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Introduction

You have asked for our opinion concerning present plans by the government of Alberta to contract with private for-profit health care companies for the delivery of insured surgical services. In particular you have asked for our views with respect to the potential impact of the services and investment provisions of the North American Free Trade Agreement (NAFTA) should Alberta proceed with present plans.

Summary:

The following offers a summary of our opinion concerning these matters:

  1. In many ways, the trade liberalization objectives of NAFTA are incompatible with policies that seek to exclude market forces in order to achieve other societal goals, such as the provision of universal and accessible publicly funded health care.
  2. For example, the investment and services rules of NAFTA seek to contain the capacity of governments to regulate or otherwise intervene in these spheres of the economy. On the other hand, Canada’s health care system depends upon a comprehensive framework of federal and provincial policy, law and funding arrangements that restrict the rights of private investors, and service providers in order to preserve a public health care system based on the five principles of Canada Health Act: public administration, comprehensiveness, universality, portability and accessibility.
  3. This conflict is also apparent when the provisions of Bill 11 are considered in the context of Canada’s obligations under NAFTA. For notwithstanding this Bill’s orientation towards free-market private sector solutions, several of its provisions either ignore or breach NAFTA constraints.
  4. The inherent and explicit contradictions between public health care and free trade explain why Canada needed to protect its health system from the full impact of trade disciplines. Ultimately the future viability of Canada’s public health care system depends upon the integrity and broad application of these safeguards.
  5. However, in negotiating NAFTA Canada failed to insist upon a broad exclusion for health care, relying instead upon the more limited protection of certain “reservations” (listed under NAFTA Annexes I and II) and on exceptions for government procurement and funding.
  6. Furthermore, Canada’s sectoral reservation for health care (Annex II C-9) is qualified and ambiguous because it only applies to health services “to the extent that they are social services established or maintained for a public purpose.” Moreover, Annex II C-9 doesn’t apply to several of NAFTA’s most onerous provisions, such as those dealing with expropriation and compensation. This piece-meal and qualified approach creates real vulnerability to NAFTA challenges and investor claims.
  7. Moreover, the privatization of insured health care services in Alberta would play directly to US arguments that would undermine the protection afforded by Canadian reservations. This is the case because the US has argued that, notwithstanding these reservations, “services supplied by a private firm, on a profit or not-for-profit basis” are entirely subject to NAFTA investment and services disciplines. Should this view prevail, a NAFTA dispute or arbitration panel would conclude that Canada’s health care reservation had no application to those services Alberta now plans to contract out to private companies.
  8. The impacts of Alberta’s privatization initiative also have real potential to resonate beyond the province’s borders. This will be particularly true if the federal government condones its experiment. It would then be open to foreign investors to insist on equally favorable treatment elsewhere in Canada under the national ambit of federal health care programs.
  9. The risks that privatization poses to the integrity of Canada’s public health system have been well documented by more than one federal health minister and many others. The influence of NAFTA’s investment and services rules will significantly exacerbate the problems already associated with privatization in three ways:
    • The rights accorded foreign investors and service providers under NAFTA limit government policy and regulatory options to a degree that is not true vis-à-vis domestic investors and service providers under Canadian law. These constraints undermine Canada’s capacity to preserve the essential features of its publicly funded health care system.
    • The same is true with respect to the proprietary interests of foreign investors, which are accorded much greater protection than is available to Canadians under our statutory or common law. These rights would make it virtually impossible for governments to retreat from privatization initiatives which gave rise to foreign investment.
    • Only foreign investors have recourse to the extraordinary and highly coercive enforcement machinery of NAFTA. We have already been able to observe the constraints on public policy that even the threat of investor-state claims can exert.

Each of these factors will, in our view, add significantly to the pressures that privatization initiatives will exert on the integrity of Canada’s public health care system.

In our view therefore, Alberta’s plans to privatize the delivery of surgical health care services threaten the integrity of Canada’s public health care system in a manner that has far-reaching and adverse implications both for Alberta, and for the rest of Canada.

Furthermore, we also offer our responses to the following questions.

  1. Alberta’s health care initiatives are likely to increase the participation of foreign investors and service providers in the delivery of surgical and other insured health services. Should this occur, would it be open to this or some future Alberta government to re-direct the provision of these health care services to Canadian not-for-profit providers should it decide to abandon its privatization initiatives?
  2. Would the implementation of Alberta’s plans to allow greater private sector participation in delivering certain insured medical services undermine the integrity of either Annex I and/or II reservations?
  3. Is Bill 11 consistent with NAFTA investment and services disciplines?
  4. In the event that private sector health care service providers are accorded new business opportunities in Alberta, would foreign investors and service providers be entitled to claim similar treatment elsewhere in Canada?

1. Alberta’s health care initiatives are likely to increase the participation of foreign investors and service providers in the delivery of surgical and other insured health services. Should this occur, would it be open to this or some future Alberta government to re-direct the provision of these health care services to Canadian not-for-profit providers should it decide to abandon its privatization initiatives?

The reservation Canada has listed for the health sector (Annex II C-9) would theoretically allow a government to retreat from health care initiatives that result in the privatization of health care services. However no reservation has been taken from NAFTA’s rules concerning expropriation, or investor-state claims. This is likely to make the cost of compensating foreign investors who have established or expanded operations under any new regime prohibitively expensive.

