Wall Street Journal on Korea Legal Market Opening: “Free the Lawyers”
by Brendon Carr
Today’s Wall Street Journal carries an editorial on the draft Foreign Legal Consultants Act ("FLC Act") which is up for a vote in the National Assembly. This is not a fisking per se, but additional—hopefully informed—explanation and commentary from a foreign lawyer who has been working in Korea a long time and someone who’s been waiting for this act just as long:
Thank South Korea for providing an example of just how much work is involved in becoming a global financial hub. Fresh off a recent drive to overhaul financial regulation, the National Assembly is now turning to legal-services reform. This time lawmakers are offering up notably less than a “big bang.”
It’s true that the “opening” offered by the draft FLC Act is less than a full market opening. It apes fairly closely (in Korea, copying what others have done is called “benchmarking") the limited legal market opening that Japan undertook 25 years ago. That “opening” was deeply unsatisfactory to the foreign law firms that planted their flags in Japan, because the limitations put on them—which are precisely the same as the limitations under Korea’s FLC Act—caused them to lose money for years. Or at least to endure low profitability in Japan.
One of the bigger hurdles to doing business in Korea is its “hermit kingdom” legal market. Foreign lawyers and law firms can’t hang out shingles or form partnerships with local firms. The few foreign attorneys who practice in South Korea must apply for exemptions from the regulations.
Right now, foreign attorneys who want to work in Korea can only do so by taking a job with a Korean law firm, an accounting firm, or as in-house counsel within a Korean company or multinational.
Foreign attorneys who practice in Korea now as foreign legal consultants within Korean law firms do so subject to no regulation at all. There is no “exemption” for which to apply: We’re completely uncontrolled by domestic authority. If not engaged in “unauthorized practice of law”, for which criminal sanctions apply under the Attorneys’ Act, the only supervision of foreign attorneys comes from their home jurisdiction’s bar association. And to be frank, that’s so remote it’s useless to Korean consumers—which is not good for the profession. Adoption of an FLC Act, regardless of its terms, is crucial to establishing some local supervision over the activities of foreign lawyers.
In addition, the supply of local lawyers is severely constrained. The bar exam is designed to be nearly impossible to pass; on average, only about 1,000 new lawyers pass the test each year. Because the legal community is tiny, conflicts of interest are a perennial worry for clients. Companies often resort to flying in lawyers from Hong Kong or Tokyo who do business out of hotel suites. The costs these regulations impose are difficult to quantify, but noticeable. It would be hard to find another country that ties so much red tape around its legal marketplace—not even China.
The supply of “local lawyers” is growing quite rapidly. When I first came to Korea to work as a foreign legal consultant in the summer of 1997, only 300 new lawyers could enter the profession each year. My partner Doil Son (admitted January 1995) tells me back then, “only super-geniuses” could be admitted to the bar. (He’s reliable on almost every topic, but somehow I detect some self-interest in that statement.)
The quota was increased in stages to 500, then to 700, and finally to 1000 by 2001. Still, for a country of nearly 50 million, that’s not a heck of a lot of new lawyers. But one important detail is lost when we look at these numbers: A lot of new Korean lawyers cannot find employment. The economy does not have enough local demand for their skills, and multinational corporations and foreign investors demand different skills which they don’t have.
This is important, so let me say it again: The domestic market for Korean legal services is not large enough to take up the supply of all the new lawyers graduating from the Judicial Research and Training Institute each year. And so the ones in the lower half of the JRTI who cannot speak English, or who do not have some other skill which can save their bacon, face joblessness or a very difficult market for sole proprietors.
For Korean lawyers who speak English well, and can learn the skills of being an advisor as well as a barrister (the Korean bar is primarily a litigation-focused profession, and all of their training is aimed at producing judges or prosecutors for the state), the job prospects really are limitless. It is these people who are in short supply, not lawyers overall. To the jobless or underemployed “domestic” lawyers, legal market “opening” raises the spectre of more competition for scarce clients if the opening pushes lawyers from the top of the market down to compete with them.
Conflicts of interest, and differing social standards concerning lawyers’ ethics, do remain a concern. One of the reasons why foreign clients and multinationals want to hire Paul Hastings instead of Hong Kil-Dong & Associates is that Paul Hastings has built up social trust in respect of the ethics demanded by those clients, and Hong Kil-Dong has on occasion shocked the hell out of them.
Korea is slowly addressing its shortage of local lawyers. The National Assembly recently passed legislation that will create American-style three-year law schools and revamp the bar exam. But the constraints on foreign lawyers remain a problem and draft legislation under discussion may not be much of a help. The Foreign Legal Consultants Act would allow foreign firms to set up offices in Korea. But it would still limit their ability to advise on questions of Korean law and, bizarrely, it wouldn’t allow them to call themselves lawyers—they’d have to use the term “foreign legal consultant.”
