The European Union as an Actor in the General Agreement on Trade in Services - Contents, Chances and Risks of Negotiations

Table of Contents

Introduction

1. The significance and development of the education sector
1.1. The four modes of international trade in educational services
1.2. Significance of educational services in international trade
1.3. Education as a public service

2. GATS main principles

3. The EU as an actor in GATS
3.1. The EU’s negotiating position concerning educational services in the WTO Uruguay Round 1986-1995
3.2. The EU’s negotiating position concerning educational services in the WTO Doha Round 2001-2005

4. The chances of liberalizing educational services in the tertiary education

5. The risks of liberalizing educational services in the tertiary sector

Conclusion

References

Internet sources

Introduction

In 1994, the majority of countries which founded the WTO in 1995, concluded a first general agreement on the liberalization of services (GATS). Within the framework of the General Agreement on Trade in Services (GATS) liberalization in international trade of services is supposed to be negotiated progressively^[1]. Among 12 service subsectors, education is explicitly featured in GATS. However, before the inclusion of education in the Service Round negotiations as part of the Doha Round in the year 2000, educational services did not draw much attention. One reason being the strong underestimation of their market shares.

The EU, as one of the Contracting Parties of the GATS, has already agreed at the Uruguay Round in 1994, to guarantee free access and non-discrimination for foreign competitors in almost the entire education sector, that consists of primary, secondary, tertiary education as well as adult education. Until 2005 the ongoing Doha Round scheduled further liberalization of educational services and thus the EU is likely to be under the pressure to even further liberalize its education sector. Since large parts of the education sector in the EU belong to public service, liberalization of educational services is a subject of heated debate.

Neoliberal economists and politicians view the privatization of public services as the best way to increase both efficiency and the benefit for all members of the society. Anti-globalization activists fear the loss of public control over essential public services and regard the society as exposed to the ruthless greed of gain by multinational companies. Moreover the anti-globalization activists complain about the redefinition of educational services as a profitable product.

The international trade of educational services thus remains a highly controversial issue, causing the necessity for careful deliberation of the particular contents, chances and risks of the liberalization of educational services.

This essay will take up this kind of deliberation, explaining the relevance of educational services in international trade and the significance of education as a public service.

Furthermore this essay will enlarge upon the European Union as an actor in the GATS negotiations concerning its position about trade in educational services, describing the European Commissions’ perspective on liberalizing educational services and the modifications of its approach during the GATS negotiations at the WTO Uruguay and the Doha Round.

Taking up the fact that international trade in educational services has experienced important growth in particular in the tertiary education sector, demonstrated by the increasing number of students going abroad for study, exchanges among faculties, the establishment of “branch campuses” etc. the last part of this essay will present a variety of strengths and weaknesses of liberalizing tertiary educational services.

Since the GATS negotiations regarding educational services are a very broad and complex topic, this essay cannot serve as an exhaustive analysis, but it aims at offering an array of arguments and facts about the international trade in educational services.

1. The significance and development of the education sector

“High quality education can positively influence labour factor conditions of a country´s economic development. The availability of highly skilled labour force is a factor contributing substantially to national economic development. Most countries consider investment in education as being of strategic importance to enhance national competitiveness and to increase opportunities to attract foreign investment.”^[2]

Without doubt services in the education sector are of outstanding importance not only to individuals but also to the competitiveness and future of a country.

The OECD Education report published in 2004 proves, that countries, in which the number of graduations in secondary education has increased at least 5 per cent, benefit from decreasing unemployment and rising income. Each additional year of education, that a member of a given society enjoys, increases the GDP from 3 up to 6 per cent^[3]. The more it is to notice that OECD countries have reduced their expenditures on education from 7 per cent of the their GDP in the 70ies to 5,9 per cent in the 90ies^[4]. The reduction is mainly due to the flourishing private education sector^[5], a tendency that is supposed to continue:

“The implementation of the General Agreement on Trade in Services (GATS) is expected to have a tremendous impact, in the longer term, on the whole nature of international education recruitment and will encourage many more private providers into the international market.”^[6]

At the same time, with the spread of new communication and information technology education and knowledge have become accessible for more people, even those living in remote areas^[7]. Due to this the international trade with educational services has considerably gained weight.

To assess the size and significance of international trade with educational services, it is necessary to determine indicators. This shall be accomplished by separating educational services according to their four modes of trade.

