Memorandum submitted by The Law Society
of England and Wales
1. The Law Society ("The Society")
is the professional body for solicitors in England and Wales representing
over 115,000 solicitors. The Society represents the interests
of the profession to decision makers within Parliament, Government
and the wider stakeholder community, and has an established public
interest role in law reform. The Society welocme the opprortunity
to respond to the Committee's important inquiry into this matter.
Why do legal exports matter?
2. Legal exports are important to the UK
economy because:
2.1 They are an important source of direct export
earnings which are not always effectively captured in trade statistics.
Legal service exports can arise through the supply of services
abroad by lawyers based in the UK, from the repatriation of earnings
by the overseas offices of UK based law firms and from the purchase
of legal services within the UK by overseas based clients. Whilst
income from the supply of cross-border legal services from the
UK was about £1.8 billion in 2007,[44]
the Office of National Statistics does not yet effectively capture
the other two modes of supply of legal services which are significant
earners for the UK economy. The Society knows these are important
because of the contribution that international clients make to
the fee income of solcicotrs that are based entirely in UK and
because of the growth in number of international offices of UK
law firms.
2.2 The legal sector is an important employer
in the UK economy, accounting for over a quarter of a million
jobs. The economic pressures of recession and ongoing structural
change in the legal services market mean that export markets are
playing an increasingly important part in the revenue and turnover
of commercial law firms. This is particularly true of law firms
in regional legal centres whose domestic markets have been harder
hit than firms in London and who are looking to diversify their
commercial base internationally, if they have not already begun
to do so.
2.3 The legal sector is an important enabler
for other businesses wishing to expand internationally and a barometer
of growth in different markets.
How does the Law Society promote legal exports?
3. The Law Society works to promote legal
exports from the UK in four ways:
3.1 First, the Society seeks to open markets
for lawyers worldwide by lobbying for the removal of market access
and regulatory barriers in other jurisdictions. This allows solicitors
greater freedom to serve clients in other markets either on a
fly-in basis, or by establishing an office on a stand-alone basis
or in collaboration with local lawyers. The demand for this is
driven ultimately by the client businesses who want the support
of their trusted legal advisers as they invest in major infrastructure
projects or Greenfield production sites, form joint ventures with
local partners or enter new markets via distribution or agency
agreements or simply seek to protect their IP. The strong growth
of legal sector exports can be traced to the relationship of firms
with their global and globalising UK clients. However, once these
relationships have been established, UK law firms become trusted
advisers to overseas businesses that are seeking advice and management
of their legal needs and risks in third countries.
3.2 Second, the Society promotes the purchase
of legal services from the UK by overseas clients. The Society
enables this by promoting both the advantages of England and Wales
as a jurisdiction of choice for dispute resolution and the benefits
of using English law in commercial contracts regardless of the
parties involved. The attractiveness of the UK in this regard
is well illustrated by the number of cases with no UK parties
that are heard by the Commercial Court and by the volume of arbitration
taking place in London. The Society also seeks to make more widely
known, the particular specialist expertise that can be found in
the legal profession in this country, which is second to none
in its breadth and depth. This expertise includes both traditional
areas of comparative advantage such as shipping and insurance
law, arbitration and infrastructure/PPP as well as emerging legal
disciplines such as Islamic finance and sports law.
3.3 Third, the Society assists individual law
firms with export-oriented business development by organising
inward and outward trade missions, promotional speaking and legal
consultancy opportunities, partner matchmaking sessions and sectorally
or geographically themed conferences and seminars. In carrying
out this activity the Society works closely with UK Trade &
Investment (UKTI) and British posts abroad as well as with partner
organisations in target countries and other organisations from
the UK which have similar goals.
3.4 Fourth, the Society works on creating a longer
term affinity between other jurisdictions and the UK. The Society
does this either by providing consultancy to other jurisdictions
on their legal structures, systems and laws and by encouraging
education and training links with the UK. The Society believes
that the latter will reinforce familiarity with the English legal
system and English law in particular, and that this will produce
dividends in the longer run when foreign governments, corporations
or even foreign law firms need to choose a source of legal advice,
a governing law for their contracts or a forum for dispute resolution.
Although this work represents long term investment for the UK
economy as a whole, the Society is limited in what it can do given
that any education and training programmes must either cover their
costs directly or be supported by a third party. The potential
benefits of such programmes is evidenced by the Lord Chancellor's
Training Scheme for Young Chinese Lawyers which the UK Government
has supported since 1990 and which has given UK law firms
a strong position in the Chinese market.
3.5 The Society carry's out these various strands
of work around the globe. For example, in 2008 the Society
organised 19 different events (trade missions, roundtables,
conferences etc) in 14 countries on four continents, not
including events in the UK.