In my opinion, it’s not so bizarre that the FLC Act would limit the use of the word lawyer to describe foreign lawyers. It’s predictable. In this respect, Korea is benchmarking the two dozen American jurisdictions following the ABA recommendations which permit foreign lawyers to operate only as “foreign legal consultants” ostensibly to protect the public from thinking they had hired a local lawyer. In my state of licensing, Washington, a foreign lawyer is required to call himself “foreign legal consultant” or the title in her home jurisdiction together with the name of that jurisdiction. But Washington is more generous than other US jurisdictions.
Japan requires foreign attorneys to register as gaikokuho jimu bengoshi, or “attorneys of foreign legal affairs”. This is translated in English as “registered foreign lawyer in Japan” but is clearly distinguishable from a “real lawyer”. Anyway, Japan does allow the use of the word “lawyer” (as bengoshi is “lawyer”, the same characters as byonhosa in Korean). And as a friend has pointed out to me today, Hong Kong, the UK, and EU jurisdictions are also very generous in allowing foreign lawyers the right to use the title “lawyer”. However, at least with respect to Hong Kong and the UK, these are spectacularly open professions—and open economies generally.
As for me, I’m perfectly happy to be called “foreign legal consultant”—it’s the title I use now. Because I am a professional, I am completely open and up-front about the fact that I’m not admitted to the Korean bar. Every e-mail from me bears my title foreign legal consultant rather than “attorney at law”, and a statement that I am a member of the Washington State Bar (so clients know where to complain) but not admitted in Korea. I do this because it’s the right thing to do, and so the Korean rule applicable to foreign lawyers makes perfect sense to me.
More promising are provisions in the U.S.-Korea Free Trade Agreement that would gradually pry open Korea’s legal market, paving the way for Korean and American lawyers to join forces under joint ventures. But even assuming both the U.S. Congress and Korea’s National Assembly approve the FTA, the opening would take at least five years and would help only American lawyers in Korea. Europeans would need to wait for their own FTA.
The Europeans are going to get their FTA first. The KORUS FTA hasn’t got much of a chance to get past Congress.
Other countries have been reforming their legal sectors for years. Japan concluded an 18-year opening process in 2005. Germany and Britain liberalized their legal markets in the early 1990s. Now South Korea finds itself the odd man out. That’s a warning to regulators and lawmakers everywhere. To compete effectively in the global marketplace, inertia, on legal reform or any other competitiveness challenge, is not an option.
Who can disagree with this conclusion?
If this topic was interesting, you might also take a look at a post I made over at the Marmot’s Hole last Christmas concerning the Korean bar examination and the profession generally. The comments section was particularly engaging and we drew in a very articulate Korean lawyer who mostly agrees with me (if you ask me, that’s direct evidence he’s another “super-genius”, of course!).
Comments
2 Responses to This Entry
Comments Policy: Comments to Korea Law Blog are moderated. This means abusive, or just plain stupid comments will be deleted. So don't be a jerk. It also means there may be some delay from the time you post a comment to the time it shows up here. If your comment wasn't against the policy, it will show up in a little bit.
-
About Korea Law Blog
Korea Law Blog is brought to you by Brendon Carr, an American lawyer working as a foreign legal consultant for more than 10 years in Seoul. (Brendon is not admitted as an attorney in Korea. But you knew that.) -
Contact Details
-
Tel. +82 (0)2 772 2734
Fax +82 (0)2 772 2800
Mobile +82 (0)10 8788 0750 -
Download My FREE Korea Employment Law FAQ
-
Korean Media
-
Blogroll
-
I think the idea is misplaced. The goal of having American attorneys in Korea is not the local legal work which is predominately litigation and personal work, but international work. In that area, most U.S. firms would be well suited. I believe Skadden would do extremely well. While I am an FLC and would probably personally benefit from having U.S. firms enter, I do not think I am being wholly selfish now.
Since the Korean economy is mostly based on foreign trade, I think the role of FLC’s will only increase. For after all, the law is an economy based business.
Already most places are “stacking” up on FLC’s. They are looking for juniors because they are less costly and easier to train perhaps. So already there is a bigger market for FLC’s. So I do not believe much will be different when firms do open up. Perhaps there will be an influx of lawyers from the U.S. but I doubt that. There are distinct advantages of being in America that are not emulated in Korea. So I think we are to support what is being done. FTA or not, the legal market is going to have to open.
Keeping it as it is no longer an option.
Will, I hear you, brother. My own opinion is there is little crossover between what a foreign lawyer does and what those unemployed graduates of the JRTI are trained to do.
But the arrival of foreign law firms to the marketplace will have a knock-on effect on these struggling young Korean lawyers. There are a lot of Korean lawyers in the major firms doing advisory work (M&A;, for example) for foreign and Korean clients—some of whom are doing it quite incompetently, or negligently, but because there are few alternatives, they are allowed to continue. Some Korean lawyers are simply too rude, but again, the lack of alternatives keeps them in business.
When there are foreign alternatives available for this type of work, it is possible some of the Korean lawyers in established “corporate” firms may be displaced to Seocho-dong. And that will hurt some of the ones struggling in Seocho-dong now.
Thanks for your comment, Will.