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Vol. 29, No. 5

GATS and FLC rules gaining more attention

by Clifton Barnes

Steven Krane: “Ultimately, it is the states that must agree to liberalize rules, not the U.S. government or the ABA. The decisions must be made state by state.”

The distant drumbeats of the GATS treaty two years ago have turned into a cacophony of voices today.

The General Agreement on Trade in Services, the first multilateral trade agreement applying to services (including legal services) rather than goods, could barely get an audience in 2003 when Bar Leader wrote that the issue was scratching its way onto bar leaders’ radar (July-August 2003, page 8).

Then as now, some say state-to-state differences in multijurisdictional practice rules, disciplinary procedures, and other matters complicate the work being done on the treaty, which affects both U.S. lawyers practicing in many foreign countries and lawyers from those countries practicing here. Signed in 1994 by the 144 countries in the World Trade Organization, the treaty has in some ways been a work in progress ever since.

Along with impending “target dates”—deadlines that have become more flexible as the time approaches—the ABA Task Force on GATS Legal Services Negotiations is credited with helping reinvigorate the U.S. efforts.

“The task force was essentially reactivated [last summer] and expanded to include other constituencies within the ABA,” says Don De Amicis, chair of the task force.

He says direct coordination and communication between the ABA and others in the legal world—including state regulators, legal education professionals, and lawyers and law firms who have an interest in the topic—has created a strong dialogue.

“A big part of the mandate is to educate and outreach and coordinate,” De Amicis says. “We are in a multilateral round of negotiations intended to liberalize the trade in services. As lawyers, we’re not immune from the effects of that liberalization.”

The deadline, or target date, for this round of negotiations is in May. By then, WTO countries are to submit their current requests for access by their legal services providers to other countries. De Amicis, though, says the negotiations will likely go on “at least several years.”

The office of the U.S. Trade Representative has been asking lawyers which countries they want the government to contact. However, as De Amicis notes, “the USTR has taken the position that it is not feasible to request market access rights in other countries which are greater than what the United States is willing and able to offer to foreign service providers in our country.” In other words, parity is desired.

However, some say, it’s difficult for the United States to negotiate when state rules vary widely on dealing with foreign legal consultants, and when about half of the states have no rules allowing foreign lawyers to open offices or to be employed by U.S. lawyers.

Laurel Terry, a member of the ABA Joint Committee on Lawyer Regulation and a national speaker on GATS, says that this is relatively uncharted territory and that, understandably, states have a concern about how foreign lawyers are to be regulated. “This is an area that has traditionally been regulated by states,” she says. “But you can’t have 50 states negotiating with 150 countries, so we have to try to make this work.”

While those ABA leaders dealing with the issue agree that lawyer regulation and lawyer discipline are important issues that need to be addressed, they also say that the current flow of communication is a new and positive step.

Still, at least one group, the Conference of Chief Justices, discussed the situation recently and chose not to take any action on the subject of GATS, saying that regulation is a function of the state, and the conference sees no reason to change it.

“It’s safe to say that the Conference of Chief Justices is not always completely happy with federal government positions, but there is at least a dialogue happening now,” says Terry, a law professor at Penn State Dickinson School of Law.

“Regardless of whether someone thinks GATS is good or bad, it exists,” she adds. “Therefore, it makes sense for U.S. lawyers to be aware and educated about it.”

U.S. lawyers are the largest exporter of legal services, Terry says, and GATS identifies restrictions and opportunities for those lawyers abroad.

Government statistics show $3.38 billion in outbound U.S. legal services trade in 2003 (up from $1.4 million in 1993) and $879 million in inbound U.S. legal services trade (up from $321 million in 1993).

In addition, Terry says, all but five states annually export billions of dollars of merchandise, with even the five smallest exporters shipping hundreds of millions of dollars of merchandise to other countries.

Plus, she notes, the increasing number of foreign-born residents will lead to increased international contacts by U.S. lawyers.

Terry believes we now live in a global world where international trade is a reality. “We have to respond to the reality,” she says. “You’re either going to have a regulatory system you develop or have a system where you have no control over regulations.”

That’s why a November meeting at the Washington office of the U.S. Trade Representative, organized by the Transnational Legal Practice Committee of the ABA Section of International Law, focused on encouraging the states that have not adopted foreign legal consultant (FLC) rules to do so.

