International services trade, domestic regulations and reforms. The case of tertiary education of Japan

• Pages: 204-225
• Date: 06 September 2013
• DOI: https://doi.org/10.1108/JITLP-12-2012-0019
• Published date: 06 September 2013
• Author: Shintaro Hamanaka
• Subject Matter: Economics

International services trade,

domestic regulations and reforms

The case of tertiary education of Japan

Shintaro Hamanaka

Office of Regional Economic Integration, Asian Development Bank,

Metro Manila, Philippines

Abstract

Purpose – This paper aims to examine obstacles to international services trade in tertiary education.

It specifically analyzes Japan’s international trade in education from three different angles: status of

international transactions of tertiary education services; the restrictions on international education

services transactions as well as domestic regulations in education sectors; and the relevancy of

domestic regulations in the education sector.

Design/methodology/approach – The paper first argues that obstacles to international education

services transactions usually take the form of domestic regulations rather than direct restrictions, using

the case study of Japan. Japan is an interesting case to assess since it has a strong desire to regulate the

education sector and has been conducting regulatory reforms recently. The paper then considers the

relevancy of domestic regulations in Japan’s education sector by comparing them against regulations in

other sectors where governments also have a strong desire to maintain regulatory powers, such as in

legal and banking services.

Findings – While it looks that the Japanese education sector is free from restrictions on international

services transactions, domestic regulations are the serious obstacles to trade. Japan’s education

industry has two principal problems regarding domestic regulations: unclear demarcation between the

government and University Council; an emphasis on the restriction on new entrant rather than a

smooth solution of “bankruptcy”.

Practical implications – As far as the business operations of foreign universities in Japan are

concerned, the emphasis of regulations should be placed on the smooth solution of “bankruptcy” of these

universities rather than the restriction of their entry similar to the case of banking sector. It should

be also noted that the demarcation between the government and University Council in exercising power

is ambiguous. Thus, both parties should maintain transparency in the decision-making process.

Originality/value – Surprisingly, there are only a few studies that analyze Japan’s tertiary

education system in terms of the obstacles to international services transactions. This paper is one of

the first attempt to examine the status of international transactions of tertiary education services

and the restrictions on international education services transactions. It then considers the relevancy of

domestic regulations in the education sector in comparison with banking and legal services sectors.

Keywords Bankingsector, Domestic regulations,Education services,Legal services, Overseascampus,

Trade in services

Paper type Research paper

1. Introduction

International services transactions in the education sector have two contrasting

aspects. On one hand, they are adequately free from restrictions[1] in the sense that it is

impossible to prevent nationals from consuming various forms of education services

provided by foreign suppliers. Studying abroad is the typical example, but recently,

online distance education has also become technologically feasible. On the other hand,

it is a highly regulated services industry in which quality control is critical and market

The current issue and full text archive of this journal is available at

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Journal of International Trade Law

and Policy

Vol. 12 No. 3, 2013

pp. 204-225

qEmerald Group Publishing Limited

1477-0024

DOI 10.1108/JITLP-12-2012-0019

JITLP

12,3

204

failure is deemed unacceptable even in the short-run. Such a situation is puzzling

from a commercial aspect[2], because education services are usually supplied

through multiple modes of services transactions as defined under the General

Agreement on Trade in Services (GATS)[3]. It is, however, undeniable that the majority

of governments do not want market forces to drive the industry.

Such an argument is especially true for Japan. The Japanese Government has been

able to establish a distinctive regulatory framework, because, across the entire nation,

Japanese students develop extremely homogenous education backgrounds by the time

secondary education is completed. The distinctive features of the education sys tem in

Japan, which are taken for granted by the Japanese people, can be an obstacle to

international transactions for education services. In addition, because of such unique

background, the domestic market for tertiary education is largely protected from

international competition. However, the internationalization of tertiary education

services is an inevitable trend in the era of globalization (OECD, 2004) and Japan’s

education system is not an exception (Tsuruta, 2006).

Surprisingly, there are only a few studies that analyze Japan’s tertiary education

system in terms of the obstacles to international services transactions[4]. A number of

studies conducted by Torii (2003, 2006) analyze the development of Japan’s policies on

hosting overseas campuses and identify the reasons why a majority of them have been

unsuccessful (note that these studies are written in Japanese. For more on this subject,

see Sugihara (2009), which is also written in Japanese). Nguyen-Hong and W ells (2003)

construct the restriction index for providing education services internationally by

analyzing regulations in the education sectors of 20 countries and find that

Japan’s restriction index is very low (for more details on this study, see Section 3.1).

Tsuruta (2006) examines the internationalization of the education sector in Japan,

but her research focuses on the sector’s business model rather than governmental

regulations. In general, existing studies have discussed the problems that overseas

campuses face in Japan and the reasons why existing regulations are necessary, but little

emphasis has been placed on the relevance of regulatory frameworks in relatio n to

the reality of international education services transactions.

This study attempts to examine obstacles to international services trade in tertiary

education. Japan is an interesting case to assess since it has a strong desire to regulate the

education sector and has been conducting regulatory reforms recently. This paper

specifically analyzes Japan’s international trade in education from three different angles

in the following sections. First, it identifies the status of international transactions of

tertiary education services by examining recent trends using official data and secondary

data found in other studies. While all four modes of international services transactions

will be analyzed, this paper will give more emphasis to education services trade through

overseas campuses (Mode 3), because the reasons why overseas campuses in Japan were

unsuccessful are critical in understanding the regulatory obstacles to international

education transactions. Second, the paper reviews the restrictions on internat ional

education services transactions as well as domestic regulations in education sectors

such as accreditation policies, which should be clearly distinguished. While the

restrictions imposed on international education services transactions by Japan may be

relatively small, as suggested by Nguyen-Hong and Wells (2003), the domestic

regulations, which do not directly restrict trade, could be a serious obstacle to the supply

of services in Japan by foreign universities. Finally, the paper considers the relevance

Tertiary

education of

Japan

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