Foreign law firms are left bristling as South Korea unveils a bill that severely restricts how they can operate in the country

If there are governments involved, you can be sure that the row is serious. In early January, the U.S., UK and Australian ambassadors called on the head of South Korea’s parliamentary legislation and judiciary committee. Their grievance: A bill, the scheduled vote on which has been delayed for the time being, that limits foreign law firms to specific areas of local law, and – more critically – only through joint ventures where local law firms are the majority stakeholders. Critics – of which there are many in both the foreign diplomatic and legal communities – accuse the bill of merely complying with the letter of the trade pacts that South Korea signed in 2011 and 2012 with the EU and U.S. respectively, and not their spirit. The pacts stated that international law firms would be able to practice only foreign law for the first five years, after which they would be able to form joint ventures with local outfits and practice South Korean law.

So far, a total of 26 law firms from the U.S. and the UK have opened offices, and they weren’t happy with the news. David Tang, Asia-Pacific head of K&L Gates was quoted in the Financial Times as stating that the purpose of the legislation was to “discourage these joint ventures from being established.” In an interview with ALB, Jong Han Kim, chair of Paul Hastings’ Seoul office, called it “short of expectations” and a “disappointment;” if the bill is passed in its current form, “many foreign law firms would not be interested” in forming joint ventures. “Some of the foreign law firms were looking forward to practicing Korean law in a meaningful way,” said Lewis McDonald, Herbert Smith Freehills’ Seoul managing partner. “The bill may well deprive them of that.” The biggest issue for foreign law firms is that as minority shareholder, they would shoulder the liability but have no control in how the joint venture firm was run. “U.S. and UK law firms entering joint ventures in new markets need flexibility in running their operations,” said Kim. “They typically do not want to be subservient to the local partner, no matter what the country.”

Industry watchers indicate that the bill has come about as a result of pressure from some of the stronger local outfits looking to zealously guard their home turf. Publicly, the government has stated that apart from complying with the pacts, the bill sought to follow the template of Singapore’s legal market liberalisation, but McDonald doesn’t see many similarities.“Singapore offers a number of different options – like QFLPs and FLPs – apart from joint ventures, while this bill prescribes just the one route,” he said. “But more than that, Singapore sees the value of services to its economy, and how the regional legal practices of foreign firms based in Singapore can provide benefits to Singapore. As a result, it’s much more encouraging of foreign law firms.” It is a lesson that South Korea, known for its notoriously sluggish services industry, would do well to keep in mind.