ABA member Steven Krane, past president of the New York State Bar Association and an active speaker on GATS, attended the meeting in Washington.

“The reason for the encouragement was so that the USTR could finalize its proposals and requests to the other WTO members by increasing the number of states with ‘open doors’ to foreign attorneys, in the hope of advancing the cause of opening doors in other nations for U.S. attorneys,” says Krane, who adds that the USTR and ABA are not pressuring states to conform.

“Ultimately, it is the states that must agree to liberalize rules, not the U.S. government or the ABA,” he says. “The decisions must be made state by state.”

With that in mind, the NYSBA sought to explore the possibility of entering into agreements between the state of New York and governments outside of the United States. As the GATS negotiations picked up steam, the NYSBA formed a committee on cross-border legal practice, which Krane chairs.

“We continue to monitor the situation and seek dialogues with other nations regarding possible bilateral agreements,” Krane says. “Such agreements are complicated, however, by the provisions of GATS regarding most-favored-nation status, and we are trying to work through those as we proceed.” These provisions generally require WTO members to grant to all other members the best terms and conditions they have granted to other WTO members, Krane explains. That would make it difficult for a state to enter into a bilateral agreement with a specific country; the bar is currently trying to find mechanisms to allow for what Krane calls “selective bilateralism.”

Even if an agreement is reached, the NYSBA, as a voluntary bar, is not in a position to make or deliver on any promises. “[We] can only undertake to use our best efforts to convince our regulators of the wisdom and benefits of further expansion of our already liberal rules,” Krane says.

States’ FLC rules

New York has actually had an FLC rule for more than 30 years, and its rule is the basis for the ABA Model FLC Rule, adopted a decade ago. Krane says that any initial fears of potential competition have been allayed by the experience in New York with its FLC rule.

“We have not seen the floodgates open, or substantial business being taken away from New York lawyers,” Krane says. “Instead, we have made New York a far more hospitable environment for foreign lawyers, and thus for foreign businesses and foreign trade. The relationship between FLCs practicing in New York [and New York lawyers] has been symbiotic, not destructive.”

The potential for increased opportunities for U.S. lawyers abroad is another reason, Krane says, “if not the principal reason,” for moving forward with GATS negotiations or bilateral agreements.

In Texas, the driving force to adopt the ABA Model Rule on FLCs is to make that state more competitive in international legal services and internationally at large, says Larry B. Pascal, former chair of the International Law Section of the State Bar of Texas and another national speaker on GATS.

In 2003, the 11 largest Texas-based firms had a total of 23 offices in other countries, Pascal says.

“These and other Texas firms have also hired foreign lawyers to work in their Texas offices in order to better meet the needs of their U.S. and foreign clients,” he says, adding that cross-border work is becoming more common, if not indispensable, for all Texas practitioners.

“I believe there is a very good chance that a new foreign legal consultant rule, modeled on the ABA Model Rule (although with some small changes), will be adopted by the Texas Supreme Court in the second half of the year,” Pascal notes.

Being a border state, the issue may be hotter in Texas than in other states.

The Virginia State Bar has appointed a task force to study the ABA proposals, but it appears that most solos and small firms in Virginia are not yet concerned that U.S. lawyers have access to foreign legal markets.

“I think [international practice] is of interest to a relatively small group of lawyers that have multinational clients and have established an office overseas,” says Jim McCauley, Virginia State Bar ethics counsel. “However, with increasing globalization of business and the professional services sectors, even small and solo practitioners may have an interest in temporary practice or establishing an office in a foreign country.”

The Virginia task force is addressing an FLC rule, a temporary practice rule for foreign lawyers, and an amendment of the enforcement provisions to give Virginia jurisdiction to enforce the rules of professional conduct if a foreign lawyer engages in misconduct while practicing in Virginia.

Common among the various FLC rules is that the FLCs must be admitted to the bar and be in “good standing” in their home country and that FLC applicants must have practiced law for a minimum period of time in the years just prior to applying for an FLC license.

De Amicis, the ABA task force chair, says bar leaders should be following the process and keeping up with important developments in other states. “I would encourage people at the state level to bring their issues of concern to the ABA task force so that the discussions on the GATS liberalization process get the broadest input possible,” he says. “The issue of lawyers practicing across borders is only likely to grow and expand.”

—By Clifton Barnes