The Limited Opening of the Korean Legal Market- A Number of Missed Opportunities

Until recently, Korean lawyers were not adequately trained to compete outside of the Korean legal market with lawyers from the US, Hong Kong or Singapore. Korean legal education was more focused on domestic legal theory than international practice even though Korea is an export driven economy.

Originally published in the April issue of Value Chain.

With the liberalization of the legal market in Korea, and the growing competition from ethnic Korean lawyers trained in the US and elsewhere Korean law schools have taken steps to educate internationally focused lawyers. Young Korean lawyers are becoming more bilingual than ever before and are becoming more and more business savvy. Also, more foreign law professors are teaching at Korean law schools. The threat of competition from Singapore and Hong Kong has pushed young Korean lawyers to become more creative in how they address legal problems and how they resolve complex legal issues.

With foreign clients expecting more from Korean lawyers than in the past the new generation of Korean lawyers must be willing to rise to the challenge and prove how skilled they are. Even so, what many agree upon is that young Korean lawyers will lose out if they are not able to work for and be trained by the top international law firms. The multinational law firms, by virtue of their presence in Hong Kong and Singapore guarantee that local Singaporean and Hong Kong lawyers will receive excellent international legal training during the beginning of their careers. When the liberalization of the Korean legal market began several years ago, the thought among many legal scholars was that the opening of the legal market would lead to more Korean lawyers working for and receiving training from large international law firms and would thus be better prepared to compete against lawyers from other jurisdictions such as Hong Kong or Singapore.

Though young Korean lawyers are more internationally focused in the past, the main question facing Korea when it comes to Korea’s legal system and legal market is whether liberalization of the legal market in Korea will; actually work. Has Korea in fact opened its legal market as promised and are the major international law firms rushing in to take advantage of the robust domestic legal market place? In essence, what is the impact of the current status of market liberalization in Korea and how does that impact the current crop of new Korean lawyers?

Korea is the last major country in Asia to open up its legal market to international firms. Japan opened up in 1987 (some would say it was not successful), China opened up in 1992 and Korea started the liberalization process in 2011 with the execution of the FTA with the EU followed by the FTA with the US in March of 2012. The liberalization under the FTAs between Korean and EU and the US meant that Korea would open up the legal market in 3 stages: The first stage allowed foreign law firms to establish their representative offices in Korea; the second stage allowed foreign law firms to collaborate with Korean law firms; and the third stage allows for foreign law firms to establish a joint office with Korean law firms and hire Korean licensed attorneys to handle domestic legal work.

The Korea- US FTA provides in part:

“No later than five years after the date of this Agreement enters into force, Korean shall allow U.S. law firms to establish, subject to certain requirements consistent with this Agreement, joint venture firms with Korean law firms. Korea may impose restrictions on the proportion of voting shares or equity interests of the joint venture firms. For greater certainty, such joint ventures may, subject to certain requirements, employ Korean-licensed lawyers as partners or associates.”

The problem with the liberalization was in fact the amendment to the Foreign Legal Consultant Act) FLCA) which was intended to implement the FTA with the UK and the US. On February 4, 2016, the Korean National Assembly passed the Amendment to the FLCA which provides that in order for a foreign firm to have a JV with a Korean firm, the maximum ownership a foreign firm could have in the JV is 49%. It also provided that the headquarters of the foreign joint venture partner firm would be solely and unlimitedly responsible for the JV. Also, the number of senior Korean lawyers must exceed the number of senior foreign legal consultants.

On March 15, 2017, pursuant to the FTA between the US and Korea, US firms that opened offices in Korea are able to establish a joint office with a Korean firm and hire Korean licensed lawyers. However, for the reasons listed above, which are outside of the norm in many jurisdictions, US firms and EU firms have refused to engage in JVs with Korean domestic law firms. Most of the foreign firms in Korea are still operating in the Phase 1 format where they have established a representative office and have foreign licensed attorneys practicing law of their home jurisdictionprimarily the US or the EU. But at this moment, JVs are out.

To date, 27 international firms have branch offices in Korea, while none have JVs with Korean law firms. Therefore, while there are approximately 2000 foreign lawyers working in Korea, most are working for Korean law firms; with 90% of the foreign lawyers US qualified. The vast majority of Korean licensed lawyers are working for Korean law firms or are in house, with very few working for the multinational law firms as they would also have to be licensed in the US or Europe.

The Korean legal market pie is small relative to the US and Britain, but still sizeable which has led to many international firms opening up offices in Korea. The increase in legal fees for the inbound Korean market is staggering. Inbound legal fees have increased from $682,400,000 in 2011 to $820,700,000 in 2014. Likewise, the outbound legal market has also grown. In 2011 the outbound legal fees for Korea was $1,183,600,000. In 2014, it was $1,438,500,000. The inbound, outbound and domestic legal fees market in 2014 was estimated to be $5.2 Billion US.

A very attractive market. All have thought the time was right for a complete opening of the Korean legal market. But as I have pointed out, that is not the case.

It now appears the Korean legal market will not fully open, and will continue to have some protectionist measures built in to protect Korean law firms. This may have a negative impact down the road. If Korean firms had to compete with international firms, Korean firms would be forced to become more competitive. Korean lawyers would be able to work for the international firms located in Korea and your Korean lawyers would receive training from the international firms. However, as long as the market prevents international firms from establishing JVs with Korean firms, or from acquiring Korean law firms (such as the midsize or small firms), Korean firms don’t have to compete on the scale needed to become more competitive. Nor will Korean licensed lawyers work at the international firms anytime soon.

The failure of the legal market to fully open will lead to several lost opportunities. Namely:

1. The lost opportunity of having international firms introduce highquality legal counsel skills and thereby improving local legal services;

2. The lost opportunity of Korea’s small and medium sized law firms to establish relationships with international firms and gaining a competitive edge in the Korean legal market;

3. The lost opportunity of having more legal jobs created in Korea by virtue of the large international firms hiring more domestic Korean lawyers; and

4. The lost opportunity of having young Korean lawyers receiving high-quality international legal training that those in other jurisdictions such as Hong Kong and Singapore receive.

It is hoped that Korea one day fully opens up the legal market in Korea. Until that day happens, Korea’s legal market and therefore its economy will suffer from lost or missed opportunities. It is time for Korea to open up its legal market and to embrace the benefits it gains from a robust domestic/outbound/inbound legal market that has domestic and international law firms competing against each other in the market place.

Bryan Hopkins

Bryan Hopkins is a Special Counsel to Lee & Ko in Seoul, Korea. Formal law professor at Sejong University and former General Counsel at Samsung Electronics America. He has extensive experience in management of complex commercial litigation, compliance, eDiscovery and risk management.


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