International services transactions in the education sector have two contrasting aspects. On one hand, they are adequately free from restrictions1 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 failure is deemed unacceptable even in the short-run. Such a situation is puzzling from a commercial aspect2, 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 system 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 transactions4. 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 Wells (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 relation 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 international 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 of domestic regulations in the education sector. Here, we will try to draw some policy suggestions by comparing education sector regulations against regulations in other sectors where governments also have a strong desire to maintain regulatory powers, such as in legal and banking services. The final section summarizes the findings of this study.
Tertiary education institutions in Japan are classified into three types:
The central government in Japan can establish schools, including tertiary education institutions6. According to Ministry of Education, Culture, Sports, Science, and Technology (MEXT)7, as of May 2011, the central government of Japan had established 86
The total number of students at universities and junior colleges increased steadily since 1950 before leveling off in the mid-1990s, and has remained at almost the same level over the past 15 years. In terms of number of students, the average size of junior colleges is significantly smaller than that of universities. While the overall number of university students in Japan is increasing, that of junior college students is declining. Thus, the role of junior colleges in tertiary education in Japan is diminishing. Accordingly, the student participation rate in higher education after graduating from high school increased between the end of the Second World War up until 1975, but then declined between 1976 and 1990. The percentage increased again after 1990 until around 2010. Despite the shrinking university-age population in Japan over the last two decades, the number of students enrolled remained at almost the same level due to efforts to significantly increase the participation rate in higher education. As a result, 92 percent of university-age individuals who desire to enroll at universities or junior colleges are able to do so as these institutions need to attract students in order to survive.
Meanwhile, the number of faculty members continues to grow despite the fact that the numbers of universities, junior colleges, and students is no longer increasing. Interestingly, the majority of foreigners working as faculty are in universities rather than junior colleges.
In general, the share of online study is very minor as a mode of education in Japan. According to International Comparison of Education compiled by MEXT (2011) , while 702,374 individuals entered universities or junior colleges in 2010, only 19,635 students enrolled in online courses provided by Japanese universities and junior colleges in the same year.