‘US Invasion’ Not Likely in Korean Law Market
Nobody likes competition, but not everybody loses sleep over it.
As Korea moves to open its legal service market following a free-trade pact with the United States, there are concerns that local law firms will get thumped by bigger American practices in the competition for clients and talent.
Doomsayers point to the case of Germany, which saw eight of its top 10 law firms taken over by larger British competitors just more than a decade after opening its legal services market.
Kim Beom-su, executive director of international relations at the Korean Bar Association, however, said that the impact of market opening here will be much less dramatic.
``Most German firms had legal staff of less than 50 before the market opening and lawyers were regarded more as experts in a specific field than as corporate service providers,’’ said Kim, who is an attorney for local law firm, Shin & Kim.
`` Any U.S. firm, or British firm, no matter how big it is, will have trouble absorbing a major Korean practice hiring legal staff in the triple digits. The possibility of a `U.S. invasion’ is just not there,’’ he said, 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 said the presence of foreign lawyers in the Korean market is nothing new, with a growing number of Korean companies hiring as they look to move business further offshore.
``Foreign lawyers working for Korean clients at Seoul hotels on weekdays and returning to their Hong Kong headquarters on weekends is among the worst-kept industry secrets. It’s undeniable that there is a significant demand for foreign legal services among Korea’s corporate sector,’’ said Kim.
``By liberalizing the market, the government and bar association will be able to regulate these foreign lawyers who have been exploiting legal loopholes, and make them take more responsibility for the quality of their work,’’ he said.
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.
Under the KORUS FTA, Korea agreed to a phased-opening of the local legal service market. Five years after the FTA is put into effect, U.S. law firms will be allowed to establish joint ventures with Korean practices and hire local talent through them.
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.
``Although the details of the deal has not been released, government officials have told us that the negotiators from both countries reached a `mutual understanding’ on limiting the shares of foreign law firms in joint ventures,’’ said Kim.
``Most of the discussions between lawyers and policymakers are now on setting the standards to regulate how U.S. firms affiliate with Korean firms, which will be allowed two years after FTA is put into force, as well as setting the rules in revenue sharing. Much of the profit earned locally will be shared locally,’’ he said.