Thought leadership from our experts

Recent developments in South Korea

Benjamin Hughes, Shin & Kim, South Korea Thomas Walsh, Clifford Chance, South Korea

The legal market in South Korea is in a state of profound flux. The nearly simultaneous introduction of US-style post-graduate law schools, a dramatic increase in the number of newly minted lawyers, and the opening of the legal market to foreign law firms have combined to disrupt a legal market which had long been insulated from competitive pressures affecting the rest of the economy.

Legal Education and the Korean Bar

For many decades, Korean lawyers, judges and prosecutors were selected by a notoriously difficult bar examination which emphasized rote memorization rather than critical thinking skills. No formal education, much less a law degree, was required to sit for the exam, but in fact most passers were undergraduate law majors who had spent their college years cramming for the exam. Only 300 of the tens of thousands who sat for the exam each year were permitted to pass, although this number was gradually adjusted upward to 1000 per year in recent years. After passing the bar, trainees were required to spend two years at the Judicial Training and Research Institute (JRTI) run by the Korean Supreme Court, where they were trained to become judges, prosecutors and lawyers, primarily by more rote learning and mandatory rotations in the courts, the prosecution and private law firms.

This system resulted in a great waste of effort and lost opportunity for the vast majority of exam takers, and a shortage of lawyers relative to demand for access to legal services in the general population. Those lucky enough to pass the bar were guaranteed a lifetime of lucrative employment, but access to legal services was limited to those who could afford them in a market skewed by such limited supply. In addition, the heavy emphasis on rote memorization did not adequately equip lawyers to think critically and apply legal principles in a more complicated, global economy. Although there was great resistance from many entrenched interests within the Korean bar, it was recognized that systematic changes to Korea's legal education system would be required in order to select and produce globally competitive lawyers.

In 2007, in order to modernise this system, the Korean National Assembly passed a law establishing a new three-year post-graduate law school system modelled on the US law school system. The law schools began taking their first students in 2009, with roughly 2,000 students graduating from that first intake in 2012. Because of fierce resistance to shutting down the JRTI, the law school system will run alongside the JRTI system for a decade, with the JRTI scheduled to graduate its final class of lawyers in 2019. This means that the Korean legal market has suddenly been flooded with three times the number of new lawyers each year. This is obviously a drastic change, and the legal market has yet to adjust in order to absorb them all. For the first time, lawyers in Korea face the prospect of unemployment or underemployment, and this has had several knock-on effects in the legal market generally.

For example, there has been a tremendous growth in in-house legal teams, as lawyers become more affordable for companies to employ. In addition, lawyers are branching out to cover legal work which had previously been handled by lay professionals such as legal scriveners, increasing the general quality and reliability of this work. Access to legal services for the average Korean has dramatically improved, as more lawyers make their services available in rural areas and at lower cost. Finally, lawyers are broadening their horizons to take up work outside the limited parameters of big law firms, engaging in social causes, business and politics. On the other hand, many young lawyers are having a very difficult time finding employment in law firms, and fierce competition has erupted between the graduates of the law schools and the graduates of the JRTI. The failure of the government to quickly phase out the JRTI has caused too many lawyers to be added to the market too quickly, and has created great uncertainty as to the future of the legal education system in Korea. Already the predictable arguments have been raised from several quarters of the bar that the JRTI system should be preserved and that the law schools should be abandoned as a failed experiment. It is expected that this debate will begin to rage more openly in the coming years, as the JRTI prepares to take in its final class in 2017. Watch this space.

Opening of the Korean Legal Market

Korea implemented free trade agreements with the European Union on 1 July 2011, and with the United States on 15 March 2012. In connection with these FTAs, the Korean legal market is being opened in stages over a five-year period to foreign law firms from the US and EU. In the first stage, foreign law firms were permitted to open representative offices in Korea, and to advise on the law of their home jurisdiction only. In the second stage, currently underway, foreign firms are permitted to cooperate with local Korean firms to handle matters together, and to share legal fees. In the third and final phase, in July 2016 for EU firms and March 2017 for US firms, the foreign firms will be able to hire Korean attorneys and practice Korean law. To date, more than 20 foreign firms from the US and EU (UK) have opened offices in Seoul.

In preparation for the opening of the legal market, Korea passed the Foreign Legal Consultant Act (the FLC Act) in 2009. The FLC Act provides the legal framework for the activities of foreign law firms and foreign legal consultants in Korea. However, the legislation has been roundly criticized as inadequate in its scope and discriminatory in its application. Although there are hundreds of foreign legal consultants from many jurisdictions working in Korea for Korean law firms, the FLC Act applies only to law firms and lawyers from countries which have signed and ratified FTAs with Korea. Further, while many foreign lawyers in Korea have spent their entire careers in Korea, foreign lawyers can only be registered as a foreign legal consultant if they have practiced for three years (subject to certain waivers) in their jurisdiction of qualification. Moreover, while foreign attorneys practicing at Korean firms face virtually no restrictions on their practice, the FLC Act limits foreign legal consultants to advising on the law of their jurisdiction of qualification, or generally accepted international law. Finally, although the final stage of liberalization is scheduled to take place shortly, there are no details in the FLC Act regarding the scope of this final stage, which inevitably causes difficulties for foreign law firms in Seoul and their long term planning.

Effects of Recent Developments

As noted in the introduction, great sea changes are taking place in the Korean legal market. It is still too early to tell what the precise combined effect of these developments will be, but some preliminary conclusions and observations can be ventured.

Most obviously, the sudden and dramatic increase in the number of Korean lawyers, combined with the influx of more than 20 international law firms, is creating much greater competition for mandates from both Korean and international clients in Korea. This has resulted in a buyer's market for legal services, with far more beauty contests and much lower prices for legal services across all sectors. At the same time, while prices are going steadily down, the quality of legal services is rising noticeably, primarily in international instructions. The availability of global standard legal services from established foreign firms has forced Korean firms to up their game, hire more foreign attorneys, and actively market their services to Korean clients. This situation has put a great deal of pressure on both foreign and domestic firms, while providing higher quality legal services at lower prices to both domestic and international clients.

Korean law firms have also reacted to foreign law firms entering the market by globalising and opening offices in foreign countries. This can be seen with recent investments by Korean law firms in Mainland China, Hong Kong, and South East Asia and their ongoing discussions about launching offices in the Middle East.

Finally, the general increase in the number of Korean qualified lawyers is enabling further specialisation by Korean law firms and the growth of in-house legal departments. Both of these were previously constrained by the overall limit on the number of lawyers. While many young lawyers face difficult prospects in the short term due to intense competition for traditional legal jobs, the long term effects of the long-overdue increase in the number of lawyers in Korea are expected to be positive.