Chapter 8 Trade in Services
The Sub-Committee received a substantial amount of evidence regarding
the growing importance of Australia’s services trade in the regions under
reference. In particular, the evidence focused strongly on the opportunities
for trade in legal and education services.
In answer to a Supplementary Question from the Sub-Committee, however, DFAT
noted that there is considerable scope for Australia to improve its overall
performance in trade in services:
Australia is one of the world’s leading suppliers of
education services and a rapidly growing provider of many other services,
including financial services and professional services such as engineering,
architecture and legal services. Despite this, services accounted for only 21
per cent of Australia’s exports in 2009 - even though they generate 73 per cent
of GDP and 86 per cent of Australian jobs.
Increasing international trade in services is not only good
for exporters; it can also be of great benefit to importers. This is because
international trade in services provides countries with access to skills and
technologies that they do not have, but which can be crucial to improving the
productivity and efficiency of their own industries – not just in the services
sector but also in the manufacturing, agriculture and resources sectors.
Services trade can therefore assist countries to increase
their competitiveness and exports in other sectors, boosting economic growth
and helping them move up the development ladder.
As the Minister for Trade and the Parliamentary Secretary for
Trade have said recently, ‘The services sector is the key to driving
productivity across the global economy.’
DFAT gave several examples of negotiations with our trading partners
where services trade has been given a high priority:
Improving the business environment for Australian services
exporters was a high priority for Australia in negotiations for the
ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), which entered into
force on 1 January 2010.
The Government consulted closely with industry associations
and firms representing services trade interests during the negotiations to
ensure that their views informed the development of Australia’s negotiating
positions and objectives. The Agreement will enhance certainty and transparency
for Australian services suppliers and investors, including through improvements
to the WTO commitments of ASEAN countries in such areas as professional,
financial, telecommunications and education services; strengthened regulatory
disciplines, including on matters such as licensing procedures; and legal
protections for Australian service suppliers with a commercial presence in
AANZFTA also creates a platform for ongoing economic engagement
with ASEAN countries on services trade issues, including through a built-in
agenda to review services commitments three years after AANZFTA’s entry into
The Australia-United States Free Trade Agreement (AUSFTA)
provides an open and non-discriminatory environment for Australian and US
service providers, and includes a framework to promote mutual recognition of
the qualifications of professional services.
Australia is working with the United States on continuing to
expand access for the high quality professional service providers Australia has
to offer the US market. The United States has also created a new visa category
that is available only to Australian nationals. This specialty occupation (E3)
visa will help Australian business people and professionals capitalise on the
opportunities offered under AUSFTA.
Similarly, DFAT said that services have a high priority in the discussions
and reviews of the Free Trade Agreements with Thailand, Singapore and Chile.
In 2009 the APEC economies adopted a Services Action Plan (SAP):
In their 2008 Statement, APEC Leaders called for accelerated
implementation of APEC’s regional economic integration agenda, and:
...instructed officials to undertake initiatives designed to
promote greater convergence in key areas of APEC’s trade and investment
portfolio, including...cross-border services.
In response to Leaders’ instructions, a Services Action Plan
(SAP) has been developed to provide an overarching level of coordination and
focus to the services-related work conducted across all of APEC’s various
sub-committees and working groups.
The aim of the SAP is to provide common direction and
coherence to APEC’s work on services trade, and establish a forward work
program to foster the development of open and efficient services markets in the
This action was prompted by recognition of the important and growing role
of services in the world’s economies:
Modern economies are heavily dependent on services as drivers
of economic activity, growth and job creation. In developed and developing
economies alike, services account for a large and increasing share of gross
domestic production and employment and play a critical enabling role in all
aspects of economic performance.
In 2007, the services sector accounted for over 70% of GDP in
developed economies and over 50% in developing economies.
Moreover, the rate of growth of services sectors in developing economies is
higher than that in developed economies.
Services such as logistics, communications and financial services
create the basic economic infrastructure upon which businesses operate.
Educational, health and social services affect human security and the
availability and quality of labour. Professional services provide the
specialised expertise required by other firms to increase productivity and
In manufacturing industries, services provide critical inputs
to the production chain, making up a major portion of value added through
research and development, accounting, engineering, administration, advertising,
warehousing and distribution services.
The Law Council of Australia reported that it works very closely with
DFAT and the International Legal Services Advisory Council (ILSAC) to improve
access to foreign markets for Australian providers of legal services.
The Council explained that its cooperation with DFAT was the most
efficient way of achieving its international goals:
The Law Council and DFAT work together to promote Australian
legal services on two fronts. On one front, DFAT pursues Government to
Government activity, such as negotiating free trade agreements. On the second,
complementary front, the Law Council pursues a profession to profession
approach, using its standing as the peak legal body in Australia to foster
close relations with counterpart Bars in countries of interest.
