Written evidence submitted by Clifford
Chance
INTRODUCTION
1. This submission is made on behalf of
Clifford Chance LLP in response to an invitation by the House
of Commons Foreign Affairs Select Committee to contribute to its
inquiry on UK Trade and Investment and, in particular, the five
year strategy published in July 2006, Prosperity in a Changing
World (called the "Strategy Paper" below).
2. Clifford Chance is the first fully-integrated
global law firm with 29 offices in 20 countries, and over 3,500
legal advisors, the largest number of whom are based in London.
We are regulated by the Law Society of England and Wales. According
to a report by International Financial Services London, published
in 2005, legal services contributed £12.9 billion, or 1.4%
of the UK's GDP in 2002, net exports generated by international
law firms totalled £1,802 million and in 2003 and international
law firms in London generated an estimated £2.6 billion in
UK tax revenue in 2001-02.
3. We very much welcome the international
focus demonstrated by the Strategy Paper, in the significance
given to attracting FDI, and in the emphasis on how the government
can help UK businesses abroad.
THE UK LEGAL
ENVIRONMENT
4. Ed Balls MP, Economic Secretary to the
Treasury, said in a recent speech (20 November 2006) "For
300 years, London's success has been based on our commitment to
the rule of law and the highest professional standards. And practitioners
here and around the world regularly cite London's world-class
business support services in areas such as law and accounting
as one of its key attractions".
5. This sentiment echoes various statements
in the Strategy Paper, which lists as some of the UK's strengths
as a place in which to do business its skills, its stability and
standards and its international openness. It mentions "our
international leadership in a wide range of high-value industries"
including legal services. It says, "The well-established
legal system promotes fair competition, the protection of intellectual
property, world-class environmental, health and safety standards
and a flexible labour market, fair to employer and employee"
(page 6).
6. The attractions for FDI therefore include
a stable legal environment as well as the availability of high-quality
professional legal services. Contractual commitments, as well
as statutory requirements, are enforced through a court system
which, while expensive and fairly slow, is perceived as incorruptible
and just, with lawyers playing a major part in ensuring access
to justice.
7. Lawyers also play a significant role
in helping to formulate and refine legislative proposals, helping
to identify where proposals would have a detrimental effect on
business, on the interests of specific clients, or, more generally,
on the processes of justice, the legislative process, or the public
interest.
8. In this context, the government's proposals
to re-shape the regulation of legal services are extremely relevant.
Clifford Chance welcomes the move to separate the regulatory and
representative functions of the Law Society, and has consistently
taken this line over the past five years of consultation. Clifford
Chance also supports the government's stated aims of making the
legal profession more flexible and more competitive. However,
we believe there are serious dangers in the government's current
proposals that could threaten the independence of the legal profession.
Even a perceived lack of independence could affect the competitive
position of UK law firms internationally. In our submission to
the Joint Committee looking at the draft Legal Services Bill,
we highlighted some of our concerns, particularly our concern
that the Legal Services Board should be politically independent
and not subject to appointment solely by the Lord Chancellor.
9. According to the Strategy Paper, the
UK's legal environment is "crucial to the UK's attractiveness
[as a business environment]" (page 8). We agree. We would
therefore urge the Foreign Affairs Select Committee to ensure
that the positive elements of the legal system, which are attractive
to investors, remain in place.
10. We are also more directly instrumental
in assisting FDI, in acting for businesses wishing to set up here.
We have advised clients from many jurisdictions, including the
US, China, India and Japan, who want independent advice from legal
advisors on the regulatory and legal framework of the UK, and
assistance in contacting the regulatory authorities and in identifying
the relevant regulations.
11. The UK legal services sector is highly
successful internationally, with serious competition only from
the US legal sector.