The importance of the Middle East to the UK legal
sector
4. The Middle East and the Gulf in particular,
has been of growing importance to the Society's work on exporting
legal services. This is due to the of growth and development in
the region, and the Gulf in particular, because of the investment
wealth generated from the region by natural resources and because
of the attempts by various governments to become regional service
sector hubs. This growing importance is reflected in the growth
in number of English qualified solicitors resident in the region,
which has grown by over 300% in the past five years. In 2008 there
were 798 solicitors qualified in England and Wales holding
practising certificates in the region. The Society also knows
anecdotally that there are many more qualified or part-qualified
solicitors practising in the region, either in influential roles
as corporate counsel in multinationals and government agencies
or as paralegals in Emirati law firms.
5. The relative importance of the strategic
hub effect, which has been a major part of Dubai's economic strategy,
now being emulated by its neighbours, can be illustrated by the
fact that of the 798 solicitors practising in the Middle
East, 655 or 82% were located in the UAE and the majority
of these in Dubai. The Society does however, expect to see some
correction in 2009 as the impact of the recession in Dubai
shifts the relative importance of the different Emirates more
towards Abu Dhabi.
6. In the near to medium term, the Society
does not see any strong evidence that the UK legal sector has
lost its commitment to the region. Although legal teams who have
specialised in, for example, project finance and joint ventures
have been having a leaner time since the fourth quarter of 2008,
those who focus on dispute resolution are more upbeat. The Society
also sees no evidence of any withdrawal of UK law firms from the
region. Indeed it is aware of planned office openings by UK law
firms in Dubai and Abu Dhabi as well as ongoing interest in Oman
and Qatar.
7. Saudi Arabia is a market in which UK
law firms should ideally have a much greater presence, given its
size, resource base and ambitious economic plans. However, expansion
into this market is difficult for UK law firms because of local
rules which require a Saudi partner law firm, of which numbers
are extremely limited. This will become more of a problem in time
as Saudi proceeds with planned Chinese investment in new cities
across the country. Recent years have seen a boom in legal work
in Africa, driven to a great extent by Chinese investment in the
natural resources sector. The Society might well expect to see
the same phenomenon in Saudi Arabia driven by infrastructure investment
but the full potential of this will only be reached for the UK
legal sector if there is more flexibility introduced to the rules
on foreign law firms by the Saudi government.
8. The Middle East and the Gulf in particular,
also have a wider economic importance to the solicitor's profession
because of their geographical pull outside the region. This is
particularly true of South and South East Asia but also of North
Asia and Africa. There are important links between Malaysia and
the UAE, Dubai in particular, driven by Islamic finance and between
India and the Gulf states driven by more general business expansion
by Indian corporates. China, Japan and Korea are all investors
in the region and this has enabled UK law firms with clients in
those countries to expand into the Middle East.
The Law Society's work in the Middle East
9. The Law Society's work in the Middle
East has involved all of the various strands of its export related
activity:
9.1 Market access and regulatory work: The Society
has fed its views into the Department of Business, Enterprise
and Regualtory Reform and the European Commission on Wolrd Trade
Organisation (WTO) accession negotiations for Saudi Arabia, and
it has worked with the legal profession in both Lebanon and Libya
to increase awareness of what a WTO commitment in this sector
would mean. The Society has also worked on secondary regulations
implementing market access commitments in a variety of Middle
Eastern countries and believe these require particular attention.
There is a large spectrum of measures that any government could
undertake before necessarily triggering WTO concerns but such
measures can nonetheless have serious consequences for foreign
lawyers. Recent examples include proposals by the Qatar Financial
Centre and by the Government of Oman to limit the access of foreign
lawyers to local courts, on both of which the Law Society has
lobbied the relevant authorities. The Society recognises that
international law firms need to meet the concerns of local law
firms that there should be some benefit to them from the opening
up of their economies. This is most likely to be achieved when
market access and secondary regulation are implemented as a partnership
between the host and the foreign jurisdictions. The Societys experience
in Abu Dhabi, where it is working closely with the Executive Affairs
Authority of Abu Dhabi to clarify licensing provisions, is good
evidence of this.
9.2 Promotional activity: In 2007 the Society
published a brochure on the dispute resolution offer from England
and Wales, entitled "Jurisdiction of Choice". This has
been promoted in Dubai and will shortly be translated into Arabic
for wider dissemination in the region. The Society are also in
the process of producing a promotional booklet on the strengths
of the UK in the legal aspects of Islamic Finance.
9.3 Business development: The Society ran a successful
trade mission to Dubai in 2007 and will run a well subscribed
one to Qatar in May. The Society has held seminars and other events
in recent years in Dubai, Lebanon, Jordan, Syria and Egypt.
