Globalization and the Legal Profession in the Asia-Pacific Region

Paper prepared for presentation at the 14th Annual Meeting and Conference of the Inter-Pacific Bar Association, Seoul, Korea, May 2-5, 2004 for a program entitled “Keeping the Yankee Firms Out of Asia – The Challenges for International Law Firms to Practice Local Law in Asia.”

Globalization of the legal profession, particularly as it relates to the Asia-Pacific region, is not a new subject, but one that has been debated in various international forums for over 20 years.

Ben Greer, who chairs the WTO Working Group of the International Bar Association, has come up with a visual metaphor that graphically describes the dynamics involved.  He postulates a standard political map of the world in which each country is represented by a different color. Each of these countries has its own legal system – possibly more than one – and one or more bodies that regulate what is generally regarded as the practice of law. He then asks us to visualize, superimposed over the political map, a weather map of the world showing the main forces that influence the weather worldwide.  These forces, obviously, do not respect political borders, and the weather in any one place may be influenced by developments occurring elsewhere, sometimes at a considerable distance.  Finally, he proposes that we imagine replacing the weather map with symbols depicting the process generally referred to a “globalization” – the increasing movements of people, goods, services and capital across national borders – that have been made possible by revolutions in communications, information and other technologies as well as important political changes.  He concludes that “[g]lobalization seems irreversible and – as with the weather – the power of traditional political and other institutions, including the bodies which regulate the legal profession, to control it is limited.”[i]

In addressing the issue of globalization of the legal profession, we do not write on a clean slate. Much has already been and is being done, notably within the framework of multilateral trade negotiations under the auspices of the World Trade Organization (“WTO”), which was created in 1994 as a result of multilateral negotiations conducted by Member governments within the framework of the General Agreement on Tariffs and Trade (“GATT”).  The GATT, formed in 1947, was both an agreement and an organization.  The agreement’s provisions for the removal of barriers to international trade in goods, which had become widespread during the global depression of the 1930’s, provided the framework for the dramatic growth of international trade during the post-war period.  The GATT organization and Secretariat, located in Geneva, Switzerland, provided the institutional framework and the forum for the negotiation of removal or reduction of trade barriers.

The keystone of the GATT was, and remains, the “most favored nation” or “MFN” principle whereby each Contracting Party (member state) must be accorded treatment no less favorable than any other Contracting Party.  The GATT also provided for successive rounds of tariff reductions and elimination of non-tariff barriers, a process known as “progressive liberalization” of trading rules.  The agreements resulting in the formation of the WTO were concluded in the course of the so-called “Uruguay Round” under the GATT.

The distinguishing feature of the Uruguay Round was the drive by the most industrialized countries to broaden the scope of the GATT, which applied only to trade in goods. In the latter decades of the 20^th century, the principal beneficiaries of trade liberalization had been the newly industrializing countries, which were becoming increasingly proficient as low-cost suppliers of goods.  The comparative advantage of most industrialized countries, on the other hand, was to a significant extent in the development of technology and the provision of financial, professional and other services.[ii]

The result of this pressure from the industrialized countries was the updating and expansion of the GATT, the conclusion of additional agreements and the formation of the WTO to administer their operation.  Among the additional agreements concluded in the Uruguay Round was the General Agreement on Trade in Services (“GATS”), which extended the basic principles and processes of the GATT, including the MFN principle and the procedure for progressive liberalization of trade, to services.  As a result of decisions taken in the waning days of the Uruguay Round, the GATS has substantial application to legal services in many countries.[iii]

Under the GATS, the MFN principle automatically applies to all services except those as to which a WTO Member has set out in its schedule of commitments a specific exemption from the MFN requirement.[iv]  In addition, through the process of multilateral negotiations, Members also make specific “sectoral” commitments regarding market access for service providers of the other Members, which they undertake to honor.[v]  Having made such commitments, Members are obligated to accord to service providers of other Members “national treatment,” i.e. treatment no less favorable than that accorded to their own service providers, except as otherwise specified in their schedules of commitments.  They must also administer their domestic regulations in a reasonable, objective and impartial manner and may not use such regulations, including those requiring professional qualifications, to create disguised barriers to trade in services.  Finally, all WTO Members are obligated under the GATS to participate in further negotiations regarding progressive liberalization of trade in services.

