also apply to services). The debate deals with the intangibility of services, and the separation of location of production and consumption in space and time. Banga found that, because of the unique characteristics of services, namely nontransportability and intangibility, there is a need for a new theory of trade in services.

With respect to an international legal framework to regulate trade in services, in 1995, the General Agreement on Trade in Services (GATS) was introduced. It spelled out a system of legally enforceable conditions and rules for service trade and in the process confi rmed how important trade in services had become. GATS distinguished between four modes of supply of services across borders. Mode 1 refers to the cross-border supply of services that does not require the physical movement of either supplier or customer. Mode 2 entails the movement of the customer to the location where the supply is in order for consumption to occur. Mode 3 refers to the supply of services in one country by legal entities from another country. Finally, Mode 4 is the provision of services by providers who are temporarily moved in order to provide the service. Medical tourism falls under Mode 2, given that the patient moves to the country of the provider in order to consume medical care. Mode 3 is also relevant for this study insofar as it includes the supply of services in one country by a legal entity originating in another country. That covers foreign ventures operating in LDCs.

In conclusion, medical tourism could not have taken off in the absence of a globalized environment in which there is an increase in the importance and trade of services. This environment is thus an enabler.

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