News/Articles Articles Globalisation and WTO Globalisation: Wisdom and Folly of Open Sesame - A Malaysian Perspective by Mah Weng Kwai 
| Globalisation: Wisdom and Folly of Open Sesame - A Malaysian Perspective by Mah Weng Kwai |
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| Thursday, 17 November 2005 05:00pm | |
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GLOBALISATION by ©Mah Weng Kwai I) Transnational legal practice – issues facing bar associations As a result of the internationalization of commercial activities, the movement of services across national borders has increased, along with the movement of capital, people and goods. According to the International Monetary Fund, business and professional services have been the fastest-growing sector of world trade from an export earnings perspective since the General Agreement on Trade in Services (GATS) was launched in 1995, with an average annual growth rate of 7.6%[1]. As a result of this so-called globalisation, which transcends national boundaries, business consumers increasingly require transnational legal services. Most of the demand for legal services come from businesses and organizations that are involved in international transactions. Globalisation also presents new opportunities, as well as relatively new areas of law such as corporate restructuring, privatization, cross border mergers and acquisitions, intellectual property rights, new financial instruments and competition laws. Consequently, the need for foreign lawyers to perform legal services in countries other than the country in which their qualification was obtained has also increased. Accordingly, the type of qualification to be recognized and activities that foreign lawyers are allowed to carry out have become important issues for bar associations across the world. II) Expectations of foreign lawyers Transnational lawyers have consistently advocated for easier market access. Foreign lawyers, in the main, seek the right to enter and establish commercial presence and the right to form voluntary commercial associations( either partnerships or joint ventures) [2] with local lawyers /law firms without any limitations such as quotas and locations. Generally, foreign lawyers want market access without the need to meet the requirements to practise host country law. As regards the type of work, foreign lawyers are generally interested in providing services concerned with commercial transactions and not ‘consumer’ services, such as family, matrimonial, estate and personal injury matters. International commercial arbitration is also an area of interest to the foreign lawyer. Foreign lawyers are generally not interested in obtaining the right of audience in the courts of the host jurisdiction. However, some may seek the right to practise host country law. III) Malaysia – a preferred location for foreign lawyers? In Malaysia, small and medium sized practices still dominate the legal profession. The overwhelming majority of lawyers deal in domestic legal matters. For the most part, entry of foreign lawyers will not affect the majority of lawyers in Malaysia. Only a relatively small number of lawyers who are involved in Tier 1[3] work may be affected if foreign lawyers are allowed to practise in Malaysia. A discussion on the pros and cons will be academic if foreign lawyers, for some reason or other, choose not to practise in Malaysia. If the situation in Singapore and Bangkok, where many foreign firms have pulled out or scaled back their operations (due partly to mature markets with limited opportunities), indicates a trend, then this may be a likely scenario. However, it is submitted that despite the reduced presence of foreign lawyers in our neighbouring countries, Malaysia will remain an attractive location for foreign lawyers for the following reasons :
IV) Allowing the admission of foreign lawyers in Malaysia The Bar Council has drafted a new Part IVA in the Legal Profession Act 1976 and ‘Joint Law Ventures and Registration of Foreign Lawyers Rules 2004’ to allow the admission of foreign lawyers ( hereinafter referred to as ‘ the proposed legislation’ ). A working group, comprising representatives from the Bar Council and the Attorney General’s Chambers has been formed to look into the proposed legislation. The question of whether to open the legal services market in Malaysia to foreign lawyers is no longer a point of contentious debate. It appears that it is now more a question of ‘when’ and ‘how’ we liberalise our legal profession. Sometime in July /August 2004, the Bar Council carried out a survey amongst the legal firms on the topic of liberalisation of legal services and the export readiness of legal firms in Malaysia. One of the questions asked in the survey was whether the Bar Council should allow foreign lawyers to practise in West Malaysia in limited areas of practice. A majority of the firms (that responded to the survey) agreed that foreign lawyers should be allowed to do so. As regards the time frame for liberalisation, the majority of the firms agreed that it should be gradual and it will always be limited to some areas of practice only. V) The extent of liberalisation in Malaysia Generally, there are 5 principal types of controls that a host jurisdiction may impose upon the services offered by foreign lawyers [4]:
