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South Korea remains one of the last countries in Asia to liberalize its legal services market. Currently, foreign law firms are prohibited from establishing offices in Korea, and lawyers with foreign licenses are not officially allowed to practice foreign law. Although there are approximately 400 foreign attorneys employed as “foreign legal consultants” in various Korean law firms, they are not permitted to work independently and there is no formal registration system recognizing their status as foreign lawyers. But the landscape may be about to change. Korea’s Ministry of Justice announced in July 2007 that a draft bill of the Foreign Legal Consultants Act will be put before the National Assembly in the near future. See Problems with the Foreign Legal Consultants Act, LawTimes. The bill was originally introduced in November 2006, but was withdrawn in view of free trade agreement negotiations with the United States. The act is the first measure the Korean government has taken to comply with the free trade agreement signed between the United States and Korea in June 2007. According to the Ministry of Justice, the government expects to have the act instituted before the free trade agreement becomes effective. Problems with the Foreign Legal Consultants Act, supra. The act, once enacted, will open the legal services market in three stages. “ A Difficult Battle with Goliathian U.S. Accounting Firms and Law Firms,” Maeil Business. First, it will allow foreign lawyers to establish operations in South Korea as “foreign legal consultants” and advise clients on the law of their home jurisdictions, public international law and international arbitrations. Second, within two years from entry into force, foreign law firms will be allowed to enter into specific cooperative agreements with Korean law firms to handle cases that involve both domestic and foreign legal issues. Finally, within five years, foreign law firms will be permitted to establish joint ventures with Korean law firms and hire Korean-licensed lawyers as partners or associates. The act applies only to lawyers licensed in, and law firms registered in, countries with which Korea has a trade treaty. “ Foreign legal consultant bill needs more work,” Korea Herald. Thus, assuming that the Korea-U.S. fair trade agreement becomes effective this year, the legal services market in Korea is expected to fully open itself to U.S. competition in 2013. The same will be true for Chile, Singapore and member countries of the European Free Trade Association (EFTA) � comprising Switzerland, Norway, Iceland and Liechtenstein � whose free trade agreement with Korea is already in effect, since those free trade agreements accord most favored nation status. It is anticipated that more countries will be able to take advantage of the opening of Korea’s legal services market; Korea is in talks with the European Union, Japan, Canada, Mexico and the Association of Southeast Asian Nations � which consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam � regarding additional free trade agreements. Foreign legal consultants The time frame for the opening of the Korean legal services market set forth in the act closely follows Korea’s obligations under the Korea-U.S. free trade agreement. Free Trade Agreement, U.S.-Korea, Korea Annex II: Non-Conforming Measures for Services and Investment, 45. In addition to providing a measure for opening the legal services market, the act adopts certain restrictive measures regarding foreign lawyers, which are permitted as part of Korea’s reservations under the agreement. Report of the Industry Trade Advisory Committee for Services and Finance Industries (ITAC 10) on the U.S.-Korea Free Trade Agreement, 16. First, foreign lawyers will be prohibited from using the title “lawyer.” “ Entry of the Foreign Legal Consultants,” LawTimes. Instead, they must use the title of “foreign legal consultants.” Similarly, foreign law firms may not represent themselves as law offices. They will have to display, after their name, a sign that says “foreign legal consultant office.” Some critics believe that this unfamiliar title will confuse legal consumers, who will be unable to determine whether a “foreign legal consultant” is licensed to practice law at all. Indeed, insistence on the title “foreign legal consultants” seems an unnecessary restriction, since titles such as “foreign lawyer,” “U.S. lawyer” or “Japanese lawyer” are not likely to be confused with Korean lawyers. Second, the act will require all foreign lawyers to have at least three years of experience in their respective jurisdictions. “ Adoption of the Foreign Legal Consultants Act,” Korea Economic Daily. For lawyers who are also partners or representatives of an office, the requirement will be three years in their jurisdiction of license with seven years of experience overall. Absent a suitable “grandfather” clause, this restriction could pose an obstacle to foreign lawyers who are already working in Korea. On the other hand, this restriction may result in an increase in the overall quality of foreign legal services, ensuring that foreign lawyers obtain valuable practice experience and training where they are licensed rather than starting their legal careers in Korea without any experience, having only the bare minimum of obtaining a foreign law license. Third, to practice as a foreign legal consultant, a foreign lawyer will have to stay in Korea for a minimum of 180 days per year. Moon, supra. Many suspect that this provision was included because the Korean government’s basis for taxation of individuals is a minimum residency of 180 days per year. The Korean government claims that the residency requirement has been widely adopted in the countries with an open legal services market. In the United States, however, only two states require residency and 11 states require foreign legal consultants to establish an in-state office. Free Trade Agreement, U.S.