August 2004

Opening the Legal-Services Market in Korea

by Kevin Y. Jung

Under the terms of the Republic of Korea's protocol for acceding to the World Trade Organization (WTO), Korea has committed to opening its legal-services market in 2005. Korea is perhaps the largest economy in the world still closed to foreign law firms. In accordance with a procedural schedule adopted by the WTO, 14 countries have submitted their requests regarding the opening of the legal market in Korea. The Korean government was required to submit its response on March 31, 2003, to the WTO regarding the opening of its legal-services market, and did so.

The market-opening measures submitted by the Korean government to the WTO include, among others, that foreign law firms will be permitted to open representative offices in Korea to consult on international and foreign law problems, and to act for Korean corporations on international laws without a Korean bar license. However, foreign law firms are prohibited from forming alliances and joint ventures with Korean firms, advising clients on local Korean laws, appearing in Korean courts, and hiring Korean attorneys as members of the foreign firms. These measures are expected to be effective in early 2005, if they survive the present negotiations between the WTO member nations and Korea, which should conclude by the end of this year. This is similar to measures that Japan implemented in 1987, when it opened its legal-services market to the world.

Currently, foreign lawyers are not permitted to practice law as lawyers in Korea, and foreign law firms cannot establish any operation in Korea. To practice as a lawyer in Korea, one must pass the Korean bar examination; this has been the case since 1997 for foreign lawyers under the Korean Attorney-At-Law Act. However, the language barrier has been and is the most formidable obstacle for foreign lawyers, since the Korean bar examination is offered only in the Korean language. As such, it is a daunting task for any foreign attorney to pass the exam.

Many law firms and companies in Korea, however, employ expatriates and internationally qualified attorneys as foreign legal consultants and in-house counsel, respectively, including this author, who spent almost a year in 2001-2002 working in Seoul representing KPMG International. There is no provision for "foreign legal consultants" in Korean law, although, in practice, there are many foreign attorneys in Korea who perform a legal advisory function.

The Korean Bar Association, dominated by the older generation and litigation-based practice, wants the legal market to remain closed. In a way, Korea is an exclusive legal market comprising fewer than 8,000 lawyers in a country of over 48 million people. Due to this restrictive market condition, it is not uncommon for foreign lawyers to practice law out of their hotel rooms for months at a time, moving their hotel locations from time to time to elude policing by the Korean Bar. One western lawyer reportedly spent almost a year in a hotel, advising international clients doing business in Korea.

Many U.K. firms have been openly lobbying to open offices in Korea. For example, in February 2002, a delegation from the U.K. Law Society visited Korea to lobby for legal-market reforms. During my stint in Korea, I met with some of the largest law firms from around the globe, seeking information on the inevitable liberalization of the Korean legal market and assessing Korean law firms in case the Korean government allows any acquisition or joint venture with the local firms. Some of the major international players that I have dealt with in connection with my work in Korea were major U.S. East Coast law firms and some of the world's largest law firms from the U.K. These law firms have built up extensive Korean practices out of their Hong Kong and Tokyo offices, perhaps in anticipation of the liberalization of the Korean legal-services market.

The group that has been the most vocal about the legal-services market in Korea consists of foreign companies and financial institutions that conduct businesses in Korea or with Korean entities, as they are not satisfied with the quality of domestically available legal services. Many Korean lawyers in Korea lack expertise on international finance and cross-border transactions, etc. Other problems are language and cultural difficulties for foreign clients with Korean law firms, and lack of fully integrated one-stop international law firms that can provide local legal services for foreign investors and global assistance.

According to a 2003 survey conducted by the Korea Economic Daily of 150 Korean companies, 39.5 percent of the surveyed companies responded that the greatest benefit from opening the legal-services market in Korea would be improvements in the quality of legal services, 32 percent said it would be the import of advanced legal structure, and an overwhelming 97.3 percent answered that Korean law firms fall far behind world standard in corporate law.

For foreign lawyers, the Korean prize has involved a long and sometimes frustrating waiting game. After the shock of the Korean economic crisis in 1997-1998, the Korean government sought to increase the transparency of its economy and to open its financial market to foreign investors. The recovery experienced in Korea after the 1997-1998 crisis was nothing short of a miracle. Korea has paid back loans of US$58 billion to the International Monetary Fund two years before they matured, and is one of the most attractive centers for investment in Asia, despite some economic slowdown in 2002-2003. The Korean government's open-market policy and privatization programs helped the economy fight back from the 1997-1998 financial crisis, and Korea continues to open up to the outside world. Legislative developments have improved corporate governance and transparency in business. While this new openness does not yet extend to foreign law firms, many international players have extremely active Korean practices and eagerly wait 2005, when the WTO requirements finally compel Korea to liberalize the country's legal-services market.

It remains to be seen what will finally materialize from the current ongoing negotiations between Korea and the WTO, but it is just a matter of time before the opening of the Korean legal-services market. When the market opens, given the level of activity in Korea by foreign law firms from their Seoul hotels, and Hong Kong and London offices, and the level of interest demonstrated by them ahead of liberalization, the competition in Korea among the major international players will be fierce.

There are signs that some midsized to large law firms in Korea welcome the international competition, or, at least, they are preparing to meet the challenges to come in 2005. Recently there have been many consolidations or mergers among midsized law firms in Korea. Unlike in the United States or the United Kingdom, the largest law firm in Korea has fewer than 250 lawyers. When some do not consolidate or merge, they decide to diversify their practices or strengthen their niche market in litigation practice, as foreign law firms cannot compete in this market.

The Korean government's response to market-opening measures in March 2003 may or may not be enough for the WTO member countries. Nevertheless, instead of being compelled by the outside forces, the Korean government will, hopefully, recognize that increased competition will actually help its own economy in general, since the government's ambition is to be the business hub of Northeast Asia, and the closed nature of the Korean legal-services market has been an impediment to foreign direct investment, according to some experts in the financial industry. As for the Korean Bar Association, it will, hopefully, understand that increased competition will ameliorate the quality of available legal services and that Korean corporations, as they become much more sophisticated, will demand better services.

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Kevin Jung practices in Bellevue, concentrating his practice on international business, corporate, real estate, and immigration laws. He regularly travels to Seoul, where he has a liaison office. He has represented some of the largest Korean multinational corporations and chaebols, including the Samsung Group.

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