Opening Korea's doors

By Robert Sawney, Managing Director, SRC Associates

The soon-to-be-ratified EU-South Korea Free Trade Agreement (FTA) will enable EU law firms to expand into Korea. However, not all firms are excited about it.

The EU is Korea’s second largest trade partner after China, and Korea is labelled a ‘high growth market’ by UK Trade & Investment. However, liberalisation of the Korean legal market is expected to occur in three long stages.

The first stage will only allow EU law firms to open branch offices in the country, with their lawyers recognised as foreign consultants. Local law practice and the hiring of local lawyers will still be off-limits. The second stage will allow closer cooperation. The third stage is expected to take five years and allow joint ventures (JVs) between foreign and local firms. Given that the JV model has not been particularly successful in Singapore, one can only guess how many law firms would even be interested at this stage.

As most foreign law firms in Asia run their Korea desks out of Hong Kong, many do not see a compelling reason to change at this stage, given the restriction on local law practice. Even the more aggressive firms may see little need to change their current approaches given the relatively small size of the legal market.

However, even though Korean organizations’ consumption of legal services is far smaller than it is in the West, there still seems to be substantial room for growth. There is only one lawyer per 6,000 people in Korea, compared to one for every 280 or so in the US.

Scope for services

The Korea Development Institute (a state-run think tank) notes that rigid regulation and high entry barriers are stifling the progress of professional services such as law, which has led to poor service quality. They are urging the government to loosen restrictions in the market. Of course, this is strongly resisted by the Korean Bar and local law firms.

However, both the technical and service quality of Korean legal advice can be a problem. I have heard several comments about the often arrogant nature of Korean lawyers. There only seems to be a handful of well regarded law firms, with Kim & Chang; Bae, Kim & Lee; Lee & Ko; and Shin & Kim leading the pack. Having said that, it is estimated that there are currently around 400 foreign lawyers in Korea, although they can’t be paid directly by clients or appear in court.

For their part, the rhetoric of the big local firms is theatrical. For example, Lee & Ko’s senior partner Kim Byoung Jai told Asia Legal Business that no matter who comes, they will be ready to “beat” them all. He adds it will only be a matter of time before foreign investors realise that domestic firms are just as good as the international law firms.

Like Chinese and Indian law firms, Korean law firms are convinced that as only they can practice local law and have local cultural knowledge, they have a significant advantage.

Sean Hayes, a team leader at Joowon Law, notes: “Korean law firms big, medium and small are all less sophisticated because of the attorney’s lack of adequate education”. Hayes was previously a professor at a Korean school of law. “Without a change in the education system, a dedication to learning the practice of law, the ability to self assess weaknesses and an effort by firms to educate attorneys, Korean attorneys will never be globally competitive.”

Collaboration and competition

However, I am not sure it is necessarily a matter of “beating” international firms, as Kim states. There is still the potential for the collaborative relationships that we generally see in China, where domestic firms advise on local law and foreign firms provide the experience and expertise on big-ticket transactional work, together with foreign legal advice.

There is also the matter of enforcement. We have all heard the stories of foreign law firms practising law in India (via hotel rooms), and the fact that Chinese authorities seem to turn a blind eye to the many foreign law firms who seem to give advice on local law.

Of course, one should not only look at Korea in the Korean equation. Korea has strong trading relations with a number of other Asian countries such as Singapore, Hong Kong, Indonesia, Malaysia, India and Vietnam (with China on top of the list). Korea is also expected to increase trade with Russia, the CIS economies, the Middle East and South America.

EU law firms looking to take advantage of the EU-Korea FTA will want to consider the strategic impact of this work in deciding on a Korea strategy – and throughout the entire value chain of activities. If the opening of the Korean legal market mirrors some of the changes in the opening of other Asian legal markets, it will not be plain sailing for everyone.