-Korea, United States Annex I: Non-Conforming Measures for Services and Investment, Appendix I-A, 15. Finally, the act will require a foreign law firm to have operated for at least five years where it is registered before opening a branch office in Korea. Moon, supra. Foreign law firms also will be prohibited from having more than one office in Korea. While at first glance this seems an unnecessary provision hindering market access by foreign law firms, Korean law firms are likewise prohibited from operating multiple offices. One-stop global law firms Despite these restrictions, the act appears to be a significant step toward opening the legal services market in Korea. U.S. companies looking to conduct businesses in Korea may benefit enormously from the change. In the past, it was necessary for such companies to hire a Korean law firm because foreign attorneys were prohibited from executing legal documents on behalf of their clients in Korea. Now companies will have available to them fully integrated, one-stop international law firms that can meet the local needs as well as provide them with global know-how and resources. These changes could reduce the cost and inconvenience to both Korean and U.S. businesses in locating and retaining experienced U.S. counsel in Korea. The availability of U.S. law firms in Korea may also provide U.S. companies with a certain comfort factor that could further facilitate Korea’s long-sought foreign investment activity. Perhaps the greatest benefit to U.S. companies will be the caliber of legal services that will be available in Korea. There is currently a disproportionately small number of Korean lawyers who are experienced in sophisticated finance or corporate transactions. According to a survey conducted by the Korea Economic Daily in 2003, in which 150 major companies operating in Korea participated, 91.3% desired full opening of the market and 97.3% answered that Korean law firms fall behind world standards in the areas of corporate law. The European Union Chamber of Commerce in Korea, Trade Issues and Recommendations 2004. Opening of the legal services market means transfer of best practices and expertise of international law firms. Competition will also catalyze the creation of larger law firms with a capacity to handle large-scale transactions. With an open market, U.S. businesses can expect significant improvement in the overall quality of legal services in Korea. In addition to the act, the Korean government has recently adopted the U.S. law school system under which all bar admission applicants are required to complete a three-year post-graduate law program. The Korean Bar Association, News of the Korean Bar Association: Introduction of Law Schools, 373 Human Rights and Justice 231. The schools are set to open in 2009, but the number of students admitted per year will be limited to 1,500, which will gradually increase to 2,000 students by 2012. “ Korea Has 8400 Attorneys, US Produces 50,000 Annually,” Chosun Ilbo. The new system is an effort by the Korean government to increase the number of attorneys in Korea as well as to diversify the field with attorneys who have various educational and professional backgrounds. The current system Under the current system, to qualify as an attorney, an individual must pass the Korean bar examination and spend two years at the Judicial Research and Training Institute, at the end of which one decides whether to practice as an attorney, judge or prosecutor. Approximately 30,000 students sit for the bar exam each year, but only 1,000 are permitted to pass, a limit that was gradually raised from 300 in 1996. Judicial Research and Training Institute, Curriculum; “ As the Korean Legal Market Moves Toward More Openness, the Elite Firms That Have Long Dominated It Are Experimenting with a More Competitive Outlook,” The American Lawyer. Along with Japan and Taiwan, Korea is one of only three countries in the world that set a quota on bar admissions. Keun Hyung Sun, “ 52% of Towns Have No Attorney . . . General Population to Attorney Ratio is 7633,” Kyung Hyang. As of year-end 2006, Korea, a country with a population nearing 50 million, had a tightly knit legal community of 8,423 lawyers who enjoy an exalted status as the society’s most elite. Sun, supra. The overall ratio of the general population to attorneys is 7,633 to 1 in Korea, whereas in the United States, the number is 267 to 1. Even in comparison to Japan (ratio of 5,517 to 1) and Taiwan (5,500 to 1), the ratio is staggeringly high. Sun, supra. The Korean government’s plans with respect to liberalization of the legal services market follow, but will proceed more rapidly, than those of Japan. Japan went through a lengthy transition period during which it opened the legal services market in three stages: In 1987, foreign attorneys were allowed to practice as foreign legal consultants; in 1994, foreign law firms were allowed to jointly retain clients with Japanese firms for qualified matters and to share profits; finally, in 2005, joint ventures with Japanese firms and hiring of Japanese lawyers were permitted. Ministry of Justice of the Republic of Korea, Negotiations over Opening of the Legal Market: Developments and Measures, Ministry of Justice, Primary Issues of Contention: FTA Is an Opportunity. Japan introduced the U.S. law school system in 2002, but it does not set a cap on the number of students admitted to the schools. It is difficult to predict how the landscape of the legal services market in Korea will change. However, studying the changes Japan has undergone in the last 20 years may serve as a guide to what to expect in Korea. Since 1987, Japan has seen a gradual expansion of Japanese law firms. This expansion was partly realized through mergers with other Japanese firms to create full-practice megafirms. Another approach was the formation of joint enterprises with foreign firms, thereby creating full-service law firms with a mix of Japanese and foreign lawyers. While many firms moved toward larger, more diverse practices, other Japanese firms chose to focus on areas of specialization. The cost of obtaining counsel for sophisticated legal issues or complex litigation increased, while fees for standardized services fell slightly. Many expect to see the same changes take place in Korea, although the fact that Korea’s liberalization plans will be rolled out over the next five years, rather than the 18 years it took in Japan, could lead the Korean market through a different course. A natural progression In the past 50 years, South Korea has undergone an exciting transformation from a mostly agricultural economy to a fully developed industrial economy, now ranking as the 11th largest in the world. Today, Korea’s legal services market has an opportunity to catch up to the rapid growth of the corporate sector. Currently, the number of legal advisers in Korea with expertise in international finance, structured finance and capital markets transactions is insufficient for a country undergoing fast-paced globalization. The Korean government’s proposal of the act is a long-waited, welcome change toward liberalization, from the perspective of the U.S. business community. Although the attitude toward liberalization in Korea is one of caution rather than eagerness, Koreans realize that competition in the legal services market may further advance its goal of becoming an important logistics and financial hub of Northeast Asia and attracting additional foreign investment. Brian C. Rupp is a partner, and Jae En Kim is an associate, in the Chicago office of Drinker Biddle & Reath. Rupp is head of the electrical patent team in the intellectual property practice group. From 1995 through 1998, he lived and worked in Seoul, South Korea, as patent counsel with Samsung SDI and Samsung Techwin. Kim worked as a summer clerk in 2005 with the Korean law firm Kim & Chang. The authors may be reached, respectively, at [email protected] and [email protected].

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