12. The reasons UK law firms have been so
successful are varied:
(a) there are few restrictions on the practice
of legal services in the UK by overseas competitors, making it
a very competitive market;
(b) regulatory restrictions have been gradually
removed meaning, for example, that there is no limit on the number
of partners in a partnership, unlike the position in many other
countries still;
(c) UK financial services providers and UK
multinationals operating overseas have instructed UK lawyers in
relation to international as well as domestic transactions;
(d) the predominance of English civil law
as a jurisdiction of choice in civil contracts;
(e) the popularity of London as an arbitration
centre; and
(f) the willingness of UK law firms to grow
and to establish themselves overseas.
INTERNATIONAL BARRIERS
13. At page 22, the Strategy Paper says
that "Government wants to hear from business, to learn of
its priorities and understand barriers it faces, as well as its
success stories". There are significant barriers to the provision
of legal services in markets abroad.
14. We note that in the Foreword, the Strategy
Paper says that "Government efforts will be targeted where
they can make the most difference. This means focusing on important
sectors and technologies where the UK has a comparative advantage,
and on the overseas markets which offer the greatest opportunities".
We believe that the legal services sector is an important sector
because of its economic significance and because of the other
more intangible benefits it brings, as set out in the Strategy
Paper and mentioned above. It is also a sector in which the UK
currently has a comparative advantage. The markets which offer
the greatest opportunities for us at the moment are India, China
and Brazil. We would suggest it is important to focus on these
markets not only because they are developing very quickly in terms
of economic power, but also because there are significant barriers
in these countries to the provision of legal services by non-domestic
law firms.
15. We believe that a stronger presence
of international law firms can help to disseminate objective standards
of the rule of law, enhance the effectiveness of regulation, assist
in eliminating corruption, and ensure that the highest standards
of international business practice are adhered to.
16. We welcome the efforts made by the UK
government, both the Department for Constitutional Affairs and
the Department for Trade and Industry (UKTI) in India, Indonesia
and Brazil for example, to liberalise legal service markets and
remove trade barriers. While markets for goods and some services
have opened up to a large extent, the market for legal services
remains, in some countries, such as India, firmly closed.
17. Generally, the barriers to the provision
of legal services by foreign law firms are driven by protectionist
fears that domestic firms will not be able to compete with the
very large international firms. We believe these fears are misplaced,
since there is minimal overlap between the practice of the large
international firms and the practice of domestic law firms, whose
work centres, typically, on matrimonial, domestic conveyancing,
wills, criminal law and litigation. These are not areas in which
the international firms seek to practise. Our work, rather, tends
to be on behalf of financial institutions or multinationals and
involves assisting in the acquisition, development and financing
of businesses, including infrastructure, natural resources, the
development of the capital and financial markets and privatisations,
as well as FDI more generally.
18. We believe that access to world-class
legal expertise and experience is crucial for the development
and growth of important sectors such as capital markets, energy
or telecommunications, as well as being beneficial to the development
of the local legal environment and infrastructure. Where permitted,
we enter into partnership with local lawyers and provide excellent
employment and training opportunities, as well as providing scholarships
and sponsoring arrangements for a variety of legal professionals.
India
19. We recently responded to the Foreign
Affairs Committee's inquiry on South Asia (and also responded
to the Trade and Industry Select Committee's inquiry on trade
and investment opportunities with India). We believe that India
is a very important market for UK businesses, and will continue
to grow more significant over the coming years. We have been providing
services to clients based or active in India for many years, but
are not able to have an office there as local regulations prevent
non-Indian law firms from establishing a presence in India. We
believe that significant benefits for the Indian economy, the
Indian legal profession, UK law firms like ourselves and the clients
whom we serve, would accrue from greater liberalisation. There
are a number of processes in which the UK government is currently
involved—the Doha Round (currently stalled), the JETCO process
and the negotiations for a trade agreement between the EU and
India. We welcome the government's support for legal services
in these negotiations and urge them to continue in these efforts.