1.1. The four modes of international trade in educational services

On the basis of the United Nations Provisional Central Product Classification (UN CPC) the GATS divided services in 12 sectors. Private services in education belong to the 5th sector, which in turn is divided into five subgroups:

- Primary educational services (CPC 921), that comprise the pre-school sector
- Secondary educational services (CPC 922), that include general, technical and vocational training below university level
- Tertiary educational services (CPC 923), that contain higher education at university level and professional training at post-secondary level,
- Adult educational services (CPC 924), cover adult education outside the regular education system
- Other educational services (CPC 929), which cover all other not elsewhere classified educational services, e.g. special schools for athletes. Though this category excludes educational services for recreation matters.

Besides one needs to distinguish between the four different modes of supply of services, namely cross border supply (mode 1), consumption abroad (mode 2), commercial presence (mode 3) and presence of natural persons (mode 4). Relating to educational services cross border supply implies e.g. e(lectronic)-learning via internet. In case of cross border supply it may include for example students studying abroad. Mode 3 can be applied to language schools operated by a foreign company or institution in a given country, whereas mode 4 refers to native speakers teaching at a language school abroad^[8].

Based on this distinction a very differentiated liberalization of educational services at GATS level is possible. Moreover it allows to carry out a more differentiated analysis when speaking about the size and significance of the liberalization of educational services.

Regarding the size of liberalized educational services, nowadays mode 2, that is consumption abroad, accounts for the biggest sector. An Australian study has revealed that the demand of 1,8 million students studying abroad in the year 2000, could rise to 7 million in 2025, boosted by the growing demand of students from China and India. A strong growth is also prognosed for cross-border supply of educational services, that is pushed by the application of new communication and information technologies. In the United States 5 per cent of students already use e-learning, contributing to annual profits of $1,75 billion in this mode of educational services. Experts assume that until the year 2030 cross border supply of education by e-learning will increase to an amount of $365 billion.

Far less liberalized are educational services supplied by the commercial presence of foreign companies or institutions and the presence of natural persons, still facing considerable trade restrictions of WTO members^[9].

“Adult education is the sub-sector in which countries have made the most “full commitments” in mode 1 (cross-border supply), mode 2 (consumption abroad) and mode 3 (commercial presence) […] Mode 2 is the most committed mode. […] Mode 4 (presence of natural persons) is the most restricted among the four modes.”^[10]

1.2. Significance of educational services in international trade

Alike other services, the trade in educational services has been on the increase during the last couple of years. According to OECD data the value of traded educational services in the higher education sector for example amounted to $30 billion in 1999, what marks an increase of $3 billion in comparison with 1995. Altogether the trade in educational services made up for 3 per cent of the entire trade in services of OECD countries- whereas this amount only considers the consumption abroad of educational services.

Despite the above mentioned differentiation in educational services, most countries limit their trade reports in this sector to consumption abroad, as it is the simplest way of measuring the trade in educational services. The other modes of supply taken into account by GATS are rarely quantified, so that the OECD and UNESCO started to collect empirical data concerning these issues^[11].

It is a fact that liberalization activities in educational services develop with great caution and is the least committed sector after energy services^[12]: Just 25 WTO member states have accepted liberalization obligations in four of the five education subsectors, 41 WTO member states (from which 25 OECD countries) have accepted liberalization obligations in at least one education subsector, mostly in the adult and higher education sector^[13].

The fact, that some WTO members have liberalized more education subsectors than others can be attributed to the following:

“In general, the countries that have made their commitments after the Uruguay Round have wider sectoral coverage than the countries that made commitments before the Uruguay Round. This can be explained by the fact that countries joining the WTO after the Uruguay Round have been under greater negotiating pressure to make commitments. […] On the other hand there are few low-income countries that have made a high level of commitment in order to attract foreign educational investments.”^[14]

[...]

^[1] http://www.wto.org/english/thewto_e/whatis_e/tif_e/tif_e.htm

^[2] Saner/Fasel (2003), p. 276.

^[3] http://www.zeit.de/2004/39/oecd

^[4] Lohmann/Rilling (2002), p. 18.

^[5] WTO (2001), p. 231.

^[6] http://www.britishcouncil.org/ecs/pmi/positioning_for_success/global_analysis

^[7] Bjarnason (2004), p. 143.

^[8] WTO (2001), p. 236-237; 245-246.

^[9] King (2004), p. 87-88.

^[10] http://www.oecd.org/dataoecd/51/30/2088471.pdf, p. 2.

^[11] Saner/Fasel (2003), p. 280.

^[12] WTO (2001), p. 240.

^[13] Frank/Scherrer (2002), p. 57.

^[14] http://www.oecd.org/dataoecd/51/30/2088471.pdf, p. 2.