[University]Columbia University Networks Global Alumni

By Kim Tong-hyung
Staff Reporter

Korean law firms, or at least the leading ones, have been carrying themselves as the big fish in a small pond.

However, with the recent free-trade pact between Korea and the United States expected to open the long-shut doors of the country’s legal market, domestic law firms are to face the same challenges of any business competing against larger foreign rivals in the arena of globalization.

And whether they will succeed in building up the financial and human resources to hold their own against the U.S. competitors on their home turf, as well as retaining their globally-minded corporate clients looking to further expand internationally, could be anybody’s guess.

``Should U.S. law firms establish domestic branches and hire Korean lawyers to practice both in local and American law, you could say that this leaves little reason for Korean businesses, especially the bigger ones that have their own team of in-house lawyers, to seek the services of a Korean law firm,’’ said Moon Jae-wan, a professor of law at Hankook University of Foreign Studies.

``New York dominates the world of commercial law, and with Korea now rubbing shoulders with the world’s top ten economies and further integrating internationally in business, the presence of U.S. law firms will be evident here,’’ said Moon.

According to the free trade agreement (FTA) reached earlier this month between Korea and the U.S., which requires approval in both countries, Korean negotiators agreed to a phased-opening of the domestic legal services market.

According to the framework, the market opening will advance in three stages over five years following the enactment of the trade pact.

In the first two years _ the first phase _ U.S. firms will be allowed to open local branches and provide services related to American and international law.

During this period, the U.S. attorneys will be called ``consultants’’ instead of ``lawyers.’’ To practice in Korea, they must certify with the government that they have practiced law for a minimum three years in the country they obtained a license from.

In the second phase of liberalization, U.S. firms will be able to cooperate with their Korean counterparts through their domestic offices and split revenue.

In the last phase, which starts on the fifth year, U.S. firms will be able to form partnerships or joint ventures with Korean law firms and hire Korean lawyers.

It bears further watching how much freedom the U.S. firms will have in absorbing their Korean competitors through mergers, with the government planning to adopt a cap to limit the shares foreign companies can hold in joint ventures with their local partners.

``It will take at least a year from now for lawmakers to approve the free-trade pact, considering this year’s presidential election and next year’s National Assembly elections. So it could be said that Korean law firms have six or seven years to prepare for competition from the bigger U.S. firms before the FTA enters into force,’’ said an official from the Justice Ministry’s international legal affairs division.

There are worries that the bigger U.S. law firms will take the domestic market by storm with their extensive global networks, sweeping most of the lucrative legal work by snatching up the big deals multinational companies make and luring away blue-chip clients from their local competitors.

Korean law firms also fear that if local lawyers are able to join international legal practices freely, they could be crushed in the competition for talent.

Should U.S. law firms advance into the Korean market, they are expected to have a competitive advantage in the most profitable corporate markets, such as mergers and acquisitions (M&A), capital markets and cross-border business deals.

The market for litigation is expected to remain virtually untouched however, because of the difference in legal systems.

It is estimated that the Korean legal service market is now annually worth around 1.4 trillion won ($1.49 billion). Baker & McKenzie, one of the biggest U.S. law firms, earned more than that last year alone. The firm is already serving some Korean clients through its Hong Kong office, which hires Korean-speaking lawyers who often commute to Seoul.

``There are lengthy talks about the market liberalization, but lawyers from some of the world’s biggest law firms have already arrived, doing business here but paying their taxes in Hong Kong. Just check out the guest list at (a downtown Seoul luxury hotel),’’ said Hwang Ju-myung, a founding and managing partner of local law firm Hwang Mok Park.

``Foreign companies and Korean companies alike are now looking for `one-stop services,' where a single law firm provides seamless services in different countries, requiring capabilities in different jurisdictions. Korean law firms haven't been able to deliver that,'' he said.

Other industry insiders believe that the impact brought by U.S. law firms may not be as quick or ground-breaking as generally thought, considering that cooperation between Korean and foreign law firms is already conventional in cross-border deals.

They also point out that, aside of a few exceptions such as Baker & McKenzie or White & Case, both hiring more than half their legal staff outside of their home country, most U.S. law firms focus more on profitability than investing heavily on expanding their international network.

``It's hard to predict correctly, but I believe that Korea's major law firms or mid-tier firms with significant reputations will choose to stay independent. Clients will not choose law firms based on reputation alone but look for the best lawyers to do the job,'' said Kim Jae-hoon, a lawyer for Korean law firm, Lee & Ko.

``It maybe true that foreign law firms have more experience handling takeover deals and corporate finance; however, since the currency crisis of the late 1990s, Korean law firms have been gaining experience in M&A deals and are more than capable of competing,'' he said.

There seems to be different ideas among Korean law firms about the best ways to respond to globalization. They are likely to face strategic dilemmas about whether to merge with their foreign counterparts or grow organically, and also whether to diversify their services or stick to what they do best.

Lee & Ko, the country's second-largest law firm with 151 lawyers, has enjoyed a strong position in the most profitable corporate markets, such as M&A, capital markets, and cross-border business deals.

However, the company is now trying to diversify its income sources and is moving to strengthen its litigation service division, which promises to be among the few market sectors that will be untouched by foreign competition.

Kim & Chang, the country's largest law firm with 280 lawyers, is also putting more focus on litigation. Over the past five years, the firm has hired about 30 former judges and prosecutors as lawyers.

Mid-sized law firms are more focused on expanding, absorbing smaller competitors and hiring more lawyers to add bulk.

Hwang Mok Park recently acquired the Seoul Law Group, which provided consulting services for multinational companies including Apple, Siemens and Audi.

thkim@koreatimes.co.kr