This
article will briefly review China's WTO market access commitments with respect
to the legal services sector.
China made a number of market access commitments involving various sectors of its economy upon its accession to the WTO in December 2001. Many international companies are looking to take advantage of the new and expanded opportunities for trade and investment offered thereby. Thus, it is not surprising that international law firms are also looking to expand their China-related business through either establishing a presence in the PRC or expanding existing operations in the country in order to take advantage of the new opportunities offered.
Foreign law firms have been permitted to maintain representative offices in the PRC since 1992 and a number of major international law firms have established representative offices there. Up to now, there have been both formal and informal restrictions on: (a) the number of offices a foreign law firm may establish (only one is permitted); (b) the locations in which such offices may be established (currently foreign law firm representative offices are only permitted in Beijing, Shanghai, Guangzhou, Shenzhen, Haikou, Dalian, Qingdao, Ningbo, Yantai, Hangzhou, Fuzhou, Wuhan, Chengdu, Shengyang and Kunming - although the vast majority of foreign law firm representative offices established to date are located in Beijing or Shanghai); (c) the ability of foreign law firm representative offices to hire or partner with PRC lawyers (prohibited); and (d) the scope of permissible activity in which the foreign law firm representative office may engage (basically restricted to advising on non-PRC law). As described below, some of these restrictions have already been or will be removed or liberalised pursuant to China's WTO commitments.
One area that has not changed as a result of China's WTO membership is the form of commercial presence in the PRC through which foreign law firms are permitted to render legal services. As in the past, foreign law firms may only provide legal services through representative offices and they are prohibited from providing such services through limited liability companies or other forms of legal entities. This is somewhat of an anomaly as representative offices are generally not permitted to engage in profit-making activities in the PRC. Perhaps because of this, the PRC's market access schedule to its WTO Accession Protocol specifically states that foreign law firm representative offices may engage in profit-making activities. It should be noted that there are no restrictions on the provision of legal services to PRC clients from abroad.
The two most significant liberalisations for the legal services sector contained in China's WTO market access commitments are: (a) the removal of current restrictions limiting the number of representative offices that a foreign law firm may establish and maintain in the PRC; and (b) geographical restrictions on office location. By the end of this year, all quantitative and geographical restrictions affecting foreign law firm representative offices will drop away. Thus, foreign law firms will soon be permitted to establish more than one representative office in China and they will have the freedom to apply for the establishment of a representative office anywhere in China. In fact, the PRC Ministry of Justice, the regulatory authority with primary jurisdiction over foreign law firms in the PRC, has recently approved the establishment of five additional representative offices by Hong Kong law firms which currently have existing representative offices in the PRC. It will be interesting to see how many of the international firms, currently with representative offices in China, will actually apply to open additional offices once the restrictions are removed later this year.
The PRC's WTO commitments have also clarified the scope of permitted services which foreign law firm representative offices may provide in the PRC. These include:
This scope of permissible activity for a foreign law firm representative office has been reflected in the Regulations for the Administration of Representative Offices of Foreign Law Firms ('Foreign Law Firm Regulations') which were promulgated by the State Council late last year and became effective on 1 January 2002. A separate set of regulations applicable to Hong Kong and Macau law firms, which are substantially similar in content to the Foreign Law Firm Regulations, was also issued by the Ministry of Justice earlier this year and became effective on 1 April 2002.
The PRC's WTO legal sector market access commitments as well as the Foreign Law Firm Regulations also contain guidelines as to the qualifications required of representatives of a foreign law firm representative office. The chief representative of a foreign law firm representative office must: (a) be an admitted member of a Bar or law society of a WTO member; (b) be a partner or equivalent of his or her foreign law firm; and (c) have practised law for at least three years outside of China. Other representatives must also be admitted in a WTO member state and have practised law for at least two years outside of China. All representatives must reside in the PRC for no less than six months of each year.
One significant area that China's WTO membership has not changed is the ability of foreign law firms to hire PRC lawyers or enter into joint venture arrangements with PRC law firms. Both arrangements are still prohibited. The Working Party Report relating to China's WTO accession, which provides clarifications and explanations of many of the commitments contained in the PRC's WTO Accession Protocol, makes it clear that foreign law firm representative offices may not employ 'those Chinese nationals who [have] obtained a lawyers certificate and [are] holding a practicing permit and [are] registered to practice in a Chinese law firm'. The Foreign Law Firm Regulations also reflect this prohibition. As in the past, those PRC nationals who are admitted both in China and a foreign jurisdiction will have to surrender their PRC lawyer's licences in order to be able to work for a foreign law firm representative office.
With the increasing globalisation of the legal services sector and the presence of multi-jurisdictional law firms with offices around the globe, it will be interesting to monitor future developments with respect to the issue of foreign law firms practising PRC law through Chinese partners. Although the professions are not comparable in many respects, it is interesting to note that international accounting firms are currently permitted to affiliate with PRC accounting firms. Will this be a trend of legal services in China for the future? Only time will tell.
Richard H Lawrence III
Deacons, Hong Kong