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GATS and Global Trade Campaign - The General Agreement on Trade in Services: What's at Stake for Post-Secondary Education?

1. What is the GATS?

The General Agreement on Trade in Services, or GATS, is one of several agreements adopted in 1994 as part of the newly-established World Trade Organization(WTO). It is a multilateral agreement that defines restrictions on a broad range of government measures that in any way may potentially affect the trade in services. Such restrictions are legally enforceable and can be backed up by WTO-endorsed trade sanctions.

As part of a built-in work programme, members of the WTO were mandated to re-launch GATS negotiations in 2000 with the goal of further liberalizing trade in services. Extensive negotiations to expand the scope of the original GATS began in February, 2000.

Following the WTO Ministerial Meeting in Doha last fall, member nations unveiled a schedule for ongoing GATS negotiations. By June 30, 2002, all member nations will have submitted requests to other countries asking for liberalization in specific sectors. By March 31, 2003, countries that were the subject of requests will present offers to open their markets in certain service sectors. Talks are scheduled to conclude in January, 2005.

2. Scope and Coverage of the GATS

The GATS is a comprehensive agreement that covers all government measures "affecting trade in services." Any national and sub-national government measure that in any way affects the trade in services is subject to GATS rules and open to a possible legal challenge from other WTO members.

Only government procurement is explicitly excluded from the GATS. All other laws, regulations, rules, procedures, decisions, standards, administrative actions, and guidelines are covered by the scope of the agreement. Some specific types of measures covered by the GATS include, but are not limited to the following:

• subsidies and grants;
• nationality requirements;
• residency requirements;
• performance requirements;
• local content provisions
• licensing or training requirements;
• tax measures;
• licensing standards; and
• technology transfer requirements.

a) All modes of supply are covered

The GATS is much more than a trade agreement. It covers every possible way of providing a service internationally, including through foreign direct investment and labour mobility. The GATS describes the following four "modes of supply" as defining the trade in services:

1) Cross-border supply. This applies to services supplied from the territory of one member country to another member country. It covers all services provided through international mail, phone, fax, teleconference, and the Internet. In the case of education, this would apply to distance education provided through the use of telephones or the Internet.

2) Consumption abroad. This mode applies to services supplied in the territory of one member to a consumer of another member. In education, this would include students attending school in another country or studying abroad.

3) Commercial presence. This refers to services directly provided by a supplier of one member in the territory of another. This covers all foreign direct investment related to services, such as the establishment of foreign education providers, foreign branch campuses, foreign subsidiaries, or programs and courses offered in local markets by foreign providers.

4) Presence of natural persons. This mode of service is provided through the temporary entry of people from one member country to another, such as courses offered in another country by foreign teachers.

The breadth of these categories explains why the GATS has been referred to simultaneously as a trade agreement, a multilateral investment agreement, and a labour mobility agreement.

b) All service sectors are covered by general obligations

The GATS contains a set of general obligations or "horizontal rules" that apply to all service sectors unless specifically exempted in Article II of the agreement. Horizontal rules include most-favoured nation (MFN) and transparency. MFN requires member countries to extend to other members the most favourable treatment afforded to any other country. Transparency requires all members to make public all government measures that affect trade in services.

These horizontal rules apply even to those sectors where a member country has not made a specific commitment. The only exception is those services "provided in the exercise of government authority." However, these government services are defined very narrowly as "any service which is supplied neither on a commercial basis nor in competition with one or more service suppliers," (Article 1:3 (c)). In other words, if a government service is provided on a commercial basis, or if there are other suppliers, it is subject to the GATS. Since most public services in most countries, including higher education, involve both public and private funding and are delivered by a mix of public, non-profit, and for-profit providers, they do not appear to benefit from this exclusion.

c) Specific obligations

Member countries have also negotiated specific commitments in particular sectors. These commitments are, where no limitations are noted, subject to two principal obligations — market access and national treatment.

Market access prevents members from maintaining or adopting measures that restrict the entry of foreign providers into the domestic market. All measures that place quantitative restrictions on services, limit foreign equity participation, or restrict the types of legal entity of a service supplier in a sector specified by a member are prohibited.

