Seoul, South Korea, left, and Tokyo, Japan, right.

The Korean and Japanese legal markets have both struggled for years to find a balance between supporting strong domestic players and opening up to global firms. Lately, however, the two neighbors have gone in opposite directions in the liberalization of their legal sectors.

In Japan, a market that foreign law firms entered more than 30 years ago, the government is considering further relaxing the rules to attract more foreign lawyers. But in Korea, the legal market liberalization process, which was largely modeled after the Japanese experience, has been put on hold.

“We are not yet considering any concrete plan for further liberalization,” the South Korean Ministry of Justice said in an emailed statement.

For global firms, which not long ago believed they would eventually be able to incorporate local Korean law practices in their firms, the pause in progress is a disappointment.

“The market was not liberalized as much as foreign firms had hoped,” said William Kim, a partner and Seoul office head of Ropes & Gray.

Kim helped Ropes & Gray launch the very first Seoul office of a foreign firm in 2012, when Korea finally opened up its legal market. At the time, foreign law firms entering Korea were promised a phased-in liberalization process that would ultimately lead to a fully open market where they would be free to hire Korean lawyers and practice Korean law through a joint venture with a local firm.

To be sure, the global firms with offices in Seoul say the lack of further liberalization has not affected their long-term strategy. Their South Korean operations focus on outbound work such as mergers and acquisitions, projects work, and international arbitration. And they need a presence in Seoul so they can do business with the huge Korean multinational companies that do business all over the world.

But having a local law capability would potentially have brought in more business, they say.

Korea was already late in opening up its legal market; Japan started in 1987 and China in 1992. But in early 2016, four years into the liberalization process, South Korea’s government hit the brakes.

“Everyone was so shocked,” said Daniel Lee, DLA Piper’s Seoul office head and founder of the Foreign Law Firm Association in South Korea. “We all thought it was a complete market opening.”

In March 2016, the Foreign Legal Consultant Act, the law that governs foreign lawyers in Korea, was amended, imposing restrictions on joint ventures for foreign firms. Under the amended law, foreign firms can own no more than 49 percent of the joint venture, but they would be solely responsible for 100 percent of it.

Currently, there are 28 foreign firms in Seoul and none has pursued a joint venture. “There are too many restrictions,” Lee said. “It doesn’t make sense to do it.”

Ropes & Gray’s Kim agreed. “The joint venture structure dictated certain aspects that were truly unacceptable for foreign law firms,” he said.

New law firm entrants into Korea have also fallen off since the legislative change. Back in 2012, more than a dozen foreign firms set up shop in Seoul. But over the past two years, the only major global firm that opened an office in Seoul was Latham & Watkins, in October 2016.

Moreover, the market will soon see its first global firm departure. Simpson Thacher & Bartlett, which was among the first batch of foreign firms to enter Korea, will close its Seoul office by the end of the year and relocate its Korea practice to Hong Kong.

Shearman & Sterling did apply to open in Seoul earlier this year, and is expecting a license by the end of the year; the regulatory approval by the justice ministry, as the Korean Bar Association noted, has taken longer than usual.

Tokyo Plans to Further Open Up

In Japan, meanwhile, legal market liberalization continues.

The Japanese Ministry of Justice has been considering several measures to attract more foreign lawyers into the country as part of an effort to promote international arbitration. One important change would relax the minimum number of years overseas that foreign lawyers in Japan are required to have under their belt.

Currently, foreign lawyers in Japan need at least three years of post-qualification experience, of which only one year of experience in Japan can be counted. Longtime foreign lawyers in Tokyo say this is an unnecessary hurdle.

“It’s an outdated law. It’s not a very difficult rule to overcome, but it’s a disincentive,” said John McClenahan, managing partner of King & Spalding’s Tokyo office, noting that it could disrupt the career of a junior lawyer in Japan if the lawyer has to move to another country for two years to meet the requirement.

“It’s a business hindrance for law firms and clients,” said Rika Beppu, a partner at Squire Patton Boggs’ Tokyo office. Firms have to send away their best and brightest to another country for two years, disrupting the continuity of the lawyers’ work, she explained.

Rupert Burrows, managing partner of Mayer Brown’s Tokyo office, also described the three-year requirement as a hindrance.

“When I first came out here as a lawyer [more than 25 years ago], the rule then was five years of experience in total,” he recalled. “That has been relaxed, but the rule is still left in place.”

The ministry is now considering allowing up to two years of experience in Japan to count for the three-year requirement, meaning only one year of experience overseas is required for foreign lawyers in Japan.

The proposed revision is already on the Japanese legislature’s agenda, noted Beppu. If enacted, she expects it will be implemented a year or two down the line.

But despite the change, Beppu, who is also chairwoman of the legal services committee of the European Business Council in Japan, is not wholly satisfied. “We will continue to work on advocating for a total abolition of the three-year work experience requirement.”

Still, Tokyo has been taking steps that are helpful to foreign firms, and the Japanese capital continues to attract them. Earlier this year, Mayer Brown opened an office in Tokyo, Debevoise & Plimpton set up shop in 2016, and King & Spalding, Withers and even offshore firm Harneys all entered Japan in 2015.

Firms also have been expanding their Tokyo offices. Morgan, Lewis & Bockius added two partners earlier this month. And Withers recruited six partners last month, transforming its Tokyo outpost from one with only a tax offering to a full law office with multiple practice areas.

Disappointed, But Not Down

In South Korea, international firms appear to have resigned themselves to the lack of progress in legal market liberalization. Local law capability would be ideal, as global firms would then be able to capture work that now must be being referred out to local firms, said DLA Piper’s Lee. But the lack of progress on this point has not affected the Seoul strategy of most of these firms.

“When we opened our Seoul office, we weren’t expecting to target the domestic market business because we were not allowed to do that in the beginning,” Lee explained.

Instead, international firms in Seoul will continue to focus on outbound work, such as mergers and acquisitions and projects work, as well as international arbitration. Firms are not likely to pull out of Asia’s fourth-largest economy because of the lack of liberalization, said Nathan Peart, a consultant at legal recruiting firm Major, Lindsey & Africa who specializes in Hong Kong and Seoul.

“The joint venture wasn’t the main goal,” said Peart. “Firms are not waiting around to do Korean law. They would have left sooner if this was a big concern.”

In fact, most global firms say they will remain in Korea with or without further liberalization primarily because a presence in Seoul is essential if they want to court business from some of the world’s largest companies and industry leaders.

“All the chaebols are multinational companies and do business all over the world,” said Lee, referring to the family-run conglomerates such as Samsung and Hyundai that make up most of the country’s economy. “They have tons of work outside of Korea, and the work grows continuously.

“If [global firms] don’t set up in Seoul, they will lose out to the firms with Seoul offices,” he said.

Related Stories:

Simpson Thacher to Become First Global Firm to Close Seoul Office

Seoul Mates — Are International Law Firms Succeeding in The South Korean Market?

International Law Firms Are Opening Offices in Tokyo Again