China
20. In a recent response to the EU Commission's
consultation seeking views on a new EU-China trade strategy we
mentioned a number of significant concerns currently facing foreign
law firms in China, mainly deriving from local Chinese legal restrictions,
which prevent us from providing the level of service required
by our clients. In particular, foreign law firms are not permitted
to provide legal services on "Chinese legal affairs",
which is interpreted in an unreasonably broad manner. Chinese
lawyers working for foreign law firms must suspend their licence
to practise Chinese law, and there are unduly restrictive requirements
on the vehicle through which foreign law firms may operate in
China. There remain effective economics needs tests before a law
firm can set up an office in China, despite China's WTO commitments
on market access. Elements of the Chinese legal community are
currently advocating Chinese authorities to impose additional
restrictions on international law firms.
21. We were disappointed to see no mention
of legal services in the Commission Working Document published
on 24 October, "Closer Partners, Growing Responsibilities,
A Policy Paper on EU-China trade and investment", even while
the paper called for greater protection of the legal rights of
EU companies in China—"EU companies also face an opaque
and burdensome legal and judicial system that offers insufficient
guarantees of legal protection of the rights of EU companies"
(page 10). We believe that international law firms have much to
offer in helping to protect the rights of EU companies, and in
working to improve the local legal environment.
Brazil
22. We also submitted evidence to the Trade
and Industry Select Committee's inquiry into trade and investment
opportunities with Brazil. Clifford Chance has been providing
services to clients based or active in Brazil for over 30 years
and ours is the largest non-Brazilian law firm in the country.
However, local regulation prohibits foreign firms from entering
into a joint venture with a Brazilian law firm or advising on
Brazilian law. We welcome the recent visit of the Trade and Industry
Select Committee to Brazil, and we urge the UK government to continue
its efforts to persuade the Brazilian government to take liberalising
measures.
Other countries
23. UK law firms are active in many jurisdictions
around the world, wherever there is demand from clients, and the
freedom to practise law. We have been encouraged by recent developments
in South Korea, where international law firms are not currently
able to operate, and we hope the UK government will monitor progress
of the proposed legislation to free up legal services there to
ensure that it will bring genuine liberalisation. Malaysia is
also of interest to UK law firms and we hope the UK government
will continue to press for the lifting of Malaysian restrictions
on the ability of non-domestic lawyers to provide legal services
there.
UK TRADE AND
INVESTMENT
24. We support the cross-departmental role
of UK Trade and Investment and welcome the fact that the Strategy
Paper was signed by the Chancellor of the Exchequer and the Secretary
of State for Foreign and Commonwealth Affairs, as well as by the
Secretary of State for Trade and Industry and the Minister of
State for Trade, Investment and Foreign Affairs. However, we understand
that the status of the head of UK Trade & Investment was recently
downgraded and that Andrew Cahn, the Chief Executive, does not
have Permanent Secretary status. We think it would signal the
importance the government attaches to trade and investment if
Mr Cahn were to have Permanent Secretary status, and are of the
opinion that his attendance at Permanent Secretary meetings would
be beneficial.
25. We also wonder whether a more dynamic
and joined up approach might be achieved by nominating a senior
individual in each government department to have responsibility
for promoting trade and investment, in the same way that there
are currently individuals in each department with responsibility
for, eg green issues. There have been Ministers and officials
at the Department for Constitutional Affairs who have been proactive
in supporting liberalisation initiatives and who have provided
valuable assistance. We would welcome more resources and more
focus being given to trade and investment matters in departments
other than UK Trade and Investment.
CONCLUSION
26. UK Trade & Investment is an important
arm of the UK government, and its remit, to attract FDI and to
assist UK companies facing barriers abroad, is one with direct
relevance to Clifford Chance and other international law firms.
The Department for Constitutional Affairs also has responsibilities
in this area and we would urge officials and Ministers from both
departments to work together to address the very serious protectionist
barriers we face in a number of key markets. Lawyers provide a
service for payment in the same way as other service providers,
but the role of lawyers goes much deeper than that, and is closely
bound up with a commitment to the rule of law, and the enforcement
of legal rights. A stable and effective legal infrastructure is
crucial to attracting FDI, whether it is the UK, or China or India.
We hope that the UK government will recognise the importance of
legal services and will consider the need to include provisions
on legal services in any trade negotiations in which it is involved.
Clifford Chance LLP
27 November 2006
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