"We need to open the legal market to improve inefficiencies accumulated in legal services." vs "Huge royalties will flow overseas like in accounting firms."
The core issue in the discussion on further opening the legal market is the 49-to-51 shareholding and voting rights limit on Joint Venture Law Firms (JV). According to the Foreign Legal Consultant Act, the shareholding and voting rights of foreign law firms participating in joint ventures are limited to a maximum of 49%. This acts as the last "lock" preventing foreign law firms from leading joint venture law firms, and this regulation is also pointed out as an obstacle to foreign law firms investing in Korea. Although the legal market has been opened to the U.S. in three stages for eight years, only two joint venture law firms are currently operating: Ashurst Hwawoon and Baker McKenzie & KL Partners. Seven foreign legal consulting firms including Clifford Chance, Cohen & Gresser, Simpson Thacher, McDermott Will, and Squire Patton Boggs have withdrawn from the Korean market.
In the legal and academic circles, opinions are divided between those who say the government should consider and prepare for further opening of the Korean legal market when entering trade policy negotiations with the U.S., and those who worry that additional opening will cause disorder in the legal market. There are also differing forecasts on what impact further opening of the Korean legal market would have on the market.
Supporters of further opening argue that exchanges with Anglo-American law firms should be expanded to introduce advanced management methods and practical cases. They also believe that expanding consumer choice will ultimately promote competition in the market. Jo Jaekyung, head of Milbank Seoul Office (foreign attorney), said, "Since the services provided by Korean and U.S. law firms are different, there will not be major conflicts," adding, "If the market opens, customers will have a wider range of choices and services can become more diverse."
There is also a forecast that even if shareholding restrictions are lifted and foreign law firms actively enter the Korean market, large law firms will not be significantly affected. The reason is that through phased opening, large law firms have acquired competitiveness comparable to global law firms, and the Korean market is not attractive enough for global law firms to aggressively enter. Jeong Ki-chang, a foreign attorney at Law Firm Kwangjang, said, "From the perspective of foreign law firms, how attractive the Korean legal market is is key," adding, "It is difficult to expect foreign law firms to suddenly dominate the market just because shareholding regulations are lifted, and domestic law firms will not easily give up the market."
On the other hand, there are concerns that the Korean legal market is not yet fully mature and that Korean law firms may suffer disadvantages. A lawyer who requested anonymity said, "If a joint venture law firm is established led by a global law firm, in the short term, they will invest, so solo practitioners and small to medium-sized law firms will welcome it," but added, "In the long term, it may not be very beneficial, similar to how Korean accounting firms pay huge royalties every year to global accounting firms in which they have equity stakes."
There is also a forecast that fields involving cross-border work such as mergers and acquisitions or initial public offerings will inevitably be affected by the influx of foreign law firms. A lawyer belonging to a large corporation who requested anonymity said, "Recently, cases of Korean companies listing on the U.S. Nasdaq have increased, and mid-sized and small companies are also considering overseas listings," adding, "Unlike large corporations, companies that could not directly receive advice from global law firms locally will be able to receive direct advice from law firms well-versed in local laws in Korea if the Korean market is further opened."
In addition, there are opinions that market opening can broaden exchanges and cooperation among young legal talents and improve the overall quality of legal services. Choi Wonmok, a professor at Ewha Womans University Law School, said, "Opening the legal market can be an opportunity to resolve inefficiencies accumulated throughout society due to the monopoly system of professional services," adding, "If opened to countries with advanced service markets, there will be many benefits from exchanges." Professor Choi said, "It is important to realize systems so that legal services can be actively traded," and "Qualifications and requirements should be relaxed so that young lawyers can gain international experience."
The Ministry of Justice has so far launched a confidential research project to evaluate the impact of legal market opening on the domestic legal market. The opening of the Korean legal market has been promoted since 2011 under the Ministry of Justice's leadership in the order of ▲Stage 1 allowing foreign law firms to establish domestic offices ▲Stage 2 allowing cooperation on cases with Korean law firms ▲Stage 3 allowing establishment of joint venture law firms with domestic law firms. Korea opened its legal market to U.S. law firms in three stages on March 15, 2017.
Im Hyun-kyung, Legal Times reporter
Lee Jin-young, Legal Times reporter
※This article is based on content supplied by Law Times.
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