Article VI of the GATS deals with domestic regulation of trade in services.  Article VI (1) provides that, in sectors where specific commitments are undertaken, each Member shall ensure that all measures affecting trade in services are administered in a reasonable, objective and impartial manner. Article VI (4) calls upon the Council for Trade in Services (the “Council”) of the WTO to develop disciplines to ensure that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services and that, in particular, such measures are (i) based on objective and transparent criteria, such as competence and the ability to supply the service; (ii) not more burdensome than necessary to ensure the quality of the service; and (iii) in the case of licensing procedures, not in themselves a restriction on the supply of the service.  Once promulgated, disciplines have the force of law in the WTO Member states.  Pending the development of such disciplines, the Members are prohibited from applying licensing and qualification requirements that nullify or impair specific commitments they have made.  In determining whether a Member is in conformity with these obligations, account is to be taken of “international standards of relevant international organizations.”

In 1998, the Council developed a set of Disciplines for the Accountancy Profession that would apply to all Members.[vi]  The thrust of those disciplines is evident from its “General Provisions”, which state as follows:

Members shall ensure that measures not subject to scheduling under Articles XVI or XVII of the GATS, relating to licensing requirements and procedures, technical standards and qualification requirements and procedures are not prepared, adopted or applied with a view to or with the effect of creating unnecessary barriers to trade in accountancy services.  For this purpose, Members shall ensure that such measures are not more trade-restrictive than necessary to fulfil a legitimate objective.  Legitimate objectives are, inter alia, the protection of consumers (which includes all users of accounting services and the public generally), the quality of the service, professional competence, and the integrity of the profession.[vii]

Since adopting the Accountancy Disciplines, the Counsel has sought the views of national and international lawyers’ organizations as to the applicability of those disciplines to the legal profession.  The International Bar Association (“IBA”) has recently provided its comments, most of which were designed to highlight the particular role of the legal profession in democratic societies based on the rule of law and the importance of protecting the core values of the profession, including independence, confidentiality and the avoidance of conflicts of interest.[viii]

Article VII of the GATS concerns recognition of professional qualifications. Article VII (1) provides that a Member may, in connection with the authorization, licensing or certification of services suppliers, recognize the education or experience obtained, requirements met, or licenses or certifications granted in a particular country and that such recognition may be based upon an agreement with that country or accorded autonomously.  Article VII (3) provides that a Member shall not accord recognition in a manner which would constitute a means of discrimination between countries in the application of its standards or criteria for the authorization, licensing or certification of services suppliers or a disguised restriction on trade in services.  Finally, Article VII (5) provides that, wherever appropriate, recognition should be based on multilaterally agreed criteria and that, in appropriate cases, Members shall work in cooperation with “relevant intergovernmental and non-governmental organizations” towards the establishment and adoption of common international standards and criteria for recognition.

In 2001, the IBA adopted and communicated to the WTO its views regarding the standards and criteria that could appropriately be applied by Members in determining whether and under what conditions to recognize the qualifications of professionals of other Members.  Again, the emphasis was on ensuring that, in using this approach, Members would be permitted to make distinctions based upon such factors as the quality of home country regulation and discipline, character and fitness for the practice of law, education and/or practical training (including such elements as level and duration of legal education, the extent and quality of practical training, and the degree of similarity in the legal systems of the home and host jurisdiction) and experience in the practice of law.  Subject to these considerations, the IBA resolution endorsed the use of mutual recognition agreements as well as the process of progressive liberalization:

In advancing these recommendations, the IBA does not intend to detract from the process of continuing negotiation of further market access commitments regarding legal services within the framework of GATS 2000.  Mutual recognition agreements are no substitute for progressive liberalization, on a most-favored-nation basis, of domestic regulations that continue to create undue barriers to cross-border and established provision of legal services. However, the IBA believes that a clarification of the standards and criteria that may be applied, without violating the relevant provisions of the GATS, in the recognition of professional qualifications will encourage Members to liberalize beyond the limits of their binding commitments, present and future, if and to the extent they deem prudent in light of the important differentiating factors in the respective legal systems and professions of other Members. This voluntary liberalization can serve as a valuable complement to, and in the longer term will help to accelerate, the process of liberalization through further market access commitments.