In this way, by constant briefings between the Government and
the Law Council, Australia can deliver a co-ordinated strategy to increase the
international mobility of the Australian legal profession.
Austrade is another close partner of the Law Council. Its knowledge of
overseas markets, and the services offered by its personnel in those markets,
have been valuable additions to assist the Council’s networking:
In September 2008, the Law Council’s International Law
Section signed a Memorandum of Understanding with the Australian Trade
Commission (Austrade), agreeing to cooperate for the benefit of their
respective members. Through this partnership the Law Council and Austrade draw
together lawyers interested in international trade, providing an opportunity
for them to meet and discuss international trade and investment issues of
importance to them and to their clients.
The Law Council International Law Section-Austrade Roundtable
runs seminars on international trade and investment directed mainly at medium
size commercial legal practices and corporate counsel and provides a sounding
board for Austrade on legal issues relevant to its business.
The Council has also extended its efforts by negotiating directly with
its counterpart organisations overseas:
The Law Council has also developed professional partnerships
with international legal bodies to create opportunities for Australian lawyers
and providers of legal services in foreign legal markets. These partnerships
have taken the form of Memoranda of Understanding, which recognise the
importance of promoting mutually beneficial trade and of strengthening ties in
the delivery of legal services internationally. As at 30 January 2009 the Law
Council has entered 14 Memoranda of Understanding with foreign legal representative
bodies in the Asia and Pacific region.
The Law Institute of Victoria, which appeared with the Law Council,
commented that it had recently completed a Memorandum of Understanding with the
Hong Kong Law Society. The Institute added that it had hosted meetings with a
senior Korean member of parliament and had run a number of sessions on the
Australia New Zealand ASEAN FTA with Austrade, DFAT and the Law Council.
The Sub-Committee asked about the value of legal services exported and
the Council responded that ILSAC, in a recent report, had put it at about $675
million in 2006-07. The Victorian Institute added, however, that “that is
probably an underestimation”:
There is a general perception within the industry that the
measurement of services and the value of services are not as precise as they
perhaps should or could be.
The witnesses continued that there are a number of reasons for the
One of the things that we think would be of merit, is more
focus on the ABS statistics ...of services. That was a figure; we think it is
probably underreported. You could probably take that figure and add a bit. What
‘the bit’ is is the vexed issue about the capture of those figures.
Part of that is probably because some legal services are
fly-in fly-out. Other legal services establish branch offices. It really comes
down to how you want to measure it.
...certainly the Australian Services Roundtable has some
concerns about the way the Australian Bureau of Statistics captures statistics
An important part of improving trade and investment relations concerns
the facilitation of trade in education services, the movement of tourists, and
smoothing and encouraging the migration of people with skills that are needed
in the Australian economy.
In evidence to the Sub-Committee, Universities Australia emphasised the
importance of the rapid growth in exports of education services in recent
...education exports have become a very significant component
in a relatively short period of Australia’s exporting activity. From almost
nothing 10 or 15 years ago we now have the third largest export sector coming
from education. That has been a marvellous achievement, we think, but there
are, as we know from a number of recent events, risks attached to that sector
and to other sectors as well.
Our concern is to seek to underpin the sustainability of that
achievement which for us in education is not only an economic achievement. Hand
in hand with economic benefits to the country are a whole range of wider social
and community benefits that come out of education beyond the simple making of
Indeed, were I addressing a humanities faculty, I probably
would not even emphasise $15 billion or $16 billion of export success, I would
be talking about the splendid integration of ideas that come with the mixing of
people from different backgrounds, their ability to research from different
perspectives and share their experience through education.
The nice thing about education is that the two things go
together, so that we have created a very significant export industry. In the
context of your inquiry, we are looking to find support for reinforcing a
number of the underpinnings that have helped that happen and perhaps address in
several ways some matters that can threaten that success.
Universities Australia indicated to the Sub-Committee, however, that
while Australia offers an open sector for participation by overseas
universities, the same is not always available to Australian universities
seeking to establish campuses overseas. Responding to a comment on the
importance of exports of education services, Universities Australia said :
It is important; we would like it to become more important.
One of the reasons that that is an issue is, of course, a lot of
behind-the-border protections overseas as opposed to here, where, for instance,
we have recently opened up our sector to universities like University College
London, Carnegie Mellon and so on, which have been able to establish campuses
here by exactly the same rules as Australian universities are established by.
The same protocols apply.
On the other hand, that does not necessarily apply in many of
our major overseas partners. An example is India, where there are severe
restrictions on the establishment of campuses by foreign universities. In many
other countries it has to be done in partnership with local universities and
you cannot have a freestanding foreign university establishing itself.
