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Globalisation strikes lawyers

June 13, 2012

FMT LETTER: From M Saravanabavan, via e-mail

Lawyers have been described as vultures descending on airplane accidents. Sir Thomas More viewed Utopia as a place without lawyers. Lawyers have always had a difficult time being appreciated and the truth is, most of the times, it is because of a few rotten apples in the profession. However, with the entry of Gen Y lawyers, positive transformation within the profession is visible, more so to come in this era of globalisation.

The Legal Profession (Amendment) Bill 2012, will bring inevitable changes to the landscape of the legal profession in Malaysia.Whether these changes are desirable or not is subject to debate. Under the Bill, a foreign firm can practice in Malaysia if certain conditions are met. If that is the case, one must wonder, what are the impacts of liberalisation on local lawyers?

To answer the above, let us first understand what is meant by liberalisation and the provision of legal services. To liberalise a market is to progressively remove barriers in the form of rules or regulations that restrict the movements of the services.

It is widely believed that liberalisation have multiple benefits to a country’s economy. According to the World Trade Organisation in ‘Six Benefits of Services Liberalisation’, the competition fostered at the international level creates an impetus for development of economic infrastructure within the nation, access to the international market of world-class services improves the scope for innovation while foreign investment helps the domestic market to grow. All this ultimately results in lowering of prices and improvement of the services available to the consumer, as well as an increase in job opportunities. In Malaysia, this aim is furthered with the coming into force of the Competition Act 2010.

What is meant by legal services? Legal services would include advisory and representation services as well as all the activities relating to the administration of justice. Sahu & Sen in their 2007 paper ‘Need for Foreign legal consultants in India with respect to honour GATS’ acknowledge that the growth of international trade through liberalisation has thrown open new vistas of possibility for the legal profession, particularly in the field of business or corporate law.

Sectors such as corporate restructuring, privatisation, cross-border mergers and acquisitions, intellectual property rights, new financial instruments and competition law have generated an increasing demand for more and more sophisticated internationalised legal services in the past years.  Hence the thought that it is time that liberalisation should be gradually permitted in the legal sector in Malaysia.

The development in China might be the inspiration for Malaysia’s move to introduce the Legal Profession Bill. According to the National Bureau of Statistics of China,  when China liberalised its legal services sector, by the end of 2001, 104 foreign law firms had established representative offices in China and became part of the US$47 billion foreign direct investment (FDI) that flowed into the country in 2001 with the total trade value being US$510 billion.  Therefore, the claims that liberalisation of legal services will strengthen trade and investment flows into the country are not entirely without merit.

Having looked from an economic perspective, let us look at the Bill from a legal perspective. The Legal Profession Bill states that only foreign firms which are licensed would be able to operate in Malaysia. This rule will serve as a precautionary measure because complete opening up of the legal market will have an effect on both the Malaysian market itself and its local lawyers.

If the opening up is only partial, the impact is limited as the foreign lawyers would not be in direct competition with local lawyers. Foreign lawyers would be limited to offering legal services involving the law of the country from which he or she obtained the licence. This would mean that under this limited licensing approach, the scope of practice is limited to advice on home country law, excluding all court work, host country law and law of any other jurisdiction where the foreign lawyer is not qualified and licensed.This may perhaps be the preferable approach keeping in mind both the interests of the Malaysian local lawyers, as well as the need to conform with growing needs of globalisation.

However, if full licensing approach is adopted, there will be significant repercussions. Foreign lawyers will be integrated as full members of local profession with no restriction on the scope of practice, provided they fulfill certain basic conditions stipulated by the Malaysian Bar Council.  Such complete opening up would involve the possibility of foreign law firms employing local lawyers and, hence, dealing with local legal matters. In order to survive this direct competition, the local law firms especially small firms would need to merge with these foreign multi services firms and the larger firms would face fierce competition for their share of the legal services market.

What about other countries which have liberalised their legal services? Germany and Japan are two countries which have opened their legal services market. Germany completely opened up its markets in 1998. The sudden opening of markets caused uproar in the legal services market and led to the inevitable death of small firms. The majority of the local law firms were either wound up or absorbed by British or American law firms.

In contrast to Germany, Japan did not completely open its market until 17 years later. A progressive approach was adopted over 17 years, starting in 1986 and completing in 2003. South Korea also followed the progressive method in opening up its legal services market through three phases within 5 years. The first phase was to establish the representative foreign legal firms in the country followed by the second and third phase which would focus on the partnership and collaboration between Korean and foreign law firms.

Choi & Cho in their 2010 paper “Liberalisation of the legal market in South Korea” observed that this regulated progressiveness reduced the impact of a complete opening up. It allowed local lawyers to prepare themselves for the arrival of foreign lawyers by improving their competitiveness and also enabled the market structure for legal services to be intact.

Certainly, it will be wise for Malaysia to opt for a progressive opening up over a certain number of years following the examples of Japan and South Korea. It is very important that Malaysia to follow this route so that the impact of liberalisation will not affect the market structure for legal services abruptly. No doubt significant changes will take place over time such as the composition of the relative legal market and the type of firm that lawyers will wish to join. Small firms may find it difficult to sustain their existing clientele in the presence of foreign multi services firms and existing large firms will be faced with the sudden stiff competition for their share of the market for services.

Therefore, it goes without saying that this present situation must be dealt with a visionary and proactive eye. The transition must be smooth with an element of protectionism to enable our local lawyers to withstand the impact of liberalisation.

The writer is an advocate & solicitor


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