[Viewpoint] Demolishing a hidden trade barrier

The pending free trade agreement between Korea and the United States will reduce costs for locally based operations, regardless of their size, in at least one unexpected way.

At risk is Korea’s protected law office oligarchy that has cultivated systemic client exploitation in ways not tolerated in truly free markets.

Both domestic and foreign lawyers have fostered the myth that doing business in Korea is not only challenging but is also necessarily - though exasperatingly - expensive. While the first half of this old saw is undoubtedly true, Seoul’s legal establishment cynically propagates the second half. In effect, Korea’s legal profession has created a hidden trade barrier that the Korus FTA must dismantle.

Consider the law office realities that most American and other businesses face in Korea today.

First off, the practice of assigning an excessive number of attorneys to a case is common at Korean law firms. Often you’ll see three, four or even more attorneys attend a single meeting. While at least one attorney is reliably competent, often the others sit like bumps on a log, saying nothing. In many instances, the reason they do not participate is because their conversational English prevents them from adequately following the course of the discussions, though their legal skills may be beyond reproach. Nonetheless, foreign clients get billed for their participation.

Secondly, foreign business professionals are often the victims of bait and switch tactics where established firms with blue chip credentials introduce prospective clients to their best known attorneys, including previous government ministers, former senior prosecutors and retired prominent judges. Having such luminaries on the payroll, the thinking goes, will justify the large bill the clients can expect to receive since such political muscle is, purportedly, absolutely necessary to open doors and win special favors.

The reality, however, is markedly different. Law firm luminaries almost always emanate from the Korean establishment. They want to keep their membership in the old-boy network. For that reason, they are often very hesitant to rock the boat or aggressively assert their potential leverage for a single client’s needs - particularly if the client is viewed as a “small fish.” In Korea, a small fish usually means everything other than the large Korean conglomerates, also known as jaebeol. Instead, the real work is assigned to squads of junior attorneys, who generate copious memoranda and participate in endless meetings among themselves or with whomever. The strategy of picking up the phone and solving everything with one phone call may be successful, but that is the exception - and usually only when the issue is relatively small, manageable and not controversial.

All of which brings us to everyone’s legitimate gripe about Korea’s legal services: excessive billing has little relation to client value. Again, while Korea’s hourly billing rates are reliably fair, most legal matters are solved by lesser-known attorneys, not with the political clout advertised. The large bills are not the results of star attorneys’ political pull. The big invoices are usually based on legions of regular attorneys working behind the scenes generating memoranda and correspondence, with the primary goal of generating billable hours rather than delivering results. To make matters worse, too often the written work product is so ambiguous as to be commercially worthless, yet painfully expensive.

Meanwhile, high legal fees are now considered part of the lay of the land by both newly arrived executives and “old Korea hands.” The myth is perpetuated during phone conversations, over beers and around tables at foreign chambers of commerce meetings. Some seasoned business professionals in Korea have learned that hiring the right attorney is more important than signing with the right law firm. Most expatriate executives, however, are constrained. Either there is a lack of visible competition in Korea’s law firm establishment, and/or the governing in-house corporate counsel is located outside of the country and is therefore unfamiliar with actual local conditions and alternatives.

Today, a few Korean attorneys - found in second- and third-tier law firms - are bucking traditional methods. However, only with the FTA’s ratification will big-name American law firms enter Korea and precipitate badly needed reform.

The FTA will allow U.S. law firms to establish representative Korea offices, permitting U.S.-licensed lawyers to provide legal services related to their own American jurisdictions and on public international law. Within two years after the FTA is enacted, it will allow U.S. law firms to conclude cooperative agreements with Korean law firms to jointly deal with cases involving both domestic and foreign legal affairs. The FTA will also let them establish joint venture firms with Korean lawyers no later than five years after the agreement goes into effect.

Ultimately, the Korean legal oligarchy must give way to 21st century law firm practices. The Korus FTA’s ratification and implementation will escalate this evolution in ways that will benefit both local and foreign companies. However, until the FTA is ratified, Korean and American firms will continue to pay excessively for legal services, thereby perpetuating the Korean myth that coddles this hidden trade barrier. Korea need not be an unnecessarily expensive place to do business. Ratification and implementation of the Korus FTA is an overdue step in the right direction.

*The writer is president of Soft Landing Consulting and senior commercial adviser to Joowon Attorneys at Law in Seoul.

by Tom Coyner