UK law firms are hesitant about moving into the recently liberalised South Korean market
The opening up of the legal sector in South Korea to UK and US firms follows the ratification of the Korea-EU Free Trade Agreement (FTA), known as Keufta, which came into effect on 1 July 2011, and the Korea-US FTA (Korus), ratified by the US on 12 October and by South Korea on 22 November 2011. Other FTAs in the pipeline include one with Australia.
Both Keufta and Korus contain a three-stage process for opening up the legal market, similar to that in the Korean Foreign Legal Consultants Act, enacted in 2009. The timing differences are now, in effect, academic as they apply to the date from which firms could apply to open a representative office, which for UK firms was 1 July 2011 and for US firms 7 March 2012. In practice, for both UK and US firms, the important second and third stages - ie being able to enter into cooperative agreements with Korean firms and invest in local law firms - will apply from July 2013 and June 2016 respectively.
A number of firms intend to open in Seoul, such as US firms Cleary Gottlieb Steen & Hamilton, Paul Hastings, Simpson Thacher & Bartlett, Ropes & Gray, McDermott Will & Emery and Sheppard Mullin. Timing, however, is another matter.
Clifford Chance, which announced it would open in Seoul by the end of 2011, is, at the time of writing, the only UK firm to apply for a licence to open a representative office. Other UK firms with Korean practices, such as Allen & Overy, have not yet decided to open. DLA Piper is considering its options, while Freshfields Bruckhaus Deringer has appointed a Korean practice head in Hong Kong and will continue to operate an offshore practice from there.
Why haven’t more UK firms started the process? The answer is simple. UK firms often staff their Korean practices with US-qualified lawyers who are ineligible under the Foreign Legal Consultants Act to represent them, and international firms with Korean practices often operate secondment arrangements with local firms. It may not make sense at this stage to upset a local relationship.
The Korean legal sector is relatively small and has indicated that liberalisation is a threat and safeguards are necessary. International entry is, however, a reality and local firms are considering how to operate more competitively, whether their ’best friends’ arrangements are the right fit and exploring local mergers.
While international firms will open in Seoul, for some this stage of liberalisation provides little benefit. The next stage is less than 18 months away and firms may, while applying now, open nearer that date. In the meantime, international firms with Korean practices will either have chosen a cooperation partner, be in discussion with likely candidates or be watching the local market for moves.
Firms with no Korean practice should be undertaking a cost-benefit analysis of opening, including the effect of competitor moves. A representative in Seoul may help to build contacts, as Koreans prefer doing business with people they know or who are introduced by a respected third party.