The Korea-EU free trade agreement has taken effect, and European law firms are now able to establish offices onshore. But with the Korea-US free trade agreement still awaiting ratification, what does this head start mean for the South Korea aspirations of US firms?

After years of negotiations and planning, liberalisation of South Korea’s domestic legal market has begun. The European Parliament ratified the Korea-EU free trade agreement in February this year, and since 1 July, European firms have been able to establish branch offices in Korea in accordance with the Foreign Legal Consultant Act.

Liberalisation of Korea’s legal services sector will occur by way of a five year, three-stage process. The first phase allows European law firms to open offices in Korea but restricts the provision of legal advice to foreign law matters. Two years later, in July 2013, this will be expanded to allow foreign firms to forge alliances with their domestic counterparts, and enable European firms to advise on matters involving both Korean and foreign legal issues. July 2016 will see the completion of the liberalisation process, whereby international firms can hire Korean lawyers and even merge with domestic firms.

Meanwhile, the Korea-US free trade agreement that was signed in June 2007 languishes. Neither party has ratified the treaty, and it is uncertain when US firms will be able to set up office in Seoul. Many American firms are ready to move into South Korea, and have been for some time, but are now enduring a frustrating wait for the opportunity to do so. US firms such as Cleary Gottlieb Steen & Hamilton, DLA Piper, Paul Hastings Janofsky & Walker, and Simpson Thacher & Bartlett must wait on the sidelines, while their European counterparts, predominantly UK firms, look set to enjoy a head start on their Korea aspirations. The question is whether this head start will prove a disadvantage to the US firms eyeing Seoul.

Jinduk Han, partner at Cleary Gottlieb Steen & Hamilton in Hong Kong, doubts that European firms will enjoy a significant advantage: “It’s a bit hard to say. If ratification happens this year, I think there is really no effect.” However, if the Korea-US free trade agreement was still awaiting ratification after more than a year, the prospects of US firms would surely be less certain. It is possible that clients would not be willing to bear the high costs associated with the fly-in fly-out model if other international firms are on the ground in Seoul. But Han remains optimistic, hypothesising that in the event that the Korea-US FTA had still not been ratified after a lengthy period of time, “the Korean government could unilaterally open up the legal market.”

Ben Hughes, a foreign lawyer working at Korean firm Shin & Kim doubts that EU firms will gain a significant benefit from their head start into Korea. “I don’t think that advantage should be too exaggerated,” says Hughes, explaining that many US firms have run Korea practices offshore from offices in Hong Kong and Tokyo for years, in some cases decades. These same firms have been waiting and preparing for liberalisation of Korea’s legal market for a long time. “When they hit the ground they’re going to hit the ground running,” he says. In addition, the opportunity to observe how their UK counterparts enter Korea could prove advantageous for US firms. “Taking a wait and see attitude is not a mistake,” says Hughes, adding that less prepared firms that need to build up their Korea practice on entry into the market would likely be the only US firms disadvantaged by the Europeans’ head start.

While timing may pose an issue for US firms, their European counterparts face a different challenge. The Foreign Legal Consultant Act requires foreign lawyers to have spent a minimum period practicing the law of their home jurisdiction, and that home jurisdiction must have a free trade agreement with Korea. “If you look at the Korean speaking lawyers at UK firms there are very few UK qualified lawyers. From that perspective they will still have to go back and forth [from Korea] like we do,” says Han. Given the limited pool of candidates that UK firms are able to draw from, many may not have a team that meets the requirements for entry into the Korean market. By contrast, America’s larger Korean population may mean US firms will have an advantage sourcing talent for their move on Seoul. 

Korea’s domestic firms can expect numerous changes over the coming year, and a “sky is falling” view of liberalisation has not been uncommon. But while international firms are scouting out office space in Seoul and headhunting senior foreign lawyers working in Korean firms, the five year phase-in approach to liberalisation is conducive to more gradual changes to the industry. Hughes believes the move into Seoul will be more organic: “I’ve always thought there would not be a stampede into the Korean market when it opened.”

While change will occur slowly, Korean firms can expect to alter the way they operate. “The Korean firms are going to find themselves competing in a global legal market,” says Hughes, who adds that this will include competing for both foreign and Korean legal talent. Further down the line, some domestic firms may also be able to expect merger inquiries. When asked about the possibility of a DLA Piper merger in Korea, Tokyo-based partner Daniel Lee said: “we are considering various options. If other international firms consider such mergers, it is likely we will probably do the same if we can find a good partner firm with strong synergies and who is willing to embrace our values and global vision.”

Perhaps recognising the formidable international capabilities and connections of the foreign firms likely to enter the Korean legal market, Korean firms are also seeking to become more global in order to better service Korean clients looking at opportunities overseas and to connect with clients considering investment in Korean companies. Offshore, the most popular option for Korean firms appears to be China. Lee & Ko has an office in Beijing, while Shin & Kim and Bae Kim & Lee have a presence in both Beijing and Shanghai. In October last year, Shin & Kim became the first firm to launch a Korean practice in Latin America. Meanwhile, Yulchon, which opened its Beijing office in May this year and plans to establish itself in Shanghai within three to four years, also has offices in both Ho Chi Minh City and Hanoi. 

But the dramatic changes that many Korean firms expect are unlikely to occur: “foreign firms are not going to come in and open a 100 lawyer office… and foreign firms practicing Korean law is unlikely,” says Hughes. “Liberalisation is good for Korean clients, it’s good for the foreign clients, and ultimately good for the Korean firms.”