Home Programs & ServicesCenter for International InitiativesU.S. Higher Education in a Global Context Policy Issues

GATS-General Agreement on Trade in Services

An Overview of Higher Education and GATS

I. Introduction
II. What forces are shaping trade in education?
III. What is GATS?
IV. How does GATS work?
V. What are the major issues for U.S. higher education?
VI.Where do things stand at the present time (i.e., August 2002)?
VII. What is ACE's role?
VIII. Conclusions
Notes

I. Introduction

This brief discussion of higher education and the General Agreement on Trade in Service (GATS) presents an overview of GATS and implications for higher education. Trade in higher education services has grown over the last few years into a global market estimated at $30 billion in 1999. The United States earned an estimated $8.5 billion from this trade in 1997, making it the country's fifth largest service export. The United States is by far the largest provider of education services, followed by the United Kingdom and Australia. In 2000, the United States proposed to add higher education services to the negotiations with other GATS members.

II. What forces are shaping trade in education?

Major changes in conditions affecting the context of higher education give GATS a potentially critical role in higher education around the world. These are 1) globalization, 2) improvements in information technology and communication, and 3) increased competition in higher education.

1. Globalization: In today's world, globalization is rapidly increasing, bringing with it expanded personal mobility; access to knowledge across borders; increased demand for higher education (including e-learning), especially in developing countries; growing worldwide investment; and increased needs for adult and continuing education. As a result, the opportunities and capacities to expand the market for higher education have also increased tremendously. That growth will continue even more rapidly over the next few years. With it come both opportunities and potential threats for U.S. higher education. Though the impact in the short run may be limited, the potential long-term consequences are significant.
   
   
2. Information technology and communications: The rapid worldwide expansion of new information technology, improvements in communications technology, and the reduced cost of much of this technology have spawned a major expansion in its application to education. In many parts of the world, information technology holds promise for reaching populations that could not be served by traditional education institutions.
   
   
3. Increasing competition: Competition in higher education has increased markedly in recent years in the United States, Europe, Latin America, and Asia as policy makers turn to market forces to reform higher education and cut costs.¹ Competition from foreign institutions is of special concern to developing nations. They fear that competition from providers in rich nations will disadvantage their still-developing higher education systems. If outside providers succeed in recruiting the better-prepared and more affluent tuition-paying students away from public institutions, they will deprive government-supported higher education of revenue needed to support public education for poor and less-prepared students. Developing nations are also concerned that GATS demands for unrestricted access in the higher education sector will open the door to foreign diploma mills and providers of questionable quality, which these countries do not yet have the capacity to monitor or police. Thus, GATS is seen as hindering their commitments to the "public good," the development of a national higher education system essential to national development, efforts to foster national cultural values, promote democracy, and provide educational opportunities for all citizens—not just those who can pay for them.

III. What is GATS?

After World War II, the major powers worked together to liberalize trade, focusing on industrial goods in eight rounds of multilateral negotiations under the General Agreement on Tariffs and Trade (GATT). The GATT agreement began in 1947 with a small group of the world's major trading powers; by 1994, it had expanded to 128 members. In 1995, during the Uruguay round, the GATT was replaced by the World Trade Organization (WTO). At that time, a decision was made to broaden the talks to include trade in services and expand participation. That was done under the umbrella of the WTO through the General Agreement on Trade in Services (GATS), set up as the framework for negotiations about trade in services. GATS is a voluntary agreement designed to facilitate trade in services. Once a nation becomes a member of GATS, it is subject to the general obligations of GATS (see below) and makes specific commitments regarding market access and national treatment in specific sectors (such as education). There are costs to not signing GATS; a country outside the agreement risks not having equal access to those markets and losing favorable or unfettered access to markets in critical export areas. At the present time, 144 nations have agreed to participate in GATS; 44 have agreed to include at least one sector of education under GATS.

• Aims of GATS: The goals are to expand free trade in services, open markets, and facilitate economic growth. The goals for higher education as a service include removing restrictions on market access and barriers to competition in higher education.