It is generally accepted that in the case of developing nations, e.g Malaysia, liberalisation needs to be complemented by the setting up of an appropriate regulatory framework to ensure that public policy objectives, e.g. the protection of consumers, are safeguarded.[5] It is submitted that it is entirely appropriate for the Bar Council to formulate regulations to govern the admission of foreign lawyers in a manner that will ensure not only consumer protection[6] but the protection of the domestic legal profession. It is submitted that the legal profession in Malaysia is a fledgling profession that merits protection while it develops the capacity required to face international competition.[7] An appropriate regulatory framework for the admission of foreign lawyers in Malaysia may differ from other countries. Foreign lawyers and bar associations may argue that the proposed regulatory framework for foreign lawyers pursuant to the proposed legislation is unduly restrictive. It is submitted that the Bar Council has the responsibility to ensure that the regulatory framework that is implemented provides for a proper balance between the interests of the domestic legal profession and the public, taking into account the level of development of the legal profession in this country, and for this reason, the regulatory framework may not be as liberal as in other countries. International bodies recognise that the level of liberalisation will not be the same in all countries. The International Bar Association (IBA) recognises that it is desirable and in the public interest for Member organizations to review and consider the manner in which their respective regulatory regimes address all issues posed by cross border legal practice, including , but not limited to , the issue of cross- border establishment by foreign lawyers and in doing so, may take into account its own characteristics, influenced by its own system of laws, historical factors and level of economic development , and accordingly, legitimate approaches taken to issues of cross-border legal practice may differ in certain respects. [8] The Union Internationale Des Avocats (UIA) also recognises that the obligation of competence and regional differences in the substance of local laws may justify some restrictions on international legal practice.[9] The GATS recognises that it is the fundamental right of a government to regulate in order to pursue its national policy objectives. The Agreement’s preamble recognizes, inter alia, “ the right of Members to regulate, and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives”.[10] VI) The scope of the proposed legislation In preparing the proposed legislation, the Bar Council has taken into consideration the level of development of the domestic legal profession and the Bar Council has also informally adhered to the IBA’s ‘Resolution on the General Principles For The Establishment And Regulation Of Foreign Lawyers ’ dated 6 June 1998.[11] In terms of scope of practice, the Bar Council proposes that foreign lawyers will only be permitted to practise in ‘permitted practice areas’ (which is currently proposed to be “work relating to transactions regulated by Malaysian law and at least one other national law, transactions regulated solely by any law other than Malaysian law, international capital markets, asset securitisation and /or such other categories of work as may from time to time be prescribed by the Bar Council ). Pursuant to the proposed legislation, the entry of foreign lawyers into practice in Malaysia will have to be in the context of a joint venture between a firm or corporation of foreign lawyers and a firm of Malaysian advocates and solicitors. The fact that foreign lawyers will in all probability be allowed to practise in Malaysia is incongruous with the situation where lawyers from West Malaysia do not have an automatic right to practise or appear in the courts in Sabah and Sarawak.[12] This situation is highly anomalous in view of the developments in the liberalisation of legal services and the steps taken by the Bar Council in drafting the proposed legislation. The recent proliferation of free trade agreements involving Malaysia may contribute to the rate and extent of liberalisation and this will only serve to accentuate the anomaly. VII) Benefits and disadvantages of liberalisation The question of the pros and cons of liberalisation in Malaysia must be considered in the context of the public interest, the interest of members of the legal profession directly affected by the admission of foreign lawyers, the interest of the legal profession as a whole, and the national interest. a) Public interest - Proponents of an open market argue that it is in the public interest for there to be easier market access for foreign lawyers. The main plank of their argument is that it is in the interest of the client to have freedom of choice in the selection of lawyers. Conversely, it may be argued that the interests being promoted are predominantly private commercial interests. The principal criteria of assessment being used by the proponents of enhanced freedom tends to be economic. They view the law as a mere mechanism for the furtherance of economic interests, particularly those of larger multi – national organizations[13] and the interests of the client, is at best, secondary. It is submitted that consumer protection requires that the client not only has free access to lawyers of his/her choice, but that the lawyer(s) must be fully qualified to advise the client. Liberalisation of legal services may bring with it certain benefits for clients, such as the increase in the breadth and quality of legal services available and a reduction in prices paid for legal services. However, it is in the public interest to ensure that foreign lawyers who advise and represent clients in any matter must be appropriately skilled and qualified. This is taken into account in the proposed legislation, as a foreign lawyer will be required to fulfill certain criteria, including having