Under national treatment provisions, members are prohibited from treating domestic suppliers more favourably than suppliers from other member countries in those sectors listed in its schedule of specific commitments.

Currently, higher education remains one of the least committed sectors in the GATS. Nevertheless, there is growing pressure for countries to make and seek specific commitments on education services in the current round of talks.

3. The GATS and Higher Education

At its heart, the GATS is an agreement that commits members to a liberalization agenda, not just by eliminating barriers to trade and investment, but also by encouraging domestic liberalization in the form of privatization, contracting out of public services, and deregulation. This poses a number of risks for higher education. At its extreme, if higher education was fully covered by both the general and specific obligations of the GATS, some of the measures that would be exposed include:

• conditions relating to nationality (such as the requirement in hiring procedures that preference be given to citizens or landed immigrants, or that seats on university boards of governors be limited to local citizens);
• regulations that require a minimum number of higher education instructors and staff to be citizens or landed immigrants;
• restrictions on the presence of foreign institutions;
• regulations that require foreign higher education providers to partner with local institutions;
• tax rules that discriminate against foreign educational institutions;
• restrictions of student loan and student aid programs to citizens or landed immigrants;
• restrictions of research grants and subsidies to domestic universities and colleges or natural persons.

As well, it appears that other elements of the GATS negotiations may also impact on education. Discussions revolving around electronic commerce, for instance, may directly affect higher education by setting rules that could be applied to technologically-mediated learning or virtual education. As well, discussions on subsidies and cross-subsidization are of concern if the outcome of these talks find that public funding for university researchers, for example, constitutes a subsidy if the result of the research is subsequently marketed.

a) The Scope of Higher Education Covered under GATS

Most governments maintain that education services generally, including higher education, are not subject to the GATS and are explicitly exempt under Article 1:3. This article provides that all services are covered by MFN and transparency rules except "services supplied in the exercise of governmental authority." These latter services are further defined as services that are provided "neither on a commercial basis nor in competition with any one or more service suppliers."

In short, services like higher education supplied in the exercise of governmental authority have to meet both criteria of being supplied on neither a commercial basis, nor in competition with other providers to be exempted from GATS. However, the line between those higher education services covered by the GATS general disciplines and those which are excluded is difficult, if not impossible, to draw. The higher education sector varies from one country to another in accordance with the share of state funding and public delivery, the degree to which private education is available, and the level of competition between education service providers. Mixed systems, allowing the presence of both public and private institutions, are common. Although some WTO members view higher education as an essential public service, most countries in recent years have been promoting greater privatization and liberalization of higher education services.

In this sense, then, a public university or college could be considered under the GATS to compete for the same students with private, for-profit universities or training institutes. Moreover, if the public institutions enjoy advantages (e.g. public funding, exclusive degree-granting authority, research grants) that are not also available to their private competitors, GATS conflicts may well arise. In such cases, the public institutions would garner no protection from the governmental authority exclusion but instead would be subject to all applicable GATS rules.

Given the mixed nature of most higher education systems and the presence of both commercial and non-profit providers, the exclusion for services supplied in the exercise of governmental authority is at best subject to conflicting interpretations, and at worst inadequate. In addition, the governmental authority exclusion is to be interpreted narrowly due to the general context of GATS since it is an agreement that seeks to reach "higher levels of liberalization of trade in services."

Unless the scope of Article 1:3 is clarified, the interpretation of what services are exempt will be left to the dispute body of the WTO which have traditionally interpreted the GATS extremely narrowly. An amendment to the GATS would be preferable. Such an amendment could eliminate the definition of public services as supplied neither on a commercial basis nor in competition with other providers, and clarify that it is up to individual members to decide whether a service is supplied in the exercise of governmental authority. Such a self-defining exemption is already used in GATS on national security issues. If this approach were adopted, Article 1:3 could then read:

"... ‘services' included any service in any sector except services supplied in the exercise of governmental authority as determined by the national laws and regulations of each Member."

b) Current proposals on Higher Education

To date, three countries — the United States, New Zealand, and Australia — have submitted proposals on further liberalizing the trade in education services. The American proposal calls for the removal of a series "obstacles" to education institutions operating in other countries. Obstacles identified include preferential tax treatment of domestic institutions, bans on the presence of foreign institutions, restrictions on on-line learning material from foreign providers, and requirements for foreign academics entering and leaving countries. The US communications also suggests that country is "willing to consider" easing trade restrictions for higher education and training. Australia and New Zealand have submitted proposals similar to those in the US document.

