The World Trade Organisation is keen to help lawyers break into foreign markets. Neil rose looks at the drive towards liberalisation – and the use of legal services reform as a bargaining chip in the international poker game.


The work of the World Trade Organisation (WTO) may seem mainly concerned with disputes over bananas, cotton and other tangible goods, but for those City lawyers interested in breaking into potentially lucrative foreign markets, it is much more than that.

Rather than the Law Society and other professional bodies having to knock on the door of each country to which they would like their members to have access, the WTO – through the General Agreement on Trade in Services (GATS) – offers the opportunity to walk through several doors at the same time.


The basic aim of the WTO and GATS is liberalisation. This does not necessarily mean deregulation – but it does mean greater accessibility.


‘An English lawyer should be able to go to Australia or Brazil and practise English law,’ said senior European Commission trade official Carlos Gimeno Verdejo at a session on the WTO at the Union Internationale des Avocats annual conference in Geneva earlier this month. He should also be able to qualify as a local lawyer, Mr Gimeno Verdejo added. The WTO offers the tantalising prospect of this actually happening.


With nine months to go before member countries have to make their commitments to liberalise in the latest round of negotiations under GATS, there is a flurry of behind-the-scenes horse trading between countries on the basis of initial offers made in the last couple of years. Legal services, it is said, feature surprisingly high on the agenda (see [2004] Gazette, 9 September, 1).


But many people have only the vaguest understanding of what this process is all about. The European Union negotiates at the WTO on behalf of all 25 member states, and Mr Gimeno Verdejo explained: ‘Under [GATS], WTO members negotiate commitments that will grant market access and national treatment to foreign suppliers.’


The main issues for countries in considering the work of foreign lawyers fall into two categories: what and where/how.


First, what kind of work should they be allowed to do? Practising their home country law, international law and third country law, usually in that order, are the more likely concessions (leading to foreign legal consultant regimes); practising the law of the host country, at least without qualifying locally, is usually at least one step too far. However, few City firms are interested in practising local law in most countries – and when they do, they tend to work only on non-contentious matters.


Second, where/how should they be allowed to do it? Can foreign lawyers operate in that country temporarily or permanently? Can they set up a commercial presence, either on their own or in association with local lawyers? Can they employ or go into partnership with local lawyers? Can they requalify?


There is no obligation to make commitments in any sector, and Mr Gimeno Verdejo said that even if commitments are made, the level of market access and national treatment can be modified by specific limitations: ‘The GATS acknowledges the disparities of regimes among the different WTO members, and recognises the possibility for them to impose conditions on foreign suppliers of legal services, while ensuring that they are administered in a reasonable, objective and impartial manner.’


For large law firms, the advantages are obvious. There are countries such as Korea and India where they are extremely keen to plant their flag, but local prohibitions currently restrict them. There have been bilateral talks, with representatives of the Law Society and others, such as the solicitor Lord Mayor of London, visiting these markets. But such moves are against the backdrop of GATS. Korea, for the first time, has made an offer under GATS to open up its legal market.


Mark Clough QC, a partner at City firm Ashurst and a member of the Law Society’s GATS working party, says that if the talks are successful in opening markets, ‘that will make the job of opening offices and offering services to clients abroad much easier’.


Legal services, in common with other professional services, are among the most heavily regulated sectors in the world. Some of the regulations can be seen as merely protectionist – such as conditions of nationality, language, residency requirements, and limitations on foreign law firms employing or going into partnership with local lawyers. Others are non-discriminatory licensing and qualification requirements, aimed at guaranteeing quality of service.


Mr Gimeno Verdejo said: ‘Qualifications and licensing conditions that are non-discriminatory and non-excessive should be sufficient to protect consumer interests. Nationality requirements are an inappropriate tool to control professional competence.


‘Residency requirements may be perceived as particularly burdensome at a time of explosive growth in the Internet and services supplied cross-border and, if intended for reasons of consumer protection and accountability of the service provider, can certainly be addressed by less trade restrictive requirements serving the same policy objective (for example, appointment of a representative agent or liability insurance).


‘Restrictions imposed on the commercial presence of foreign law firms, such as the obligation to enter into a joint venture with local service suppliers, are also unjustified.’


Each GATS negotiating round takes several years, and under the previous one – dubbed the Uruguay round – little headway was made on legal services. Many of those countries that made commitments offered little, while most ignored the topic all together.


But this is changing. Of the 20 nations to join the WTO since the Uruguay round, all but one – Mongolia – have made commitments on legal services.



Goldsmith: multilateral GATS an advantage

Jonathan Goldsmith, the solicitor secretary-general of the Council of Bars and Law Societies of Europe (CCBE), who also sits on the International Bar Association’s WTO working group, says the WTO does bring about liberalisation.

He points to the case of China, one of those 20 recent entrants, where the WTO process has been central in opening up a previously heavily restricted market.


‘The advantage of GATS over bilateral talks [between two countries] is that it’s multilateral,’ he says. ‘If the Law Society had to negotiate opening up markets with every country in the world, it would take a very long time.’


According to Rufus Yerxa, deputy director-general of the WTO, the prospects for legal services are looking brighter in this, the Doha round, which began in 2000.


Speaking in Geneva, he said: ‘There is a trend towards greater openness of the legal profession. It appears that a considerable disparity still exists between the level of commitments and actual market openness.


‘Generally positive experiences with liberalisation in some places, like the EU, have led to greater openness of regulators elsewhere to consider liberalisation at home.’


Mr Yerxa said that, along with Korea, Fiji and Guatemala have also made initial offers to liberalise legal services for the first time, while a further 11 countries have offered to improve their existing commitments.


