Insight: China's foreign lawyers argue case from the gallery (Reuters)

BEIJING (Reuters) – Ten years after lawyers helped forge an agreement to bring China into the World Trade Organization (WTO), a step that created opportunities for scores of non-Chinese businesses, foreign attorneys in the country wish they had struck a better deal for themselves.

China, like Japan and South Korea before it, sharply curtails the work of foreign law firms, barring them — along with any local national lawyers working for them — from practicing Chinese law.

The World Trade Organization deal brought almost no change to this situation, and control on the sector has become even more restrictive over the past decade.

“At the time the WTO was negotiated … the U.S. and European law firms did not raise the lawyers issue,” said David Livdahl, who runs the Beijing office of Paul Hastings, adding that at that time most Chinese law firms were focused on domestic growth and didn't look like a competitive threat.

“Now the Chinese companies are investing all over the world and the … domestic firms are following them into many foreign jurisdictions, without any of the restrictions placed on the international law firms in China today,” he said.

To be sure, firms like Baker & McKenzie, White & Case and Skadden make money in China, mostly by advising western clients. But for Chinese law matters, they must partner with domestic firms.

The country's ruling Communist Party shows no appetite for change, lawyers say, not least because of worries that a more robust legal system could foster challenges to its rule.

“The legal profession is different from manufacturing and other types of services — it has a political angle to it, and it has a civil rights angle to it,” said one China-based lawyer who declined to be identified.

“As a result, for the Chinese government the less foreigners meddle in their system, the better.”

China's Ministry of Justice, which regulates law firms, did not respond to a request for comment.

TIGHTER AND TIGHTER

The barriers to outsiders in China's legal system are not unique. Japan blocked foreigners from practicing its law before opening the sector in 2002. South Korea has committed to removing its own restrictions.

In China, however, the rules are getting tighter.

In the past decade, the Ministry of Justice has banned government departments like the new anti-monopoly bureau within the Ministry of Commerce (MOFCOM) from meeting foreign lawyers.

“Eight years ago when I handled our first anti-monopoly filing in China I could deal directly with MOFCOM,” said Livdahl of Paul Hastings.

“Now, despite the huge amount of anti-monopoly expertise in foreign firms, we cannot now deal directly with them to handle pre-merger filings or anti-monopoly filings for our clients.”

And a requirement that local Chinese suspend their law licenses when joining foreign firms has come to feel more onerous as increasingly well-qualified attorneys find their careers at international firms stunted by not being able to practice law in their own country.

“With its policies, the government is denying a very talented group of Chinese citizens the opportunity to practice its own law,” said one Chinese partner at a foreign firm.

The benefits for local firms are obvious enough, and include favorable tax arrangements that bar associations have negotiated with local tax bureaus.

Even so, some Chinese lawyers express support for a change.

Guan Anping, a senior councilor with Youbang law firm in Beijing, argued that the protections breed complacency that put Chinese law firms at a disadvantage in overseas markets.

“This isn't necessarily a good thing for local firms. Their competitiveness won't improve. Instead it's likely to decrease,” said Guan.

NO HURRY

Change could be far off, partly because of domestic politics.

The Communist Party pushed to strengthen rule of law in the 1980s and 1990s. Lately, however, it has been backtracking, worried about challenges to its authority from activist lawyers, said Carl Minzner, a law professor at Fordham University in New York and an expert on China's legal system.

That has included warning domestic lawyers to avoid sensitive cases.

“Chinese authorities began to fear that some of the demands for legal reform were actually bumping up against some of their core demands, such as one-party rule,” Minzner noted.

The resulting caution makes bold reform of the rules on foreign law firms even less likely, said several lawyers.

“There are two issues (that make the government reluctant to push for changes),” said Guan of the Youbang law firm.

“One is China helping its own law firms to become strong. But that's not what officials are really paying attention to. What they are really focusing on is preserving the system.”

But for all the reluctance to loosen, China also has good reasons not to tighten further — Western companies depend on international firms to help them invest in China and the foreigners also help the commercial legal system advance toward international standards.

“China is very keen for the world to accept the standard of the Chinese contract,” said Jon Christianson, a partner with Skadden in Beijing.

“And plenty of people in the ministries know that won't happen if there aren't foreigners practicing in the system.”

(Additional reporting by Sally Huang; Editing by Brian Rhoads and Robert Birsel)

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