• What education services are covered by GATS? There are five education sectors: primary education; secondary education; higher education (including postsecondary technical and vocational education services); adult education (e.g., education for adults outside the regular education system); and other education (e.g., testing and certification). Governments can make commitments for one area, several, all sectors, or none of them.
• In what areas has the United States made commitments? At the present time, the United States has made commitments for adult education and other education and proposes to include higher education. The United States has decided not to make commitments in primary education or secondary education.
• What are the commitments? All signers agree to the general GATS obligations of most favored nation treatment, transparency, adjudication of disputes, and impartial enforcement of measures affecting trade in services.²

IV. How does GATS work?

The 144 participants agree to abide by the basic general obligations of GATS members (e.g., most favored nation treatment, noted above) and make commitments for specific sectors to eliminate or reduce tariffs and other impediments to trade in services. There is a hierarchy of obligations with general obligations applying to all members, followed by specific commitments specified by each member. National commitments serve as the basis for negotiations between member countries that are signatories to GATS. The two levels of commitment are:

• General obligations (e.g., most favored nations treatment and transparency). These obligations apply to all services.³ For example, most favored nations treatment requires that members extend equal treatment to each other's service suppliers. Thus, GATS members are entitled to conditions of access equal to the most favorable given to any other nation.
• Specific commitments. These refer to member country commitments to market access and national treatment for specific sectors (such as education). Each government identifies these in its Schedule of Specific Commitments. Government commitments to date have ranged from a few to 120 of the approximately 160 service sectors (including subsectors).
  
  • National treatment: Treatment of GATS partners in the same way a nation's own citizens are treated.
  • Market access: A negotiated market commitment in specific service sectors. It may be subject to various limitations such as number of service suppliers, values of transactions, total number of service operations, total number of people that may be employed in a particular service sector, and limits on participation of foreign capital. Members are free to tailor sector commitments as they wish, as long as the limits are stated at the outset. They may encounter pressure from other members regarding such limitations. Each member may make additional commitments to provide access beyond the listed measures.
• What service sectors can be covered by GATS? Education and 11 other service sectors, including business; communications; construction and engineering; distribution; environment; financial; health; tourism and travel; recreation, cultural, and sporting; and transportation. Each sector has a number of subsectors.
• What laws and practices are covered? Any law, regulation, or practice from a national, regional, or local government or a non-governmental body exercising authority delegated by government that affects covered services, is covered. These are referred to as "measures" affecting trade in services.
• What are the different types of education services covered? GATS applies to several ways (modes) of supplying education services:
  • Cross-border supply (e.g., distance education).
  • Consumption abroad of services by consumer traveling to supplier's country (e.g., students studying abroad).
  • Commercial presence (e.g., a campus abroad).
  • Presence of natural persons from supplying country in consuming country (e.g., faculty teaching abroad).
• Are any areas of service excluded? GATS applies in principle to all service sectors except two that are regarded as outside its purview:
  
  1. "Services supplied in the exercise of governmental authority," namely, services that are not supplied on a commercial basis or in competition with other suppliers, such as social security and, in many countries, other public services, such as health or education that are provided under non-market conditions; and
     
     
  2. air transport services, which are measures affecting air traffic rights and services related to those rights.
• What kinds of trade in services barriers are the focus of GATS? Obstacles to trade in education that have been cited by the U.S. Department of Commerce include:
  
  • Legislation that discriminates against foreign providers (e.g., requirement of majority local ownership).
  • Licensing requirements unique to external providers.
  • Accreditation or quality assurance standards that differ from those for local providers; little or no access to local accreditation.
  • Customs duties for educational material that crosses borders.
  • Taxes (in excess of local competitors) on earnings or limitations on repatriation of profits.
  • Government red tape for foreign providers.
  • Subsidies for local providers not available to foreign providers.
  • Citizenship requirements in order to teach or offer certain subjects.
  • Telecommunications restrictions on foreign access to the Internet or phone service.
  • Visa and other travel restrictions on foreigners that affect education.

V. What are the major issues for U.S. higher education?

• Will U. S. public and private higher education institutions be treated in the same manner? There are several quite different answers to this question depending on the interpretation of GATS. One interpretation holds that public education is exempt from GATS regulation since it is supplied in the exercise of government authority. In that context, it would seem that U.S. public institutions are exempted by offering "services supplied in the exercise of government authority." Would that be the case for private nonprofit institutions because they do not provide services in the exercise of government authority? In this view, private nonprofit institutions would seem to be subject to "national treatment" and other disciplines of GATS. Treating public and private nonprofit higher education institutions differently in the international arena would be unacceptable in the United States. While in many parts of the world "private" is synonymous with for-profit education, we make a distinction. For-profit private education institutions are subject to GATS discipline since they offer services on a commercial basis.

  A second interpretation is that both U.S. public and private institutions would be subject to GATS. This is because, in order to meet the test for exemption from GATS, in addition to being supplied in the exercise of government authority, education must be provided neither on a commercial basis nor in competition with other non-governmental suppliers. It could be argued that public and private higher education institutions are in competition with other non-governmental suppliers.