It is not clear whether Alberta intends to limit the participation of foreign investors and service providers in any contracts regional health authorities may negotiate with private providers. Moreover, as a practical matter it would be difficult for the province to do so once the door is open to greater private sector participation in the delivery of insured surgical services. Accordingly, the participation of foreign investors and service providers in the delivery of these health services is likely to increase under Alberta’s proposed scheme. Under NAFTA investment disciplines, these inroads would almost certainly become permanent fixtures of the health care system.

2. Would the implementation of Alberta’s plans to allow greater private sector participation in delivering certain insured medical services undermine the integrity of either Annex I and/or II reservations?

Bill 11 would not qualify as an “existing non-conforming measure,” as defined by the reservation listed for provincial measures (Annex I), and therefore would not be entitled to the protection afforded by that reservation. Moreover, Canada’s Annex II sectoral reservation for health is qualified in a manner that creates great uncertainty about its effectiveness and the extent of its application.

Furthermore, the US has expressed a view of the meaning of Annex II which casts into considerable doubt its application to those aspects of a health care system that involve the delivery of services by private companies on a commercial basis. Nor does Canada appear to be willing or able to resolve this uncertainty by agreement with the US. This leaves the meaning of Annex II to the vagaries of NAFTA dispute resolution processes including the prospect of foreign investor claims.

While the outcome of such a dispute is difficult to predict, it is clear that present Alberta proposals would lend significant support to the arguments already articulated by US trade officials - that Chapters 11 and 12 would fully apply to services which are provided by a private firm, on a profit or not-for-profit basis.

3. Is Bill 11 consistent with NAFTA investment and services disciplines?

In the event that Chapter 11 and 12 rules apply fully to Alberta’s proposals there is a significant risk that the province’s experiment would quickly escape whatever bounds it may have intended. Without the protection of Annex I and II reservations the province would lose important regulatory authority necessary to preserve the public, not-for-profit character of Canada’s health care systems.

In several instances the application of NAFTA prohibitions to Alberta’s health care initiatives is certain because no exception or reservation has been established to exclude application of these investment and services disciplines. In other instances the extent to which provincial policy and law is constrained by NAFTA requirements will depend upon the interpretation of Annex I and II reservations. Therefore, a consideration of the specific provisions of Bill 11 reveals two potential areas of conflict. Those that are certain to occur because Bill 11 is drafted in a manner that ignores the limits imposed by NAFTA investment and services disciplines, and those which may arise depending upon the views of trade dispute panels or arbitral tribunals called upon to determine these matters.

Examples of the former include:

  • The imposition of terms and conditions on agreements between regional authorities and surgical facilities pursuant to Section 8 is left to the discretion of the Minister. But the Minister’s authority is limited by the constraints of NAFTA Article 1106 which proscribes measures that would require the purchase of local goods or services, technology transfers, and certain service obligations.
  • The prohibition against the transfer or sale of an approved agreement under Section 10 would offend the explicit prohibition against such measures set out in NAFTA Article 1109.
  • Section 23 would insulate decisions by the Minister from appeal or judicial oversight. But while Bill 11 can limit the rights of domestic investors, public hospital boards, trade unions and health care consumers, it will have no bearing on the rights of foreign investors to invoke the powerful enforcement machinery of NAFTA’s investment rules to challenge these same decisions. < li>Sections 18 and 19 delineate the circumstances in which the Minister may withdraw or terminate a designation he or she may have granted to a surgical facility. Even when such action may be justified and for a public purpose, compensation to the extent of fair market value would still be payable pursuant to NAFTA Article 1110.

Examples of the latter include:

  • Section 1 of Bill bans the operation of private hospitals. Section 2 denies private surgical facilities the right to deliver major surgical services. Both measures clearly discriminate against foreign investors in favour of public hospitals, which according to NAFTA definitions would include hospitals run by governments, churches, social service agencies and community based organizations. These provisions of Bill 11 offend National Treatment obligations to provide the most favourable treatment to foreign investors.
  • Sections 7 and 8 set out various preconditions to the operation of a surgical facility. These are substantially different and arguably more onerous than the requirements for licensing public hospitals under Alberta’s Hospital Act. Again a breach of National Treatment is apparent.

To this assessment should be added one caveat. Without understating the consequences of undermining the integrity of Annex I and II reservations, the province would still retain some authority to allocate health care funding without having to comply with National Treatment and certain other NAFTA disciplines. The province would maintain these prerogatives because of certain exclusions for procurement, subsidies and grants written into NAFTA.

Accordingly, and while it may be very difficult to implement from a practical point of view, the provincial government would be entitled to refuse to contract with US providers for the delivery of insured health services. Ultimately however, this discussion is moot in light of Bill 11’s silence on the subject of contracting out to US private providers.

4. In the event that private sector health care service providers are accorded new business opportunities in Alberta, would foreign investors and service providers be entitled to claim similar treatment elsewhere in Canada?

The federal government’s capacity to defend public health care from the corrosive influence of international trade and investment obligations will be undermined if it does not intervene to prevent the further erosion of the not-for-profit, community based hospital system by the ever increasing participation of private for-profit service providers. Furthermore, should it accept Alberta’s plans as being permissible within the federal framework, it would weaken its ability to defend Canada’s health care system as falling under the protection of the Annex II C-9 reservation.

This would leave Canada open to foreign investor claims asserting their right to National Treatment - in this case public funding throughout Canada for the delivery of insured surgical services - founded on Canada’s support, tacit or otherwise, for Alberta’s privatization experiment. Federal responsibility for Canada’s national health care system, and the Canada Health Act, might then become the lynchpins for extending the impacts of Alberta’s initiative beyond its borders.