The GATS deals with international trade in services in a manner that seems somewhat strange to most lawyers because it does not correspond to the way in which our profession is generally regulated.  The schedules of commitments agreed to by Members in the negotiating process are required to deal with market access for services delivered in four distinct ways, or modes:  Mode 1, cross-border supply, consists of the provision of services cross-border into the territory of a Member by a non-resident of that Member, for example by mail, facsimile, telephone or e-mail.  Mode 2, consumption abroad, is the provision of services to a Member’s residents outside the territory of that Member.  Mode 3, commercial presence, involves the establishment by a foreign service supplier of an office, branch, agency or subsidiary within the territory of the Member.  Mode 4, the presence of natural persons, refers to the entry and temporary stay within the Member’s territory of foreign individuals providing services. 

It comes as a bit of a surprise to most lawyers that there could be any question about the permissibility of the provision of legal services under any of Modes 1, 2 and (perhaps to a lesser extent) 4 because the legal profession has generally been regulated on a territorial basis with emphasis on the locus of a permanent place of business.  Accordingly, nearly all the debate within the legal profession on the issue of liberalization or globalization has focused on the established practice referred to in Mode 3.  The reasons for this are easy to discern: first, lawyers have generally been regulated on this basis; and second, when a lawyer has a physical establishment in a jurisdiction it is much more likely that the lawyer will be accessible to local residents and will wind up, at least to some extent, advising on matters of local law, triggering concerns about consumer protection and competition with local lawyers.

With respect to sectors in which a WTO Member has scheduled commitments, the GATS generally prohibits, under the requirement of “national treatment”, measures affecting the supply of services by which that Member accords to services and service suppliers of any other Member treatment less favorable than that it accords to its own like services and service suppliers.  However, most of the barriers to the provision of established legal services by foreign lawyers are not discriminatory measures based on nationality but rather are non-discriminatory in nature. In fact, there are two principal barriers to established practice that are the consequence of non-discriminatory regulations and procedures.  These may be described for convenience as the “qualification barrier” and the “association barrier”.

The “qualification barrier” refers, of course, to the obstacle to the cross-border provision of legal services that results from the education and examination requirements generally imposed as a condition to admission to the practice of law, even by persons who have already qualified in another country. The qualification barrier has been substantially reduced in some countries that have taken unilateral measures to facilitate the admission of foreign lawyers as fully-qualified members of their domestic legal professions. In the United States, certain commercially-important States, such as New York, have made it relatively easy for lawyers qualified in other countries to become full members of the host State bar, and many foreign lawyers, including substantial numbers from the Asia-Pacific region, have become members of the New York bar in this way. Under European Union rules, EU member states are required to permit lawyers qualified in other EU member states to qualify locally upon completion of a period of adaptation or a limited examination designed to deal with the differences between the legal systems of the two member states.[ix] Some of the countries of the former British Commonwealth mutually recognize the qualifications of members of their respective legal professions. England and certain other common-law jurisdictions, notably including Hong Kong, offer foreign lawyers the possibility of full qualification based on a “transfer exam”.[x]

With the limited exceptions described above, however, the vast majority of countries generally do not permit a foreign lawyer to qualify as a member of the local legal profession without completing the same educational requirements as someone with no prior education or training. The length of the full-time educational requirement imposed in most countries renders it impractical for most practicing lawyers to interrupt their careers long enough to qualify in another country. This very seriously impairs the mobility of the legal profession, which is vital to its adaptation to the conditions of globalization.

