The trade agreement opens up the Korean legal market to U.S. firms. The biggest Korean firm has just under 300 attorneys, the biggest U.S. firm has over 3,000. Are the Korean firms about to be blown away?
In April 2007 The Korea Times published three stories on the possible impact of the agreement on the Korean law market: For Law Firms, Bigger Is Better (Kim Tong-hyung, April 15, 2007); ‘US Invasion’ Not Likely in Korean Law Market (Kim Tong-hyung, April 15, 2007); In-House Lawyers Take on Enhanced Role (Park Chung-a, April 30, 2007).
These stories were published just after negotiations ended and before the texts were released. It's unclear to me how knowledgeable the reporters' different sources were about the specific content of the agreement. At least one, who served as a consultant to Korean negotiators, was probably quite knowledgeable.
The legal services agreements are in Chapter 12: Cross-Border Trade in Services. The Services Industry Advisory Committee report also contains a discussion of the agreement's impacts on legal services: Report of the Industry Trade Advisory Committee on Services and Finance Industries (April 2007). The Advisory Committee explains that the agreement will be implemented in three phases:
Korea makes three substantial new commitments to open its market to legal services in its Annex II:
- First, upon entry of force of the Agreement, Korea will allow U.S. law firms to establish a representative office (FLC office) in Korea, permitting U.S. licensed lawyers to provide legal advisory services on their own jurisdictions and on public international law. Korea Annex II at II-KOR-45.
- Second, no later than two years after entry into force, Korea will allow U.S. FLC offices to conclude a specific cooperative agreement with a Korean law firm to jointly deal with cases involving both domestic and foreign legal affairs, and to share profits from such cases.
- Third, no later than five years after entry into force, Korea will allow U.S. law firms to establish joint venture firms with Korean law firms. These joint ventures may employ Korean-licensed lawyers as partners or associates. However, Korea states that it may restrict the proportion of voting shares or equity interests of the firm.
All of these provisions state that they are subject to certain requirements or limitations. The true market-opening effect of these provisions is uncertain until it becomes clearer exactly what types of requirements and limitations Korea might impose. However, despite these limitations, this is the first time that Korean has opened its legal services market to the United States, and thus the FTA should provide a substantial opportunity for U.S. law firms.
Kim Tong-hyung (For Law Firms, Bigger Is Better) reports on an interview with Kim Beom-su, the Executive Director of International Relations for the Korean Bar Association. Kim thinks it will be hard for U.S. law firms to absorb major Korean firms,
...predicting that most of the changes will come among mid-sized, second-tier law firms searching for an American partner to move up-market....
Kim believes that American law firms, focusing less on size and more on profitability, will be reluctant to use much of their resources in establishing costly affiliations or joint ventures with Korean practices but will rather seek for non-exclusive referral relationships.
Most of Korea’s major law firms are also likely to choose to remain independent, Kim says, rather than forming ``lock-in’’ affiliations with foreign partners that risks limiting their client base.
``It took Japan 18 years to open its law market after starting in 1987, and the country’s top five law firms remain Japanese. If American firms had trouble cracking the law market in Japan, which is much a more lucrative market than here, it is questionable whether they are willing to invest heavily in Korea to the point of making a ground-breaking impact,’’ said Kim.
``Besides, the Chinese market is a higher priority for American law firms than the Korean market, and their efforts will be concentrated more there than here,’’ he said....
Kim, who consulted for Korean negotiators during the trade talks, said that American law firms are likely to face a cap of 49 percent in their stakes in the joint ventures, preventing them from taking over management rights from Korean firms.
Kim Tong-Hyung (‘US Invasion’ Not Likely in Korean Law Market) reported on steps Korean firms were taking to prepare for the new regime. Firms were preparing to provide "one-stop" access to many legal services. Since this required size, firms were examining mergers and joint ventures, and adding staff. Korean firms may be more vulnerable than Japanese firms were:
Lee [Lee Jung-hoon, senior partner at Bae, Kim & Lee - Ben] believes that local law firms will be more vulnerable to foreign competition compared to their counterparts in Japan as customer loyalty is relatively weaker here.
The top five law firms in Japan remain Japanese, but a significant number of mid-sized law firms have been absorbed by larger American and British law firms.
Lee sees a similar fate for Korean second-tier firms and believes some of the big firms could be forced to affiliate with their foreign competitors unless they retool themselves.
The British may be a bigger threat than the Americans:
``Everybody talks about American firms, but our real worries lie with the British firms that have established offices in the U.S. which could advance to Korea after the FTA is put into effect,’’ said Lee, pointing out that only a few U.S. firms, such as Baker & McKenzie and White & Case, hire a significant part of their legal staff overseas.
``Unlike American firms, which seek a balanced relationship with regional law firms, British firms employ a full-fledge approach and seek to dominate local firms, as they have a smaller base market at home compared to American firms. They will advance to the Korean market no matter what,’’ he said, adding that a number of London-based firms, such as Linklaters, are already providing legal services to Korean clients.
Korean firms will always have a local advantage:
``We can’t compete with mega multinational players which have an extensive global network. Companies will be able to handle a lot of legal issues overseas without buying a plane ticket,’’ said Lee.
``But the lucrative business deals that happen in Korea, such as mergers and acquisitions (M&A), are regulated by the Korean law and the clients will look for the best local firm to do the job. We are confident that that would be us,’’ he said.
Park Chung-a (In-House Lawyers Take on Enhanced Role) reports that the advent of the agreement, and the potential increase in competition, has given Korean firms an additional incentive to beef-up their in-house general counsel.
Title modified on February 7.
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