We would be particularly keen to see, in international
FTA-type negotiations, complementary negotiations that deal with those sorts of
behind-the-border restrictions, if not specific education chapters, for
instance—and we would like to see that too.
The Sub-Committee noted that the number of student visas granted had almost
doubled between 2003-04 and 2007-08. The number of Asian students increased by
almost 81 per cent and, from a low starting point, the number of students from
Latin America more than trebled:
Student Visas Granted – by Region
The submission from DIAC makes the point that not only do these visiting
students represent a large market for Australian education, but they also
create valuable personal linkages that can “have downstream benefits for future
trade and investment relations”.
To assist in efforts to increase the scope for international marketing
of education services, responsibility for that function was transferred to Austrade
on 1 July 2010. Following its 2010 meeting, the COAG Ministerial Council on
International Trade reported:
Ministers noted the arrangements for the transfer of
responsibility to Austrade on 1 July 2010 for the marketing and promotion of
international education. Ministers highlighted the important contribution of
education exports to the economy and emphasised the importance of ensuring a
smooth transition of the functions.
Ministers acknowledged that the rapid growth in the
international education services sector had generated challenges for
governments in relation to education quality, student welfare and the
regulatory framework. Ministers noted the International Student Strategy for
Australia and the Baird Review as complementary elements of governments’
responses to these challenges. The Council of Australian Governments (COAG)
International Student Strategy will give students more support and information,
and better protect their rights.
The Commonwealth Government’s
response to the Baird Review, announced on 23 June, will improve the regulatory
framework and consumer protection arrangements. Together, the Baird response
and the International Student Strategy support the objective of providing a
high-quality experience to international students and a sustainable future for
quality international education in Australia.
Universities Australia raised one serious issue, however, that could
pose a threat to the continued growth in the number of visiting students in our
universities. Its submission included a recommendation that by 2025, 40 per
cent of adult Australians up to 35 years old should have a bachelor’s degree.
When queried on this, the response was :
It is the target given by the present government. It was not
our target, it is the one that this government has laid down now as its
objective for 2025. It is seeking 40 per cent of adult Australians up to the
age of 35—I think it is—having a bachelor’s degree. ...We are at about the low
thirties currently so it is a big ask.
How does it relate to this? Importantly, in a range of ways;
that is, the government chose not to adopt one key recommendation of the
Bradley review, which was to increase the funding per student in teaching and
learning. It has adopted many of the other recommendations of the Bradley
review framework, and we are very supportive of that. We think, potentially,
there is an excellent framework now in place, but one we have a significant
worry about is the absence of an increase in real funding per student in
Why is that relevant to this? We have been relying upon
international students to cross-subsidise domestic students. It has reached the
point where that is forcing our class sizes to be so large that the question
is: if you were an international student, why would you come here when you have
got a class size, on average, of 26, when you can go to Canada for a class size
of 20, Britain for 19 and Germany for probably about 12?
Unless we stop the reliance upon international students to
cross-subsidise domestic students, and save the domestic treasury from having
to fund higher education appropriately, we run the risk of undermining the very
success that treasuries are free riding on. There has got to be a correct
Continuing this theme, the witnesses emphasised that the situation could
quickly start to affect the reputation of our universities overseas and,
consequently, the number of students wishing to study here:
We have had a 30 per cent real decline over the past decade
in real funding per Australian student. That is nice for the taxpayer, but in
the end the taxpayer may cop it on the chin if, for instance, the sorts of
recent problems that emerged with international students kill the goose that
lays the golden egg.
That can happen because classes will get too crowded,
university services for those international students will not be able to assist
them properly with accommodation or with employment that is safe and validated,
and they will not have the appropriate other health and counselling support and
the like on campuses that can help sustain that experience. They will start
going elsewhere, or incidents will recur of the kind that we do not have the
funding to pre-empt fully.
So there is an interesting connection between our export
industry and what we do by way of funding for domestic students. These days,
universities receive only about 20 per cent of their revenue as direct
institutional grants for students. That is almost the lowest in the OECD—much
lower than Germany, which is about 70 per cent.
Universities Australia also raised the problem of differential treatment
given to overseas students when compared to their domestic counterparts. It
gave as examples travel concessions and safety issues:
International students of any brand really get annoyed that
they don’t get the same travel concessions as domestic students. It’s a
symbolic issue for them. They really feel short-changed and abused because they
don’t get the concessions in New South Wales and Victoria that their equivalent
domestics do, even though they’re paying GST and they’re paying income tax on
their employment. Rightly or wrongly, that’s how they feel.
