Many words have been written about the impact of the pandemic on the practice of law. But there is one area on which there has been little comment, and yet it will be heavily affected: that is, on cross-border trade in legal services, which is the engine for many City firms. 

Jonathan Goldsmith

Jonathan Goldsmith

We became familiar during the Brexit negotiations about the way in which there were two main routes for our services to be traded across borders: through a bilateral trade agreement, or through the World Trade Organisation structure. Even when a bilateral trade agreement eventually emerged, its terminology and structure were based on the WTO’s existing framework.

That is well and good if the WTO’s structure is robust enough to withstand the onset of digital cross-border services, but there must be some doubt about that, because the WTO structure was built for a world in which there are geographical borders which can be controlled by customs and immigration officers, or by barbed wire and natural barriers. But such borders do not exist in the digital world.

The WTO has stated that the pandemic has had a significant impact on trade in services. It estimates that the volume of services trade fell around 27%. The type and extent vary by sector and mode of supply. Services that involves proximity between suppliers and consumers - tourism, for instance - have been severely impacted.

The WTO’s framework for services – the General Agreement on Trade in Services, or GATS - divides services into four modes of supply, translated below into the language of our specific sector:

  • mode 1 - the legal service crosses the border, as when it is provided from one country to another by digital means
  • mode 2 – the client crosses the border to obtain a lawyer’s services in another country
  • mode 3 – a law firm sets up a branch office in another country
  • mode 4 – the lawyer crosses the border to provide legal services in person in another country

Not surprisingly, the WTO suggests that mode 2 and mode 4 have been largely paralysed by the pandemic. Presumably mode 3 has been frozen in place by mobility restrictions, without significant growth or decrease.

But one of the features of legal services – at any rate of the type that make up a significant part of cross border work - is that all, or nearly all, of its parts can be conducted remotely. It does not require people to be physically present, not even for court, or more likely arbitration, hearings.

The result is that mode 1 will presumably have increased substantially over the last year, because that is the way that digital services operate. It is one of those trends which was apparent before the pandemic, and which has been accelerated by it.

Now many countries try to control the entry of legal services into their jurisdiction. Mode 3 is the easiest to control, and all kinds of conditions can be – and are - imposed by some countries on a foreign firm setting up a branch office, including outright prohibition. Mode 4 is more challenging: there can be controls on entry, but it is often extremely difficult to stop a lawyer entering a country, who may appear to be a tourist or someone attending a business conference.

But mode 1 is almost impossible to control (that is outside the strictest and most brutal police state). Telephone calls, e-mails and Zoom interviews pass under the radar of nearly every country. It is true that if a country has a ban on mode 1, and if a problem emerges later on in the case which casts light on the mode of provision, it may create problems. And it may also create problems for the lawyer if his or her professional indemnity insurance does not permit the provision of services in a way not permitted in the recipient country.

But regarding control by the foreign jurisdiction, certainly at the point of delivery, it is next to impossible.

The conclusion is clear. If the other modes have been either frozen (mode 3) or abandoned (modes 2 and 4) during the pandemic, and if one assumes that the pandemic’s trends will continue into the future, serious questions need to be asked about whether there is a future for the WTO’s GATS framework of control, at least as regards legal services.

More specifically, for bars and governments which try to control the import of legal services, is there any point if all controls can be avoided by delivering the service digitally?

This is not a problem for our jurisdiction, because we already permit great freedom in importing legal services.

But it is a problem which needs to be debated world-wide, since there are many existing trade restrictions which the pandemic has shown to be of questionable utility. Either there is a free-for-all, or a new structure needs to be discussed.

 

Jonathan Goldsmith is Law Society Council member for EU matters and a former secretary general of the Council of Bars and Law Societies of Europe. All views expressed are personal and are not made in his capacity as a  Law Society Council member, nor on behalf of the Law Society

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