Legal Services Trade Deficit Hits All-Time High

$361.3 Million Deficit Recorded in Q1
Up 64% Compared to the Same Period Last Year

In the first quarter of 2025, the trade deficit in legal services reached $361.3 million, marking the largest deficit since related statistics began in 2006. The legal services trade balance has recorded deficits of over $300 million for three consecutive quarters.

If this trend continues, the annual deficit for 2025 is also expected to hit a record high. The main factors driving the widening legal services trade deficit are the expansion of overseas operations by Korean companies and the increased trade risks following the launch of the second Trump administration in the United States. The surge in legal expenses flowing overseas is further worsening the trade balance.

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According to the Bank of Korea's Economic Statistics System (ECOS), in the first quarter of 2025, Korea's legal services income was $214.4 million, while expenditures stood at $575.7 million. Compared to the same period last year ($220.6 million), the deficit widened by 63.8%, or $140.7 million. The legal services trade deficit has been increasing since the first quarter of 2024, recording $220.6 million in the first quarter, $285.9 million in the second quarter, $326.8 million in the third quarter, and $318.9 million in the fourth quarter. The annual deficit for 2024 reached a record high of $1.1522 billion, and with the deficit exceeding $300 million for three consecutive quarters, another record-high deficit is expected in 2025.

The Bank of Korea views this widening deficit as a structural trend, not a temporary phenomenon. A Bank of Korea official explained, "In the past two to three years, the deficit in the legal services sector has grown rapidly," adding, "The main reasons are the expansion of overseas direct investment by companies and the resulting increase in demand for foreign legal consulting." The official also stated, "Due to differences in legal environments by country, it is inevitable to use local law firms, which has led to a steady increase in legal fees paid to overseas firms."

Experts point to the inauguration of the Trump administration in 2017 as the starting point for the widening legal services deficit.

Choi Byungil, advisor at law firm Bae, Kim & Lee, said, "During Trump's first term, high tariff policies and retaliatory trade measures greatly increased legal risks for global companies, which in turn caused a surge in demand for local law firm consulting. Even under the Biden administration, the demand for local law firm consulting continued to rise due to subsidy policies."

An attorney licensed in New York and practicing in Korea added, "Immediately after the Trump administration took office, legal fees at U.S. law firms soared, and companies increasingly sought local law firms for advance consulting or lobbying. As international uncertainties grow, dependence on foreign law firms inevitably increases."

Experts also see the lack of internationalization in Korea's legal services industry as a structural factor behind the widening deficit. Choi Wonmok, professor at Ewha Womans University Law School, commented, "Professional services such as law, education, and healthcare have been slow to open to the outside world and face strong political opposition, resulting in a lack of internationalization. In this environment, resolving legal issues that arise abroad inevitably leads to high expenditures." Professor Choi added, "Since service industries are consumed locally, a lack of openness leads to lower competitiveness, which in turn worsens the trade balance."

Park Chunwon, professor at Hanyang University College of Economics and Finance, pointed out, "While Korean law firms have failed to expand legal services income from foreign companies, the demand for overseas consulting by Korean companies continues to rise, deepening the trade imbalance. This is due to the low international competitiveness of Korean legal services."

Another issue is that, while major U.S. and European law firms provide advisory services closely linked to politics and institutions, Korean law firms have limited local networks and influence. Although Korean law firms are trying to expand their overseas influence by recruiting talent, they are often excluded from actual decision-making processes, resulting in a significant gap in credibility and influence compared to local firms.

In particular, Korean law firms play only a minor role in high value-added legal service areas such as international arbitration, project financing, cross-border M&A, intellectual property (IP) disputes, and overseas listings. A law school professor based in Seoul noted, "Korean companies repeatedly choose foreign law firms first for these high value-added fields. Ultimately, the only solution is for Korean law firms to develop internationally competitive capabilities in these areas."

Advisor Choi Byungil also suggested, "Rather than simply relying on foreign law firms, one solution could be to strategically design a consulting structure that allows Korean law firms to handle certain areas."

Lee Jinyoung, Law Times Reporter

Lim Hyunkyung, Law Times Reporter

※This article is based on content supplied by Law Times.