Integrating trade in education services between Australia and India

Author:M. Rafiqul Islam
Position:Macquarie Law School, Macquarie University, Sydney, Australia

Purpose – The multilateral liberalisation of trade in education under the General Agreement on Trade in Services (GATS) has achieved little progress. In a bid to overcome this lacklustre education trade liberalisation under the World Trade Organization (WTO), the purpose of this paper is to examine education trade bilateralism between Australia and India as an alternative to... (see full summary)

1 Introduction

Education has widely been recognised as an essential catalyst for bolstering economic, social, and personal development. An educated and knowledge-based workforce is looked upon as an engine of growth and has become a tradable service. Traded education services have become one of the major components of multilateral trade in services under the World Trade Organization (WTO). Trade in education services in the Asia-Pacific is dominated by four major exporters, namely the USA, Canada, the UK, and Australia. Although these countries have surpluses in education services, Australia is the most competitive exporter in terms of “revealed comparative advantage in trading education services” and the predominant flows (75 per cent) of foreign students studying in Australia come from the Asia-Pacific region ( Larsen et al., 2002 ). It is this comparative advantage in human skills and qualities that positions Australia with a competitive edge in trading education services particularly in the region. While Australia has a surplus in education services, India faces excess demands for quality education and training services. India's far-reaching economic reforms and rapid expansion requires an efficient and knowledge-based workforce, meaning that it is fast becoming a major importer of education services in the region. A joint study by the British Council and the Economist Intelligence Unit has identified India as the potentially biggest new market for Western universities ( The Economist, 2010 ). For comparative and competitive advantage reasons, India would receive obvious benefits by integrating its trade in education services with that of Australia.

Bilateral trade between Australia and India has grown from strength to strength in recent years. Their Trade and Economic Framework Agreement 20061 was a turning point, providing foundation for greater cooperation in trade and economic areas of mutual interest. Both countries have undertaken a joint feasibility study, exploring the possibility of a free trade agreement (FTA) to harness their trading complementarities and synergies for greater economic integration. They have established joint ministerial commissions and specialised working groups for further diversification of bilateral trade in wide-ranging sectors. Trade in services is one such sector which is of growing importance for both economies. The trade in services between both countries has increased significantly, reaching US$3.1 billion in 2008-2009 ( DFAT, 2010 ). Recently, trade in education services is increasingly featuring an important component within the gamut of trade in services. There have been 120,000 Indian students studying in Australia since 2009, the second largest component of foreign students as consumers of Australian education services ( DFAT, 2010, 2009, p. 52 ). This trend seems to be continuing with prospects for further structured and augmented bilateral trade in education services, which is likely to be a crucial and economically rewarding component of their proposed FTA.

The education services sector in India is comparatively nascent and emerging with restricted foreign entry and competition. Mounting pressures on cost efficiency and high productivity have led to a strong demand for educated and skilled human resources. Its domestic education institutions do not have enough capacity to meet this demand. Recent studies reveal that the number of higher education institutions will not increase in the future due to serious public funding cuts ( Agarwal, 2006 ). In a bid to address the problem, India has recently sought to internationalise its education services and included higher education services in its Revised Offer 2005 to the WTO General Agreement on Trade in Services (GATS) ( WTO, 2005 ). Its impending reforms through deregulation and privatisation in the sector will increase the importance of foreign education services and related foreign direct investment (FDI). Given its liberalised education services with nearly full commitments under GATS ( DFAT, 2003 ), Australia has both import and export interests and can play a complementary role in providing education services in India.

The GATS sets out four “modes of supply” by which services, including education services, can be traded. These modes essentially delineate the origin of service providers and consumers and the degree and nature their territorial presence at the time of the delivery and/or consumption of services. It is argued that better trade in education services between Australia and India can be facilitated by focusing on each of these modes separately. By distinguishing between each of these modes separately, both Australia and India can focus on their core competencies in order to develop and sustain a comparative advantage. Accordingly, allowing benefits to flow to both countries, this article deals with the scope and issues of further liberalisation of trade in education services between Australia and India. Given the complementary economic imperatives and size of both countries, there is strong potential for further growth in bilateral trade in education services. To this end, the article prescribes new ways of strengthening their existing trade, identifies possible niche areas for additional trading opportunities, and highlights barriers to be overcome for greater trade-induced economic integration. Australia would benefit from increased trade in education services, whilst India can benefit from the stock of human capital endowed with the education and training provided and supplied by the sophisticated education services industry of Australia. There are potential opportunities for further liberalisation of bilateral trade in education services under all modes of supply. Education service is one of the least committed sectors under GATS. Economic growth oriented liberalisation of trade in education services between Australia and India is likely to have wider domino effect on others to follow, thus serving as a stepping stone towards the progressive liberalisation of multilateral trade in services under the WTO.

2 Trade-related aspects of education services

Education services encompass and cater for primary, secondary, higher/tertiary, “advanced theoretical professional” and “practical/occupational”, and adult education; and instructional training services ( WTO Council for Trade in Services, 1998 ). Certain supporting activities, such as education testings, student exchange programmes, and study abroad facilitations closely linked to “educational processes or systems” are also regarded as education services ( WTO Council for Trade in Services, 1998 ). Corporate education and training undertaken by multinationals for their personnel to improve expertise in host-countries are also education services ( Lenn, 2000 ; cited in WTO Council for Trade in Services, 1998, p. 7 ). These broad categories of institutional education, instructional training, and related activities constitute tradable education services under GATS. International trade in education services has been growing at an enviable pace with higher education leading through students studying abroad; students, staff, and researchers exchanges; global marketing of curricula and academic programmes; branch campuses and franchisees of foreign universities; and other forms of international educational collaboration.

Capital, of which human capital forms an important component, is an integral factor of growth. Education for sustainable development is seen as the catalyst for transformation into sustainable societies – intended to provide not just the technical skills and tools necessary to achieve sustainable development, but by producing a culture of sustainability by educating people of the motivations and justifications for sustainable practices2. Optimum and sustainable developmental needs warrant a country to update and renew its human resources through better skills and cutting-edge knowledge. The level of education and training are the central driving force for rapid economic growth due to their inter-sector linkages. The availability of high quality education services ensures the development and sustainability of a country's human capital in providing skills, capacity-building, competitiveness, and productivity. It is this skill and capacity-building orientation that creates effective and efficient work forces to avail the opportunities and face the challenges of rapid technological development and economic globalisation. Education level and employment level are inseparably linked in today's national and global labour markets, where constant employment restructuring has been creating more skilled and professional jobs with higher incomes than low-skilled or unskilled experiencing a decline in their incomes ( EC, 1995 ). As a response to these economic transformation and adjustments, human capital development has become a priority with increased budgetary allocation for education and training in many countries ( UNESCO, 1997 ). Constant advancement in information and communication technologies (ICT) has taken human capital development through education services to a new height ( Baer, 1998 ).

Education services always have public and private consumption aspects. Contemporary regulatory trend particularly in higher education is changing more towards autonomous education institutions in terms of their right to develop new structures and programmes, pursue specific goals, and control operations. These reforms have resulted in resources constraint with less public funding, leading to more institutional cost-cutting and revenue-raising...

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