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October 01, 2012

Restrictions continue in China for U.S. lawyers

A number of important barriers restricting U.S and other foreign law firms from operating in China still remain, the ABA told the Office of the U.S. Trade Representative (USTR) in comments submitted Sept. 24 on China’s compliance with its commitments in connection with its accession in 2001 to the World Trade Organization (WTO).

In the comments, ABA Governmental Affairs Director Thomas M. Susman recognized that China has made some progress in liberalizing its legal services market. He highlighted, however, remaining market barriers identified by the USTR’s 2012 National Trade Estimate Report on Foreign Trade Barriers that include: prohibiting foreign law firms from practicing Chinese law; barring cooperation with Chinese law firms; and barring foreign law firms from directly representing clients in, or even from attending along with local Chinese counsel, regulatory proceedings by Chinese government agencies.

An issue of primary importance to the ABA, Susman said, is the inability of U.S. law firms to hire qualified Chinese lawyers able to practice Chinese law. Under current rules, Chinese lawyers employed by a U.S. or other foreign law firm must surrender their licenses to the Ministry of Justice and are prohibited from practicing Chinese law during their period of employment.

These restrictions prevent U.S. firms from “being able to offer the comprehensive and integrated services expected by clients operating in our increasingly globalized economic environment,” Susman wrote. In contrast, Chinese law firms are able to hire U.S.-licensed lawyers to work for them in their offices located both in the United States and in China. The U.S. lawyers are free to provide the full range of advice and services on the law of the U.S. jurisdiction in which they are licensed to practice.    

 “The end result is that U.S. firms in China are disadvantaged in comparison to their Chinese counterparts by not being able to offer comprehensive services on transactions involving both Chinese and U.S. law,” Susman said.

The American Chamber of Commerce in the People’s Republic of China has identified additional market access constraints on U.S. lawyers and law firms that prohibit them from participating with clients in meetings with certain government departments, impose burdensome requirements for establishing representative offices, subject them to discriminatory tax burdens, make it difficult to hire foreign non-legal professionals, and limit work visas to one year.

The ABA maintains that, while not all of the restrictions constitute technical noncompliance with China’s WTO commitments on legal services, the restrictions may be contrary to the WTO’s guiding principles of progressive liberalization and counter to the increasing trend toward legal services market liberalization by other countries in the region such as South Korea, Singapore and Malaysia.

The ABA has long supported a liberalized rules-based system of international trade both as a mechanism to advance the rule of law and as a means to enhance the ability of U.S. lawyers and law firms to effectively serve their clients through cross-border practice. In 2002, the association adopted a policy urging the USTR to seek practice rights for outbound U.S. lawyers equivalent to the practice rights set forth for inbound foreign lawyers in the ABA Model Rule for the Licensing and Practicing of Foreign Legal Consultants.

The USTR will be compiling the ABA comments and other statements and testimony delivered during an Oct. 5 hearing as it prepares its annual report on China’s WTO compliance.

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