Other countries have not yet made specific proposals but have indicated officially they want to protect their public education systems while at the same time are willing to consider making commitments in the "commercial" education sector. However, the inclusion of commercial education in the GATS could well pose a serious risk to post-secondary education. As noted earlier, the distinction between public and private education services is exceedingly and increasingly difficulty to draw. Many universities and colleges now have commercial appendages to promote marketable products or to help secure private research funding and consultancy work. In some countries, "public universities" also house fully private programs. In short, the division between "commercial" and "public" education services is becoming increasingly blurred. If specific commitments are made on commercial education services, countries could very well unwittingly expose their entire public post-secondary system to the more onerous market access and national treatment provisions of GATS.

c) Specific Limitations

Most governments have not made specific commitments on education in the GATS. With increasing pressure in the current round of talks to do so, however, many countries have suggested they are considering making commitments in the education sector while at the same time they plan to restrict the extent of this commitment through a specific limitation. In other words, a WTO member could make a commitment on private training services but write into that commitment a limitation on market access and national treatment to exempt otherwise non-conforming measures. Most countries have already listed such specific limitations in other sectors.

However, scheduling specific limitations is an extremely dangerous route to take, particularly with regard to higher education. It is possible to make specific exemptions, but once drafted, they cannot be changed. Negotiators must also be aware of every possible measure, at every level of government that must be protected. Even where governments recognize that a policy or measure must be protected, they must be able to know how, and when, to make exceptions and impose limitations. In short, GATS country-specific limitations:

• must be drafted carefully,
• will be interpreted narrowly,
• usually protect existing measures, not future policy flexibility,
• become targets in ongoing negotiations, and
• cannot be changed without compensation.

4. Conclusion

There are compelling reasons to be concerned that the GATS poses serious threats to vital public interest regulations, including those governing higher education. The range of affected regulations is extremely wide and existing protections for education and other public services remains inadequate and open to conflicting interpretations.

The exclusion for "services provided in the exercise of governmental authority" has been shown to be far more restrictive than most member countries of the WTO have assumed. This exemption, if it had left governments to define for themselves the services they provided in their exercise of governmental authority, might have been a broad exclusion that preserved the flexibility of WTO members to protect public services from the commercializing pressures of the GATS. However, negotiators clearly sought to restrict the scope of Article 1:3 by qualifying the governmental authority exclusion by two criteria, both of which must be satisfied for the exclusion to apply. These criteria are that a service must not be supplied on a "commercial basis", and must not be "supplied … in competition with one or more service suppliers." Neither of these critical criteria is further defined in the GATS text. All services that do not clearly fit within this scope are covered by the GATS.

At the same time, there is increasing pressure from several WTO members for countries to make specific commitments on higher education and to liberalize the sector. Commitments made in "commercial" education services may also expose much of the public system. In fact, because GATS is an agreement that contains built-in commitments to progressively liberalize and expand the coverage of all service sectors, commitments made in commercial education services would unleash pressures to expand the scope of education services covered, further putting public education at risk.

Finally, protecting public education providers through country-specific limitations or exceptions also raises some serious dangers. While such limitations are possible to negotiate, once drafted they cannot be changed, will be interpreted very narrowly, and become targets in future rounds of negotiations.

The best way to ensure that higher education services are not further exposed to the commercializing influences of the GATS is to, first, strengthen the exclusion for public services under Article 1:3 by making this exemption self-defining by each member. Secondly, each member must avoid making any commitments on the education sector as a whole, whether public or commercial.