In simple terms, a free trade agreement (FTA) is an arrangement under which barriers to trade and services between two or more states are reduced or eliminated, facilitating the trade in goods and services between those states. In addition to tariffs and quotas on goods, barriers to trade commonly include regulatory restrictions such as licensing and other requirements. FTAs are designed to encourage stronger trade and commercial ties between the signatory countries and are increasingly being used to remove barriers to services, including legal services.
An FTA may take the form of a bilateral agreement between two jurisdictions or a multilateral agreement between numerous jurisdictions. An example of a multilateral agreement is the Trans-Pacific Partnership Agreement (TPP). This article examines the impact of FTAs on the trade in legal services between states, the arrangements that will come into effect under the TPP, and developments between mainland China and Hong Kong.
As noted in a previous article (see China Business Law Journal, volume 4 issue 7: Liberalization and integration of legal services) the international market in legal services is governed by the General Agreement on Trade in Services (GATS). GATS was one of the agreements signed in April 1994, when the World Trade Organization (WTO) was created. It was the first multilateral trade agreement to govern the trade in services. GATT, the General Agreement on Tariffs and Trade, governs the trade in goods.
However, some member countries such as South Korea did not make any commitments in respect of legal services under GATS. As a result, the opening of their markets to foreign legal services has occurred pursuant to bilateral FTAs with other countries. South Korea has now entered into FTAs with the EU, the US and other countries such as Australia and Canada. These FTAs allow law firms from the counterpart countries to establish a presence in South Korea.
Although many countries made commitments in respect of the trade in legal services when they entered GATS, some countries have made further provision for the trade in legal services in their bilateral FTAs with other countries.
The most-favoured nation principle, under which any concessions agreed with one member country must be extended to other member countries, means that it is difficult for a GATS member country to offer concessions under FTAs that are not available to other GATS member countries. However, some countries have agreed on express provisions concerning legal services in their FTAs to guarantee the benefits under the existing commitments, and to encourage closer relationships between the two countries in the area of legal services.
In recent years, the Australian government has been particularly active in this respect. For example, the China Australia Free Trade Agreement (ChAFTA), which came into force on 20 December 2015, contains express commitments from China in relation to legal services.
ChAFTA guarantees that Australian law firms will have access to the China legal services market under China’s existing WTO commitment. It also guarantees that Australian law firms may take advantage of the rules in the Shanghai Free Trade Zone that allow foreign firms and local firms to undertake reciprocal secondment of lawyers, and also to establish commercial associations with Chinese law firms. The relationship between China and Australia in this area is further strengthened by a side letter under which the two countries agree to pursue dialogue through the relevant professional bodies for the purpose of strengthening co-operation in the provision of transnational legal services.
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A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at law.asia.