‘It is always difficult to project an outcome of a negotiation on the basis of what is put on the table at the first stage of offers,’ he noted. ‘Like in many other sectors, little of substance has been offered in legal services. However, members have been negotiating this sector intensively in bilateral and plurilateral settings, probably more than liberalisation in any other profession.’


Mr Yerxa predicted that these talks may well lead to more concessions on allowing foreign law firms to open offices.


The fear is that legal services reform may be tossed away in the poker game that is WTO negotiations. If country A wants to open both country B’s telecoms market and legal services market, it may ditch the latter if in return it can secure the former.


Of course, this process can also work in lawyers’ favour. If country A is desperate to get into country B’s telecoms market, one of the concessions it may have to make in return is opening its own legal market.


So just how important are legal services? Mr Gimeno Verdejo told delegates in Geneva that ‘legal services, as with many other professional services, are higher on the agenda than many people think’.


Mr Goldsmith concedes that it is impossible to say exactly where legal services rank – and lawyers will never have the same priority as, say, farmers – but the signs are promising.


Unsurprisingly, it all comes down to money. A report by the Organisation for Economic Co-operation and Development (OECD) examining the GATS talks on legal services shows how the stakes are getting much bigger.


It says that although there is limited reliable data on the overall size of the sector, the practice of law in the US grew from an estimated $4.2 billion (£2.3 billion) in 1965 to an estimated $148 billion in 1999. In Europe, the output of legal services reached $176 billion (£120 billion) in 1999.


‘A new feature of the market for international legal services is the growth and emerging export activity of Asian law firms,’ the report notes. In Hong Kong, for example, the total revenue of the legal sector exceeds $1.5 billion, while the turnover of Singapore’s domestic law firms was estimated to be SG$849 million (£500 million).


The two major exporters of legal services are the US and the UK. Between 1986 and 1999, US exports rose 26-fold to $2.6 billion, while the UK’s trade in legal services doubled between 1997 and 2002 to £1.8 billion. Countries such as Hong Kong and Australia have also seen sharp rises in exports.


The overall message is that legal services are increasingly big business, and this has been recognised by the EU, at least. Working with organisations such as the CCBE and Law Society – led by head of international Alison Hook, who also assisted the OECD produce its report – the European Commission has issued a detailed and liberal offer of commitments on legal services, and has made specific requests to a large number of countries to drop restrictions on foreign lawyers.


‘The fact that the commission has put time and effort into its work on legal services shows it thinks they’re important,’ says Mr Goldsmith. Commission officials confirm that the law is the most important of all professional services so far as they are concerned.



Clough: ‘general trend towards liberalisation’

The WTO’s purpose strikes at the heart of protectionism, but before the concessions can be won, there needs to be a lot of persuading. At the session in Geneva, a lawyer from Saudi Arabia expressed a fear common to many developing nations when he predicted that foreign law firms would siphon off the best work and the best lawyers in his country, draining the local profession.

This is a notion, though often heard, that WTO supporters contest strongly. The Law Society says there are many advantages of liberalisation for developing legal professions: transfer of know-how and expertise, providing local lawyers with valuable career opportunities, and making high-quality legal services the backbone of the economy, which in turn attracts further investment.


It also points to what has happened in England and Wales, which is one of the most liberal of jurisdictions and which has thrived with hundreds of foreign law firms setting up shop in London.


Mr Gimeno Verdejo pointed out that, but for international law work, local and foreign firms do not usually compete.


For all that the WTO is a multilateral setting, with all the benefits that brings, it still encourages individual members to strike mutual recognition agreements with each other. These can be set in stone through GATS. Reciprocity – which is, at the basic level, ‘we won’t let your lawyers into our country because you won’t let ours into your country’ – is not in theory meant to be a decisive factor in negotiations, but Mr Gimeno Verdejo says it is obviously highly persuasive.


Nowhere in the legal world does this issue come up more than with the US. US law firms are aggressively and increasingly expanding abroad in line with their domestic financial clients, demanding of countries that their barriers to practice come down. However, back home, most states do not allow foreign lawyers on their patches.


Several speakers in Geneva took pointed note of this. Saying how the US had proposed a global system not unlike the EU’s freedom of movement for lawyers, Mr Gimeno Verdejo said this was an approach ‘which the US can hardly sell to other WTO members given that many of their states are not on board themselves’.


American Bar Association (ABA) president Robert Grey, who addressed the meeting, told the Gazette afterwards that this problem was a consequence of the federal system - each state supreme court has responsibility for the regulation of lawyers. The ABA is purely a representative body, although it does put forward model rules.


He said the ABA has reissued its call for states to adopt its model rule on foreign legal consultants. ‘Part of this is education process we have to go through.’


Education of all concerned is clearly a key part of the process – the International Bar Association, for example, has been busy raising awareness and understanding of the issues surrounding legal services with countries’ WTO representatives.


Mr Clough, for one, is optimistic. ‘The current process can be expected to make a big step towards liberalisation,’ he says. ‘Some countries will try to hang on to their old ways, but there is a general trend towards liberalisation.’


The preferred end game for many is a global version of the European system, as suggested by the US and also Switzerland. This allows lawyers to establish a permanent presence under their home title (for example, solicitor) in another member state, and also join the local profession after practising there for three years.


But this is a long way off. Mr Gimeno Verdejo said: ‘It is difficult to transpose the EU liberal regime mutatis mutandis to the WTO system. Indeed, the EU regime is based on a commonality of values and standards between different legal systems that does not exist worldwide.’


He predicted that many developing countries might be even more reluctant to open their legal services markets if they were to face unlimited competition from foreign lawyers practising, under their home titles, the host country law without qualifying there.


Yet it remains a helpful standard. Mr Gimeno Verdejo says: ‘The basic elements of the EU regime can serve as a very useful benchmark for liberalising trade in legal services while guaranteeing at the same time high quality of the services in the benefit of consumers.’