at least 7 years of relevant legal expertise and a degree of proficiency acceptable to the Bar Council. Apart from the type and range of services available to the public, an important element of consumer protection is that there must be an avenue for proper redress for clients who do not receive proper or adequate advice and assistance. Although the rules of professional conduct may differ between jurisdictions , e.g. in the area of advertising, the Bar Council is of the view thatforeign lawyers should adhere to the ethical standards applicable here. The Bar Council takes the position that our rules, e.g. the Legal Profession (Practice and Etiquette) Rules 1978 and the Legal Profession (Publicity Rules) 2001 shall apply to a foreign lawyer registered to practise in the permitted practice areas and this is reflected in the proposed legislation. This is an important principle as it will enable protection to be extended to the consumers of the legal services provided by foreign lawyers. The Bar Council’s position is in line with the position taken by international organizations such as the IBA and UIA. The IBA recognizes that a lawyer who undertakes professional work in a jurisdiction where he is not a full member of the local profession shall adhere to the standards of professional ethics in the jurisdiction in which he has been admitted and he shall also observe all ethical standards which apply to lawyers of the country where he is working.[14] The UIA also recognizes that foreign lawyers engaged in international legal practice must be subjected to and undertake to comply with all relevant ethical rules and registration requirements applicable to host country lawyers. [15] b) Members of the profession directly affected - This refers to the segment of the profession which will, due to the nature of their work, either be in direct competition with foreign firms or will themselves, form joint ventures with foreign firms in Malaysia. An open market in legal services in Malaysia may create unfair competition because local firms, in general, in comparison with large multi jurisdictional firms, lack brand recognition, expertise in certain areas of cross border work , capital and size,[16] and the ability to deliver integrated services across a variety of practice areas. The support of locally owned transnational corporations is also lacking in comparison with the support that foreign lawyers are given by the transnational companies in their countries. Market access to foreign lawyers may be advantageous to the profession here if the entry of foreign lawyers is tied to training conditions and that they enter as joint ventures with a transfer of technology. The proposed legislation permits the entry of foreign lawyers into practice in Malaysia in the context of a joint venture with a firm of Malaysian advocates and solicitors. The foreign firm and the Malaysian law firm shall be required to form a joint venture which will involve a transfer of technology and expertise by the foreign firm. c) National interests- Reducing barriers against foreign lawyers may increase the competitiveness of domestic law firms and facilitate international transactions.[17] There may be more foreign investment if the entry of foreign service suppliers are properly managed and this will be beneficial to the country. Increased investment will fuel growth and employment in the country. Foreign direct investment will also enhance the export capacity of the host country and this is especially true when foreign investors use the host country as a platform for exporting, rather than for selling in the local market. It is submitted that this factor must be taken into account with other interests, e.g. the interests of the domestic legal profession, to ensure that there is a proper balance between the national interest and the interest of the legal profession in the regulatory framework. d) Erosion of social and cultural values- An argument often canvassed against an open market is that lawyers function as reservoirs of local legal culture[18] and host countries worry about the impacts of dominant legal cultures from abroad, e.g. foreign lawyers from a litigious society may impose their values on consumers in societies that may be inherently conciliatory. It is submitted that this in itself is not a reason for refusing the admission of foreign lawyers in Malaysia , as foreign lawyers will be predominantly involved in Tier 1 work and this may not impact adversely on the social and cultural values of this country. e) Litigation brain drain The establishment of joint law ventures will give greater scope for members of our profession to take advantage of the benefits of multiple jurisdictional practices and acquire legal skills and experience in high-end and cutting edge legal work. Such joint law ventures may attract the best law graduates, resulting in many lawyers who will not be trained in civil litigation work. This portends a shrinking litigation Bar that will eventually lead to a diminished judiciary and a diminished legal system. Commentators have argued that the new legal landscape may pose a challenge to the civil litigation bar in the future and efforts must be taken to ensure that the litigation bar is not overladen with its best talents in non-litigation practice.