In this connection it should be noted that there have been essentially two schools of thought regarding the basis on which foreign-qualified lawyers should be permitted to establish a presence in a host jurisdiction.  They have been succinctly described by the WTO Secretariat, referring to another resolution of the IBA:

At its meeting of 6 June 1998, the IBA Council adopted General Principles for the Establishment and Regulation of Foreign Lawyers and encouraged their adoption by its institutional members or, for those members who have no regulatory powers, by the competent authorities in the respective jurisdictions. Recognising that, while certain principles should be common to all regulatory regimes, alternative approaches to the establishment and regulation of foreign lawyers should be permissible, the IBA has identified two main approaches for the establishment of foreign lawyers: (a) full licensing approach; and (b) limited licensing approach.[xi]

The issue concerning the practice of local law with which we are concerned here obviously does not arise under the first, “full licensing” approach, in which the foreign lawyers so licensed are fully assimilated into the domestic legal profession.  However, as noted by the WTO Secretariat, the sensitive issue in this approach is the extent to which the qualifications for such licensure (i) give due consideration to the foreign lawyer’s earlier training and experience in the home jurisdiction or elsewhere and (ii) are no more burdensome than necessary to satisfy a public policy objective such as consumer protection or public confidence in the profession.

In the “limited licensing” approach, on the other hand, the scope of a foreign lawyer’s practice is restricted. This is perhaps the most difficult and controversial aspect of the limited licensing concept. Some jurisdictions in the United States and elsewhere have adopted rules that limit the practice of the foreign lawyer to advice on the law of his or her home country.  This is a faulty approach for several reasons, the most important of which is that it does not correspond to the way in which lawyers actually work. Lawyers advise, not on pure questions of law as such, but on transactions, disputes and relationships, all of which may be affected in one way or another by the interaction of two, three or even more legal systems. Frequently the question of which law or laws apply is itself one of the main issues, to which there may be conflicting answers depending on the forum or fora in which the matter arises.

The approach taken in the ABA Model Rule on the Licensing of Foreign Legal Consultants[xii] is the only one I believe to be workable or likely to be respected in practice.  It permits a foreign lawyer to advise on any matter as to which he or she is consulted, subject only to the requirement that any advice concerning matters of United States State or Federal law be based on the advice of a lawyer fully licensed to give such advice in the relevant jurisdiction. This, together with requirements that the foreign lawyer not hold himself or herself out as a member of the host country legal profession, affords ample protection to the public against being misled without creating rigid rules with which lawyers cannot, as a practical matter, comply. Of course, the foregoing is subject to the overarching principle, common to all codes of professional responsibility, that a lawyer must not advise on any matter as to which he or she is not competent, as well as to the ultimate sanction of professional liability.

The second principal barrier, the “association barrier” is the prohibition found in many countries against the entry by lawyers of that country into partnership or other forms of common enterprise with anyone other than another lawyer of that country. This barrier results from an unduly strict application of the rule, common to most codes of professional conduct, that a lawyer must not share fee income with another person who is not a lawyer.[xiii]  Based on a tautological construction that excludes foreign-qualified lawyers from the definition of a “lawyer,” this principle in effect prevents the formation of multinational firms in many countries.

The assocation barrier does not exist in the United States, where foreign lawyers, whether or not licensed as foreign legal consultants, are recognized as “lawyers” for these purposes.[xiv] Similarly, the Australian and Canadian legal professions have recognized that foreign lawyers registered as such should be permitted to form partnerships with domestic lawyers.[xv] And significantly, the Japanese Special Law on the Licensing of Foreign Lawyers, which until recently has permitted association of bengoshi with foreign lawyers only in the context of a form of joint enterprise between separate firms, has now been amended to permit their full integration into a single firm.[xvi] However, the widespread existence of prohibitions on this kind of association elsewhere in the world is a major obstacle to the formation of multinational partnerships, which in the final analysis and in the long term offer the best overall solution to the problems posed by the qualification barrier.

We need to recognize that governments are increasingly skeptical as to the need for many of the various regulatory restrictions that affect the provision of legal services from one country to another.  Trade negotiators tend to disregard as “special pleading” the claims of the profession to special consideration based on its unique role in the preservation of the rule of law as the mainstay of democratic societies. As the IBA Council has recognized in its unanimous resolutions mentioned above, it is up to the legal profession itself to find ways of adapting to the needs of a globalized society in ways that protect and preserve our shared core values.  If we do not do so, governments will, eventually and inevitably, take the matter into their own hands.  It is highly doubtful that we will be happy with the results.