9.4 Long term infrastructure: For the past two
years, the Society has been running regular professional development
courses in the UAE for English solicitors and these are now attracting
local lawyers as well. The Society has also been approached by
a number of countries in the region to assist them in looking
at how they can upgrade their local legal qualifications in order
to create lawyers who are able to work in an international commercial
environment, although the Society's ability to assist depends
on their ability to finance such work. The Society has also worked
in partnership with a team appointed by the Libyan government
to look at structural impediments to foreign investment and the
results of this project are now being implemented. Amongst the
longer term impacts of this project is a significant investment
by the Libyan government in the training of a cadre of judges
in common law.
Observations and recommendations
10. Based on the Society's experience in
assiting and pormoting the expoprting of Legal Services, the Society
would make the following observations and recommendations to the
Committee:
10.1 The UK Government focus on target countries
in the region is broadly right but this should not be allowed
to crowd out opportunities in smaller markets. If a limited pot
of resources were made available as a "regional challenge"
fund, this would allow UKTI and overseas posts to support exploratory
or longer term projects relating to the creation of eg regulatory
or educational and training infrastructure to support exports.
10.2 The WTO has been crucial in helping to create
a framework to support the export of legal services. Although
the focus of international attention has been on the Doha round,
the role of accession negotiations for new members of the WTO
should not be underestimated—this has been particularly
important in creating new opportunities in the Middle East. The
Government should do whatever it can to encourage such negotiations.
10.3 Bilateral free trade agreements between
the European Union (EU) and various parts of the world are also
an important supplement to WTO package negotiations. As free trade
agreement negotiations between the EU and the Gulf Cooperation
Council seem to be going nowhere, the UK might consider recommending
a more targeted bilateral approach.
10.4 Regulatory issues can be an ongoing problem
for sectors like legal services, despite good WTO commitments.
Greater awareness and attention to these issues from UK posts
would be helpful to the longer term exporting effort.
10.5 The shortage of resource in the UK justice
sector and particularly in the judiciary is a constraint in promoting
UK legal exports. The Society is increasingly being approached
by other jurisdictions seeking help in familiarising their judges
with common law and international commercial practice. The lack
of an international strand of work at the Judicial Studies Board
means that it is difficult to meet these demands for assistance.
In the longer run these are missed opportunities to grow a wider
understanding of English and Welsh common law in civil law jurisdictions.
10.6 UK export strategy should pay more attention
to its strength as a centre of excellence in areas like legal
services which create triangulation opportunities. In other words,
the Society is able to act as a source of advisory expertise on
economic activity between businesses and governments in other
countries without there being any direct link to UK business.
Nonetheless this global hub effect can generate significant benefit
in terms of export earnings for the UK.
10.7 Although great strides have been made in
recent years by UKTI in understanding service orientated businesses,
the fit is not yet perfect. Many of the products and services
or categories do not comfortably fit a service business like law.
One example of this is the categorisation of Small and Medium
Enterprises (SMEs) on the basis of employment as well as turnover.
As law is a human resource driven business, law firms will often
hit the SME threshold for employment long before they hit the
turnover limit. This effectively disqualifies the group of law
firms most likely to benefit from government business support.
A proper assessment of government assistance to business in the
light of the latest research into the way in which service businesses
work, could help to avoid such problems in future.
10.8 It has been common practice in recent years
to organise outward trade missions, whether to accompany Ministerial
or Mayoral parties or as part of regional or sectoral missions
organised by other bodies. These outward trade missions have an
important role to play but should perhaps be supplemented with
more inward missions in which the Society seeks to encourage groups
of potential exporters, investors and business partners to come
to the UK. This is particularly relevant for service sector businesses
which often rely on more equal partnerships than the traditional
manufacturing supplier relationships where it makes sense to identify
a source factory etc.
10.9 There has also been much effort made by
UKTI to promote coordination amongst the regions of the UK who
are seeking to promote their own economies. Although progress
has been made, there is still a sense, often picked up abroad
that UK regions are competing against each other and this is creating
confusion. It would be considerably easier to promote what each
UK region has to offer if regional strengths were agreed and made,
as far as possible, non-competitive.
10.10 Finally, the Society would like to see
more recognition of the role that legal exports play. The legal
sector is categorised in UKTI terms as a sub-set of financial
services and the Society believes that this undersells the role
that lawyers play in sectors ranging from infrastructure through
to sports and media law.
Conclusions
11. The Middle East, and the Gulf in particular,
are likely to remain important to the UK legal sector despite
the recession. The recommendations and suggestions that the Society
would make in order to increase the effectiveness of UK legal
exports to this pat of the world are nonetheless applicable around
the globe.
20 April 2009
44 Office for National Statistics (2008) United
Kingdom Balance of Payments: The Pink Book TSO Back
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