[19] It is submitted that the extent of liberalisation under the proposed legislation would not lead to a diminished litigation bar. However, this is a factor which may have to be considered in the future. f) The legal profession as a whole Although the majority of lawyers will not be affected directly by the admission of foreign lawyers, it is submitted that there may be a spillover effect. There may be greater professional transparency and improvements in governance through adoption of international standards by other domestic law firms. Practice and management styles of domestic law firms may change for the better. Lawyers working in foreign firms will be exposed to new areas of the law ( e.g. competition law), international law and foreign law (e.g. English and New York law which is adopted as the standards for international business transactions). This will only serve to improve the knowledge, quality and standard of members of the legal profession as a whole. Pursuant to the proposed legislation, a factor to be taken into account in the admission of a foreign lawyer, is that the admission of that foreign lawyer will contribute to the development of the permitted practice area (s) in Malaysia and would be in the best interest of the legal profession in Malaysia and the public. VII) Understanding the different fora of liberalisation The question of the pros and cons of liberalisation must also be examined in the context of requirements and developments in the different fora of liberalisation, in particular under the GATS. Due to these requirements and developments, it is no longer a straightforward question of when liberalisation should take place and the extent of such liberalisation as the GATS provides that Member countries, including Malaysia , “ shall enter into successive rounds of negotiations ……..with a view to achieving a progressively higher level of liberalisation.” [20] If we were to admit foreign lawyers at some time in the future pursuant to the proposed legislation, the extent of that liberalisation may have to be progressively reviewed in accordance with the GATS. Under the circumstances, it may be myopic to consider the benefits and disadvantages of liberalisation under the proposed legislation without considering the fact that we may be required to progressively liberalise. The interplay of the different fora of liberalisation is also a consideration. Liberalisation of services, including legal services, is being discussed or negotiated concurrently by different countries under the GATS, the ASEAN Framework Agreement on Services (AFAS)[21], as well as in regional and bilateral trading arrangements. In order to assess the full extent of the consequences of liberalisation, we need firstly to understand the different fora of liberalisation, its interplay, and the risks involved, e.g. bilateral Free Trade Agreements[22] (FTAs) could lead to backdoor entry for other countries into our markets. In the ASEAN context, there are certain consequences if commitments are made, e.g. commitments by an ASEAN Member Country under the GATS will be extended to the ASEAN non-WTO Member Countries and if offers made under the AFAS are less liberal than the GATS commitments, the more liberal measures shall prevail. When work on the proposed legislation first began, the issue of liberalising under bilateral FTAs had not yet arisen. The proposed legislation was intended to be part of the Bar Council’s initiative with respect to an autonomous liberalisation[23] approach that would apply to all foreign lawyers. If this approach were to be retained, an FTA partner will request for further concessions under an FTA and this would increase the pressure on Malaysia to make further concessions in respect of legal services. With these developments, other factors, such as the forum, sequence and pace of the liberalisation are important considerations in determining the full extent of the benefits and disadvantages of liberalisation. VIII) Conclusion It is important that the Bar Council takes the necessary steps to ensure that the admission of foreign lawyers is done in a circumspect manner that addresses the concerns of the domestic legal profession and safeguards the interests of the consumers. A regulatory framework to control the admission of foreign lawyers may fail due to the lack of planning or foresight, or by a misguided understanding of the issues and risks at hand. The issues arising from this wave of globalisation are manifold and it will require the symbiotic efforts of the Bar Council and the government to ensure that any regulatory framework that is implemented achieves a proper balance between the interests of the public, the legal profession and the national interest. The Bar Council has enjoyed a close working relationship with Ministry of International Trade and Industry (MITI) and its agencies as well as the Attorney General’s Chambers. The Bar Council , MITI and the Attorney General’s Chambers should continue to work closely on legal market access issues in relation to the GATS, AFAS and free trade agreements so that the interests of the legal profession in Malaysia can be properly reflected in the country’s trade policy and trade negotiations. Mah Weng Kwai [1] Services: Fast-growing Markets By Dorothy Riddle, Service-Growth Consultants International Trade Forum - Issue 2/2005 [2] Increasingly, legal firms not only establish commercial presence but their lawyers engage in short term ‘fly –in ’ , ‘fly- out’ assignments. [3] Tier 1 – involves financial products such as –
