22 May 2006
The Middle East is firmly back on the map for expansion-minded international law firms. The region's oil and gas-fuelled economic revolution is creating new wealth and extra liquidity at an intense pace. These new funds in search of a home come at a politically charged time. Concerns over investing in the US mean that more money is being recycled back into the Middle Eastern economies. Add to this the pressures of rapid population growth and the result is unprecedented levels of investment in property, infrastructure and other sectors across the Middle East region.
UK and US law firms hoping to break in to this market are finding that it is one that has already been colonised unevenly by US and UK firms and one that similarly has an uneven welcome for foreign firms.
The dominance of UK and, to a lesser extent, US firms within the Middle East is strongest within those countries that do not have a long-established local bar. In Jordan and Egypt local firms still make up much of the commercial market, while in the Arabian Gulf Cooperation Council (GCC) states it is firms originally from London or New York that pick up the biggest, most complex instructions.
The establishment of local bars within the GCC has lagged far behind the overall pace of economic development. The absence of formal training courses in local commercial law resulting in a recognised qualification, together with the preponderance of English language documentation, has historically left the field open to Western firms. However, times are changing. As Western law firms swarm to the honey pot of Dubai, the local bars are developing. The tension between the new local bars, with their desire to impose a more formal regulatory structure for their own legal profession, and those espousing free trade in legal services, is beginning to be felt.
The means of establishment
There remain considerable difficulties in establishing and maintaining a legal business in the region and the regulation is becoming more complex. Even in the relatively straightforward commercial market of Dubai, the permission needed to open a law firm is still a matter of discretion. Dubai is now so overlawyered that it is easy to imagine a point at which the ladder might be pulled up.
There is a similar discretion in Abu Dhabi where, in addition, a local sponsor is required. In neither place can Western lawyers go to court, but they can still opine on local law.
Qatar's gas-fuelled dash for development has recently driven a liberalising change, allowing foreign firms to open in their own right without a local partner or sponsor. Qatar does not have the population pressures apparent elsewhere and is building its reputation on the back of its role as the host of the Doha round of World Trade Organisation (WTO) negotiations. Saudi Arabia and Kuwait remain examples of places where only a national of the state may open a law office and may not do so in the name of a foreign firm.
Local institutions are undertaking cross-border work and want their lawyers close by. Western firms have found ways of doing business right across the region, but have often done so without the sort of local presence that, for example, the accountancy profession has been able to achieve. Nevertheless, licences are typically granted on an annual basis, making the life of a Western law firm in the Gulf a potentially precarious existence.
WTO to the rescue?
After more than 10 years of negotiations, in November 2005 Saudi Arabia's accession to the WTO took place, signalling a commitment to economic reform and acceptance of the principles of free trade.
The accession of Saudi Arabia, the dominant economy within the Middle East region, is of considerable importance as an indicator of the direction intended by the region's governments. It does not mean that protectionism is dead, or that obstacles to investment have been, or will shortly be, swept away. Before we celebrate the wind of change, let us remember that Egypt, Bahrain and Kuwait have been members of the WTO since 1995, and Qatar and the United Arab Emirates (UAE) since 1996. Over the past 10 years foreign firms have been less than exhilarated about the progress made in dismantling protectionist restrictions in those jurisdictions. On the basis of that track record, it is questionable whether, by 2016, conducting business in Saudi Arabia will, for a foreign lawyer, be any easier at all.
When a state joins the WTO it enters into an agreement to accept certain principles. It also commits to a specific schedule of commitments in a negotiated list of business sectors. There is no standard list; each state negotiates its own deal. Despite the importance of the legal profession in the UK and the US, legal services still do not rank highly on the negotiators' lists. Few commitments have been extracted in respect of legal services worldwide and most members of the WTO continue to restrict the activities of foreign lawyers in their jurisdictions.
The Law Society
If the WTO has been an ineffective tool in opening up the legal services market, then what is the track record of the Law Society of England and Wales, which has an even more direct interest in the liberalisation of legal services?
Through the European Commission, the Law Society has lobbied members of the WTO to liberalise the provision of legal services to allow foreign lawyers to establish themselves in the jurisdiction of their choice, practise foreign and local law under their own name, be entitled to employ and enter into partnerships with local lawyers, and that there be no prior practice requirement (no minimum number of years post-qualification).
So far the Law Society's lobbying in the Middle East has remained ineffective. Foreign law firms that want to practise successfully in the Middle East region will have to do so by going out and creating their own regulatory opportunities rather than being able to rely on the lobbying or influence of the Law Society or the UK Government. Similarly, firms in the Middle East know that their ability to keep practising hangs by a thread, with the support of the Law Society counting for little in political terms.
It remains to be seen whether the firms coming to the Middle East region now will succeed in spreading their footprints wider, or indeed whether they will be allowed to do so by the regulators. The prospects in the wider region are enticing, but the obstacles are not to be underestimated.
Martin Amison is head of international business at Trowers & Hamlins