As the Star Online reported last month from Kuala Lumpur, the Malaysian Parliament [The Dewan Rakyat] passed the Legal Profession (Amendment) Bill of 2012, which will soon allow foreign lawyers to open offices and practice law in Malaysia.

What practices will foreign law firms be permitted to establish?

Lee Shih, Partner in Kuala Lumpur-based Skrine Law firm has written that:  “Foreign firms can adopt two different models if they wish to enter Malaysia. The first would be a form of a joint law venture, where the foreign firm would have to JV up with a law firm. The JLV vehicle will then be allowed to practice in selected areas of the law, and this is mainly confined to high-end corporate, Islamic finance and international arbitration work.  In terms of the second model, this would be a standalone foreign firm. This sounds similar to Singapore’s Qualified Foreign Law Firm vehicle where a foreign law firm would be allowed to set up on its own without the need for a local Malaysian law firm partner. Again, it would seem that the foreign law firm would need Malaysian-trained lawyers to advise on Malaysian law. The exact practice areas for a standalone foreign firm may be very limited.  Areas such as Court litigation, criminal work, conveyancing and probate would be ring-fenced away.”

The opening of the Malaysian legal market, broadly speaking, is supported by the domestic legal industry, with the caveat that liberalization should be done gradually, as has been the case in other jurisdictions like Japan and South Korea.

Why Asian legal markets are liberalizing

As Andrew Godwin wrote for the Law Council of Australia: “The forces of liberalisation have gathered quite a bit of steam in recent years as a result of ongoing reforms under the General Agreement on Trade in Services (GATS), a treaty of the World Trade Organisation (WTO) [that came into effect in 1995 and which] “seeks to extend a multilateral system around the world for trade in services. Countries that have not yet opened their markets to the import of legal services – and the list includes a number of prominent Asian nations – are under increasing pressure to do so.”

Those who support liberalization cite economic benefits that are likely to flow from the move along with advances for the local profession.  Detractors cite concerns over sovereignty issues and a displacement of incumbent legal professionals.

“Within the WTO, examples of markets that are liberalised to varying degrees include Australia, Japan, Singapore, Hong Kong, Vietnam, Thailand and mainland China”, continued Godwin.  South Korea recently liberalized, Malaysia is now doing so, and India and Indonesia remain closed.

The Malaysian economy: An overview

In 2007, the economy of Malaysia was the 3rd largest economy in South East Asia and 28th largest economy in the world by purchasing power parity with gross domestic product for 2008 of $222 billion and a growth rate of 5% to 7% since 2007. Manufacturing has a large influence in the country’s economy, and Malaysia is the world’s largest Islamic banking and financial center. The government owns and operates several sovereign wealth funds that invests in local companies and also foreign companies. Major sectors of the economy include science and technology, financial services and banking, oil and gas, manufacturing and tourism.  Malaysia is one of the world’s largest exporters of semiconductor devices, electrical goods, solar panels, and information and communication technology (ICT) products.

Indeed, The United States is Malaysia’s fourth-largest trading partner and Malaysia is the 22nd-largest trading partner of the United States. Annual two-way trade amounts to $40 billion.  The United States is the largest foreign investor in Malaysia on a cumulative basis, and was the third-largest source of new foreign direct investment in Malaysia in 2011. American companies are particularly active in the electronics, manufacturing, and oil and gas sectors. The EU is Malaysia’s third largest trading partnerand is the second largest source of foreign direct investment into Malaysia. Malaysia is the EU’s second largest trading partner within Association of South East Asian Nations (ASEAN), with there being currently more than 2,000 European companies present in Malaysia.

Domestic and foreign firms can both thrive in a liberalized legal market

As Lee Shih has outlined, foreign law firms will likely have an opportunity to establish local practices in conjunction with Malaysian practitioners in permitted practice areas.  Foreign firms appear also to be in a position to establish free-standing offices practicing their own jurisdictional specialities, thereby permitting them to serve the needs of Malaysian clients in relation to needs in their home jurisdiction.

Given Malaysia’s substantial trading relationship with the US and the EU, practitioners in those jurisdictions in particular should consider Malaysia as an opportunity to develop not only a law practice there, but also establish a client-facing business development unit there, focused on assisting Malaysian companies seeking to expand into your respective markets.

The liberalization of the Malaysian market also provides domestic incumbent law firms and foreign law firms not planning to open an office in Malaysia with an opportunity to establish joint business development initiatives focused on assisting one another in each others markets, as I’ve written about in relation to the recent liberalization of the Korean and Singapore legal markets.  This can be a cost efficient initiative for large and small firms, as well as a means to access new international markets for firms of any size.

Conclusion

As Andrew Godwin concluded in his article for the Law Council of Australia:  “What is clear is that the forces of change are occurring that have the potential to change the nature of the legal markets in [Asia] – and open the way for significant opportunities for foreign law firms.”

Indeed, the legal market liberalization in Malaysia provides not only foreign law firms but also domestic firms with an opportunity to expand their practices if they go about it effectively.

Posted by John Grimley

John Grimley edits and publishes Asia Law Portal and is the author of A Comprehensive Guide to the Asia-Pacific Legal Markets. He specializes in providing writing, editing, research and strategy services to the corporate and professional services sectors. Between 2002 and 2008, he established and directed the European representative business development office of US AmLaw 100 law and public policy firm Patton Boggs LLP. At the inception of his career, he served as a writer to the President of the United States in the White House. A licensed American lawyer, he holds a Juris Doctor from the University of San Diego School of Law.

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