[4] John Bean – The WTO And Transnational Legal Services – presented at the UIA /ABCNY colloquy on the WTO negotiations concerning international legal services, held in New York on 30 January 2003. [5] In the recent paper prepared by the OECD on legal services ( 2004), it was recognized that considerable care had to be given to assessing the nature , pace and sequencing of liberalisation undertakings and regulatory reform in order to reap the benefits of increased market openness and ensuring that public policy goals such as protection of consumers are attained. [6] Legislation to protect consumers in the transnational legal practice setting can be established/accomplished by the requirements of disclosure and provisions for redress ; e.g. disciplinary proceedings against foreign lawyers. [7]Since Adam Smith's publication of The Wealth of Nations, the majority of economists have been strong supporters of free trade among nations. Many of these original arguments for free trade were based on simple exchange or production models that suggested that free trade would be in everyone's best interests and surely in the national interest. During the 19th and 20th centuries, however, a series of objections were raised suggesting that free trade was not in everyone's interest and perhaps was not even in the national interest. The most prominent of these arguments include the infant industry argument and this is an argument that may be canvassed as far as the legal profession in Malaysia is concerned. [8] The International Bar Association (IBA) adopted a Resolution (6 June 1998) on the‘ General Principles For The Establishment and Regulation of Foreign Lawyers ’– the IBA recognized that the increase in cross –border activity of all types has posed particular challenges to the legal profession , one of the most important of which is the establishment in certain jurisdictions of foreign lawyers authorized to practice in other jurisdictions. [9] On 27 October 2002, the UIA adopted a Resolution on ‘UIA Standards For Lawyers Establishing A Legal Practice Outside Their Home Country’, where it was recognized that the possibility of transnational legal practice by the lawyer , or an international legal practice, must not be limited to the detriment of clients as long as the ethical rules and fundamental values of the legal profession are respected and assured. [10] Pursuant to Article XIX (2), the process of liberalization shall take place with due respect for national policy objectives and the level of development of individual Members, both overall and in individual sectors. [11] supra note 8. The IBA recognizes that either or an appropriate combination of the following 2 approaches to the establishment of foreign lawyers are suitable in reflecting and promoting the essential common principles of the legal profession: a)Full licensing approach – foreign lawyers are allowed to become fully licensed to practise the law of the host country through examination or otherwise ; (b) Limited licensing approach – foreign lawyersare allowed to practise law of their home jurisdiction without examination or full admission to the host bar. [12] The Legal Profession Act 1976 has not been extended to Sabah and Sarawak. The legal profession in Sabah is governed by the Advocates Ordinance of Sabah while in Sarawak, the legal profession is governed by the Advocates Ordinance of Sarawak The legal profession in the States of Sabah and Sarawak come under the purview of their respective regulatory bodies which are distinct from the Bar Council of Malaysia. [13] Note prepared on behalf of The Independent Referral Bars Of The United Kingdom And Ireland ( The Referral Bars) for the Forum On Transnational Practice For The Legal Profession. [14] IBA International Code of Ethics 1988 ( First adopted –1956) [15] supra note 9 - Pursuant to the UIA Resolution, host country clients should be assured that those who provide legal services in the host country are subject to the same ethical rules as host country lawyers, in order to avoid confusion and potential loss of rights. [16] Size itself is a distinct advantage for firms dealing with complex international business transactions.Foreign firms have an advantage, e.g. the firms of Roger and Wells , Clifford Chance , and Punder, Volhard, Weber & Associates announced a merger in 1999, bringing together 2700 attorneys from the United States, the United Kingdom, and Germany. [17] Michael J.Chapman & Paul J. Tauber , Note, Liberalizing International Trade in Legal Services : A Proposal for an Annex on Legal Services under the General Agreement on Trade in Services, 16 MICH.J.INT’L L. 941,954 (1995) [18] Christopher Arup, The New World Trade Organization Agreements 148(2000) [19]Shruti Garg & Aviral Saxena , Law Institute University Bhopal [20] Article XIX of the GATS [21] The ASEAN Framework Agreement on Services (AFAS ) was signed on 15 December 1995 with the aim of enhancing the liberalisation of services within ASEAN. The objectives of AFAS are, inter alia, to eliminate substantially restrictions to trade in services amongst Member Countries and to liberalise trade in services by expanding the depth and scope of liberalisation beyond those undertaken by Member States under the GATS with the aim to realizing a free trade area in services. Discussions are being held on whether to accelerate the liberalisation of non-priority sectors( including legal services).There is a proposal to liberalise earlier than 2020, i.e. by 2015. [22] Negotiations for the Malaysia –Australia and Malaysia –New Zealand FTAs are ongoing. The FTA with Australia is expected to be signed by June 2006 and the Malaysia –New Zealand FTA, in December 2005. [23] Autonomous liberalisation is where we liberalise a certain sector to whatever degree we choose but without binding this liberalisation in the WTO. Under autonomous liberalisation, the country has the flexibility to ‘back track’ and increase regulation, whereas if the measure is bound in the WTO, it is unable to ‘ back track’, unless it is prepared to compensate. *This paper was delivered at the 13th Malaysian Law Conference.
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