Jane Knight: GATS: The Way Forward After Hong Kong

Jane Knight: GATS: The Way Forward After Hong Kong
International Higher Education, Number 43, Spring 2006

Jane Knight is adjunct professor at the Comparative, International, Development Education Centre, Ontario Institute for Studies in Education, University of Toronto, Canada. She is currently working at CENEVAL in Mexico City. E-mail: janeknight@sympatico.ca and jane.knight@ceneval.edu.mx.

The General Agreement on Trade in Services (GATS) negotiations during 2005 were basically in a logjam. The current round of negotiations, known as the Doha Round, was scheduled to end in January 2005, but there have been major delays and the end date is now set for October 31, 2006. It is important to realize that the Doha Round includes negotiations on three different aspects of international trade—two that deal with goods and one that focuses on services. The first is "agriculture," with which the most contentious issue is the reduction of domestic support to farmers—primarily by the European Union and the United States. The second is "non-agriculture market access" regarding which the reduction of tariffs is the key stumbling block, and the third is trade in services as enshrined in GATS. The first two issues created the paralysis, but the logjam has been loosened by agreements at the December 2005 WTO meeting of trade ministers in Hong Kong. Some of the focus may now return to negotiations in the 12 service sectors of GATS, and the pressure will be strong to increase the breadth and depth of commitments. To date, there have been a disappointingly low number of commitments in GATS. As a result, WTO-member representatives in Geneva have made renewed efforts to develop new means of encouraging countries to improve their offers. These new strategies are the focus of this discussion.

As of January 2006, a total of 45 countries (the EU is counted as one country) have made a commitment to the education sector. Thirty-six of these countries have agreed to liberalize access to the higher education subsector. Education is one of the three sectors (health, education, and culture) that are often referred to as the "sensitive sectors" and seen to be undercommitted. They may well be targets for increased pressure. The major focus, however, will continue on the big sectors such as financial services, information technology, telecommunications, and others.

It is important to remember some of the fundamental principles and rules of GATS to understand the implications of the proposed changes. First, the "bottom-up" nature of GATS allows any country to choose whether or not it will make a commitment in any of the 12 sectors and what degree of market access will be permitted. Furthermore, because negotiations are based on a bilateral request/offer system, any country is free to make a request of another, and in return any country is free to decide if or how to respond to the request. Thus countries, especially developing countries, are able to decide if, how, when, and under what conditions they will participate in the GATS negotiations. This bottom-up nature of GATS has provided a substantial degree of flexibility, but it is this flexibility that may be at jeopardy with the introduction of new negotiating strategies. There is also a "top-down" approach of GATS. This approach is the Most Favored Nation rule (all countries have to be treated the same) and National Treatment, which stipulates that where offers have been made domestic and foreign providers must be treated equally. These rules will not change.

New Options to Strengthen GATS Commitments

A number of developed countries, frustrated by the lack of increased access to trade in services, are proposing some new "complementary approaches" for negotiations. They include a variety of methods designed to push countries, especially developing countries, to commit to liberalization in a greater number of sectors and, more importantly, to deepen market access by the removal of more and more barriers to trade. This is in line with the goal of progressive liberalization, but the options being suggested may be seen as a threat to some of the basic bottom-up rules and flexibilities built into the GATS framework. The proposed new approaches include the following options:

Plurilateral negotiations. This alternative would involve a group of countries, with common interests in a specific sector, making a joint approach to a country for market access in specific sector/s. This is very different from the agreed-upon "bilateral approach." It puts increased pressure on a country to agree to the request, given the consequences of refusing a group of potentially important and powerful trading partners.

Numerical targets and indicators. This option would basically constitute a formula approach proposing that countries should include a minimum number of new or improved commitments in an agreed-upon number of subsectors. The number or percentage of subsectors would differ for developed and developing countries. This proposal is perceived by many countries as ignoring the fundamental principle that countries can choose the sectors to which they commit themselves. The education sector may be vulnerable given the low number of commitments to date.

Qualitative parameters for modes of supply. It is suggested that specific types of barriers be removed for all commitments to a particular mode of delivery, irrespective of the subsector. For example, one could take the often-used restrictions related to limited foreign ownership in mode three (commercial presence). The new approach would mean that any barriers related to foreign ownership for mode three would be eliminated across all sectors/subsectors.

These are three examples of the new "complementary approaches" being suggested. Others include reduction in the number of Most Favored Nation exemptions and benchmarking. They are labeled as "plurilateral, sectoral, and modal" approaches and will be the subject of much heated debate. The details of these new approaches are not known, but the position of many countries is that they will significantly erode the flexibilities available to them to liberalize in sectors they choose and to the extent that they wish.

The Meaning for Trade in Education Services

If these new complementary approaches are eventually implemented, it is likely that many countries will be making and/or receiving additional requests for access to their domestic education markets. For countries that have already made a commitment to higher education, there may be increased pressure to remove restrictions or Most Favored Nation exemptions that were detailed. Education may be seen as a useful “horse-trading” sector—meaning that commitments to education will be given to gain access to other key sectors.

It is important to emphasize that there will be great speculation and controversy on these proposed changes to the GATS methods of negotiation. This means that education policymakers and senior leaders need to develop a close and ongoing relationship with the lead trade negotiators and GATS experts in their country to become better informed and to influence future trade negotiations that involve education. Trade negotiators cannot be expert in all sectors, and thus the education sector has a role to play in providing analysis of the potential opportunities and benefits and/or the potential risks and disadvantages of trade in education services for their national higher education system.