That sort of issue, along with safety issues and the like,
was bubbling away. I sat in a format like this as a member of a visiting
delegation, and the minister for higher education in India picked up a letter
from his nephew in Melbourne about how the nephew was attacked. He read it out
and said: ‘What are you going to do about it? You can’t have this. This is
going to be a problem.’ So we came back and put submissions to COAG and we got
told to go away again.
The sorts of issues that finally bubbled up with the Indian
students are partly a whole-of-government issue because of that artificial
separation where the states think they only do VET and the Commonwealth thinks
it does universities. We are bringing them together now in our framework,
particularly for domestic students, but we did not square the circle on the
international students, and that is costing us dearly in brand Australia.
Similarly, Universities Australia reported that the cost of student
visas is also an issue and that many students feel they are being ‘milked’. The
Sub-Committee noted that the cost of a visa is shown as $458 and queried
whether this is the true cost, and how that compares to our competitors:
To the international student, yes. When you are paying
$20,000 a year for a degree, it is not a lot. But it is a little like the
travel concessions. They list the visa thing again as one of those symbolic issues.
They think they are being milked.
The Sub-Committee said that it understood the cost in New Zealand is
$121 and asked what students used as a benchmark for visa costs:
...Other countries. It says one of two things: either we are
milking them or, if it is a full-cost justification, which I am sure
Immigration would say it is, we are inefficient in managing visas. If the costs
are that much to manage a visa compared to New Zealand, which also operates on
full-cost principles, then we have not got our costs under control.
The Witnesses added that the problems lie in the symbolic importance
attached to these issues when Australian conditions are compared to other
Compared to the $20,000 a year in fees and living costs it is
nothing, but what we get from surveys is that they see it like we would. If you
are leaving a country with an exit charge and they demand $100 for you to
leave, but you do not have any money at the time, you think, ‘What sort of
country am I in?’ It is that sort of symbolism.
The international students in the surveys that we do with
them tell us that there are three things about Australia that are symbolically
significant. One is the visa fee, another is the travel concessions and the
third is the attitude of employers for work experience when they make inquiries
in Australia—because one of the attractions of Australia in the past that
helped us build the international education industry was that we were more
relaxed about students working while studying than the US.
For a long while, you could not work off-campus if you were
an international student in the US. Australia allowed students to work up to 20
hours a week much earlier than the US. That was quite attractive, although not
necessarily for the sort of people you are talking about. For instance, a very
wealthy Indian middle-class family does not worry about whether the student can
work much or not.
One issue raised by Universities Australia was the decline in government
funding for universities. The witnesses pointed out that, compared to other
OECD countries, government funding on higher education in Australia has
declined as a share of GDP:
According to the OECD, which has the most comparable
information in this area by common definitions, over the last 10 to 12 years we
were the only OECD country where public expenditure on higher education as a
share of GDP fell backwards. Depending on which 10 years you are talking about,
it declined by four to six per cent, whereas the average OECD country increased
its share of GDP on higher education through public outlays by 48 per cent.
So we were falling backwards while the others were going
forwards. However, we were increasing our spending through private sources such
that we now have, along with the United States and Japan, the highest share of
private revenues going into universities of any of the other countries. Those
three are the large private entities. In the United States and Japan it is
through private universities; in Australia it is through the earnings of public
In Australia, 40 per cent of our revenue comes from
government—half of that is competitive research grants from the ARC and the
NHMRC; the other half is direct grants to universities—whereas private schools
get 60 per cent of their revenue from the Commonwealth government. So you have
got public universities at 40 per cent and private schools at 60 per cent. They
are indicators of how we have fallen back in the balance of public and private
In universities we do not for a minute want to reduce our
entrepreneurialism—because that is really what it has been for over 10 years
now—in alternative sources of revenue. We like our mixed portfolio of revenue
sources. We do not want to be dependent only upon private revenue or only upon
government revenue, because we like to be free and independent. Having a range
of benefactors really helps us position ourselves to do what we believe we are
there to do, which is to provide independent generation of knowledge and
training in knowledge.
We think the balance has got a bit out of whack and that the
public component has fallen. Overall, for instance, we now have about 1.6 per
cent of GDP being spent on higher education. The European Community has now
committed itself to two per cent. For us to reach that would roughly require
that government step up to the OECD average in public funding; then we would be
there. That is an aspirational goal of the OECD, but we have a little way to go
In research areas, which are additional to the teaching areas,
the European Community has set a goal of three per cent of GDP for private and
public research. In Australia we are only at about two per cent. There we are
down on the private spending; in higher education we are down on the public
spending. So both partners in the national endeavour have to step up to the
plate more, in our view, for Australia to be an even smarter and more skilled