In 2011 and 2012 respectively, the European Union (EU) and the United States entered into bilateral Free-Trade Agreements (FTA’s) with South Korea. The aim of those agreements was to increase bilateral trade and investment between Korea, the EU and the US. The agreements span a wide range of sectors and among those included in the liberalization are professional services, including legal services.
FTA’s envisioned significant gains in bilateral trade and investment
The respective treaties have created significant new gains for all sides in increased trade and investment. However, a few years into the agreements, concerns expressed by then US Ambassador to Seoul Sung Kim, underline the difficulties encountered in the full implementation of the US-Korea FTA. These concerns are likely to heighten as South Korea is in the process of considering amendments to Phase 3 of a three-phase process liberalizing the domestic Korean legal market. To date, more than 25 US law firms and a handful of EU firms have established new offices in the country following the agreements.
Details of the proposed roll-back of Korean legal market liberalization
In a letter dated March 10, 2015, Thomas Susman, Director of Governmental Affairs at the American Bar Association (ABA), wrote to express the ABA’s concerns about proposed amendments to Phase 3 of liberalization under consideration by Korea’s Ministry of Justice and Bar Association permitting US law firms to, essentially, practice domestic law within Korea. The mechanisms of Phase 3, if fully implemented, would permit EU and US law firms to staff offices with locally licensed attorneys capable of practicing local law while maintaining ownership and management of the firm by the US or European firms (also known as a “joint venture law firm”). Cheon Kyoung-hun of Seoul National University School of Law prepared an extensive study of the proposed amendments for consideration in whether to amend Phase 3.
The proposed change of rules before implementation of Phase 3 is likely to adversely impact foreign law firms that have entered the market and invested heavily therein because of the promise of full implementation of all phases, including Phase 3. Current proposed amendments appear to reflect a change in the rules of the road in the midst of this investment. Notably, the ABA cites rules in place in most US jurisdictions, which permit Korean law firms full reciprocity in the US. Thereby permitting Korean law firms to operate in the US in a manner consistent with the full implementation of Phase 1 – 3 – not a restricted version of Phase 3 — as is currently being contemplated.
South Korea’s corporate sector should also be a factor in any decision
The proposed amendments to Phase 3 being considered by the Korean Ministry of Justice and Bar Association appear to be based on an analysis of the impact of legal market liberalization on strictly the legal services sector within Korea. The rollback of Phase 3 appears not to contemplate the potential significant negative impact a restriction on US and European law firms will have — as they serve as a new, vital conduit to outbound foreign direct investment and trade by Korean Corporations and inbound trade and investment into Korea from the US and EU. Earlier this month, Deputy U.S. Trade Representative Wendy Cutler enumerated the benefits the Korea-US FTA was having for both US as well as Korean businesses – across a range of sectors — at an American Chamber of Commerce in Korea General Membership Meeting in Seoul.
It’s these widespread benefits to Korean, American and European businesses alike – that ought also to be carefully considered when studying any proposed restriction of US and EU law firms as a conduit to inbound and outbound foreign direct investment and trade with Korean companies. Beyond that, the terms of the US and EU Korea FTA’s would appear to be breached were Phase 3 significantly amended. One industry alone ought not to single itself out for protectionist treatment in the broader context of these FTA’s, as that effort will likely serve to decrease the benefits of the agreements to the broad range of trade and industry stakeholders in the EU, US and Korea alike.