  The third view—that of some of the major GATS proponents—is that both public and private nonprofit higher education are excluded from GATS.⁴ Thus, both U.S. public and private nonprofit institutions would be outside the purview of GATS discipline.

  The important concern here is the lack of agreement and the ambiguity of the language of GATS on the subject. That ambiguity could be highly divisive for U.S. higher education, with potentially profound negative consequences. It could also provoke international disputes between the United States and other GATS members.

• Can a decentralized system, such as that in the United States, fit into the GATS framework? The answer is not clear. The majority of member states consider higher education part of a national government structure. The United States is an exception, as are a few other countries such as Canada and Germany, where higher education policy is a matter for states or provinces.

• Will GATS expand the federal role in higher education to facilitate U.S. commitments to GATS? Trade agreements made by the president of the United States under GATS and approved by Congress are the law of the land and as such pre-empt state and local authority. Under U.S. "fast track" trade legislation approved by Congress and signed into law in August 2002, trade agreements made by the president (usually through the U.S. trade representative) must be either approved or disapproved and cannot be amended. There will be no opportunity for changes during Congressional debate. Specific provisions in areas such as education cannot be changed once an agreement is reached by the president with other GATS members. Thus the negotiation process itself takes on increased importance since that is the stage at which critical decisions will be made.⁵ While much of the work related to GATS could be facilitated through national and local higher education bodies, it is the federal government that controls negotiations, and thus the federal role in higher education services would be enhanced. Negotiations involve the U.S. Department of Commerce and the Office of the U.S. Trade Representative (USTR). They also may involve the Departments of Labor, Justice, Treasury, and Education. Once an agreement is signed, some state and local authority is lost to the federal government as the only legitimate U.S. actor in GATS.

  Another way that GATS could increase the role of the federal government relates to multiple regulatory authorities in the United States. Conflicts arising from multiple state regulatory authorities could easily result in complaints and contestation about infringement on free trade regarded as unacceptable under GATS. Individual states have major authority over education within their boundaries. Yet state authorities are bound by any trade agreement entered into by the president of the United States and approved by Congress. The existence of multiple regulatory authorities, and the problems posed in several areas of education, exemplify the kinds of issues that might lead to requests for GATS discipline. Multiple regulatory authorities can inhibit expansion, development, and competition; complicate growth; and increase the likelihood of substantial legal costs and other financial liabilities if educational providers fail to meet the tests of overlapping and competing jurisdictions. We have already seen this problem with the expansion of distance education within the United States, which has been hindered in some ways by competing state laws. Some states assert that they have the right to control any higher education activity or material received in their state, by whatever method.⁶ This issue is complicated by uncertainty regarding state definitions of "physical presence" since some states claim authority by including in-state "partners" that "passively deliver" courseware.⁷

  When the British Open University tried to establish itself in the United States, it suffered long delays seeking approval in several states, and ran the risk of legal challenges and huge additional state-by-state costs if it expanded without approval in each state in which it did business. The problems resulting from multiple regulatory authorities were given as a major reason for the Open University's decision to stop doing business in the United States. While this issue was not taken up under GATS, it is an example of the kind of issue that could become contentious. This would potentially pit states' rights against international commerce in areas of service covered by GATS. The resolution of such conflicts might well strengthen federal control over higher education.

  While multiple regulatory authorities pose problems, they reflect the U.S. tradition and value of decentralization and self-regulation. In those cases when multiple regulatory authorities pose serious problems for higher education, we believe non-governmental solutions are preferable and can be found.

• What are the implications of progressive liberalization? The fundamental goals of GATS include expanding the areas covered and achieving the progressive elimination of tariffs and other barriers. While there is no time limit on GATS, Article XIX commits members to successive rounds of service negotiations with the aim of achieving progressively higher levels of trade rule liberalization. Thus, even those areas for which exclusions are sought are potentially subject to elimination as trade restrictions are lifted.
• Even though the United States has listed scholarships and grants as exempted from national treatment under GATS, will those exemptions disappear in 10 to 15 years (under the notion of progressive liberalization), opening up state and federal scholarships and grants to foreign providers and students? Though the process of liberalization has been slow to date, the answer is not clear. These exceptions could be subject to progressive liberalization in the future.
• How will GATS affect quality assurance and accreditation? Will U.S. accreditation be covered by GATS as authority delegated by government to private institutions? How will U.S. Department of Education recognition of U.S. accreditors be seen by other nations? Could GATS affect the autonomy and decision-making process of U.S. accreditors regarding which institutions are eligible to be reviewed for accreditation? These issues remain unclear.
• What will be the effect on U.S. markets? The elimination of trade barriers works two ways. U.S. providers would have greater access to markets outside the country, but adherence to GATS would also give non-U.S. providers greater access to our education services markets. This would be the case for every nation that signs on to GATS in education, limited only by their exclusions, until such time as progressive liberalization limits exclusions.
• Why can't we predict the effects of GATS? One of the major problems remains the ambiguity of the agreement. Major efforts need to be taken to limit the ambiguity of language in GATS and thus help clarify issues about what is covered by GATS. Historically, ambiguity of language is a major cause of confrontations, trade wars, and disputes.

VI. Where do things stand at the present time (i.e., August 2002)?

• The current negotiations began in 2000.
• The U.S. proposal to include higher education under GATS in this round of negotiations—i.e., by January 2005—was made in December 2000.
• National proposals and comments were due for this round by June 30, 2002.
• Three countries in addition to the United States have made proposals: New Zealand, Japan, and Australia. In general, they reiterate the critical role of government control over education policy, assert the importance of reducing trade barriers, and suggest goals for doing that. (The proposals can be found on the WTO web site).
• The offers of each member country will be published by the WTO by March 2003.
• The current phase of negotiations is to be completed by January 1, 2005.
• Recommendations from interested parties to the USTR to make requests of other countries concerning the elimination of barriers should have been sent to the USTR by June 30, 2002, if related to the current round of negotiations, though comments and input will be accepted at any time.

VII. What is ACE's role?

• To monitor the ongoing discussions on GATS and keep constituents informed.
• To maintain contact with the USTR, Department of Commerce, the Department of Education, and other major actors representing U.S. interests, regarding GATS and other treaties affecting education.
• To work with our colleagues in higher education abroad to understand their concerns, interests, and needs. It was in this context that ACE joined with the Association of Universities and Colleges of Canada (AUCC), the European University Association (EUA), and the Council for Higher Education Accreditation (CHEA) to circulate in September 2001 a Joint Declaration on Higher Education and the General Agreement on Trade in Services (see Joint Declaration PDF ), stating concerns about GATS. That document helped bring international attention to the dangers we perceive in including higher education in GATS.

VIII: Conclusions

• The potential dangers to U.S. higher education presented by GATS outweigh the benefits. Public and nonprofit colleges and universities are not experiencing problems in international education that are worth the risks of GATS to solve.
• GATS opens the door for greater federal intrusion into higher education, especially in the context of the new U.S. fast track trade legislation.
• We must continue to affirm the importance of higher education as a social good worldwide, and an investment in economic and cultural development.
• We need to impress on our higher education colleagues around the world the importance of communication with their trade delegations to ensure that the higher education community's voice is heard.
• We need to continue to actively monitor the activity related to higher education under the auspices of GATS, as well as other trade agreements that have the potential to affect U.S. higher education, such as the North American Free Trade Agreement (NAFTA) and the Free Trade Area of the Americas (FTAA).

Notes

¹ See Frank Newman and Lara K. Couturier, Trading Public Good in the Higher Education Market, The Observatory on borderless higher education, January 2002, p. 1. http://www.obhe.ac.uk/products/reports/.

² For an excellent detailed discussion of the key elements and rules of GATS, see Jane Knight, Trade in Higher Education Services: The Implications of GATS, The Observatory on borderless higher education, March 2002. http://www.obhe.ac.uk/products/reports/.

³ Under certain circumstances, nations may seek specific exemptions, but these must be granted prior to the effective date of the agreement, but no longer than 10 years earlier.

⁴ Pierre Sauvé argues that the "common understanding at the inter-governmental level is thus that public education services and education services supplied by private actors on a non-commercial basis are excluded from GATS." Pierre Sauvé, Trade, Education and the GATS: What's In, What's Out, What's All the Fuss About? Paper prepared for the OECD/US Forum on Trade in Educational Services, May 23–24, 2002, Washington, DC, p. 3.

⁵ The Trade Promotion Authority legislation creates a new joint Congressional Oversight Group to provide Congressional advice during the negotiation process. It is to be bipartisan with representation from all the committees that have jurisdiction over any part of a trade negotiation. The administration is required to provide regular briefings to this group. To be effective, input must come prior to the conclusion of negotiations between the United States and other countries.

⁶ See Michael B. Goldstein, Regulation of the Web: e-Learning in a Nation of States, testimony presented on behalf of the National Association of College and University Attorneys, March 4, 2000, Portland, Oregon.

⁷ Ibid, p. 3.

Please direct questions about this page to:
cii@ace.nche.edu | Staff Contacts
Download our information brochure (PDF)
This page last updated on 09/02/2008