Abstract

China agreed to open its service market, gradually and conditionally, to its fellow WTO members under the General Agreement on Trade in Services (GATS) as part of accession commitments. Legal services are the very first ones to appear in China’s schedule of commitments.

Foreign legal services are a necessary supplement to the legal services provided by Chinese legal professionals. However, they threaten to derail or at least forestall the development of the infantile Chinese legal industry with their overwhelming financial and organizational strength. A struggle between Chinese legal profession and its foreign counterparts is bound to ensue. State intervention will be vital for the survival of the Chinese legal profession. But how will the Chinese authority balance this interest with its obligations as a member of the WTO?

Four modes of supply – through which cross-border delivery of services are realized – were incorporated into GATS. Three of the four – Cross-border Supply, Commercial Presence, and Temporary Movement of Natural Persons – are relevant to this topic. The discussion will focus on Commercial Presence, which is the delivery of legal services through direct foreign investment. We will take a close look at the effect of the presence of FLSP on the Chinese legal service market, and the discrepancies between China’s WTO commitments and their implementations in reality.


I. Introduction

This paper examines the legal service market in China, especially the market share of foreign legal service providers (FLSP), in the context of China’s membership with the World Trade Organization (WTO). China joined the WTO on 11 December 2001. As part of accession commitments, China agreed to open its service market, gradually and conditionally, to its fellow WTO members under the General Agreement on Trade in Services (GATS). Legal services are the very first ones to appear in China’s schedule of commitments.

China’s fast growing economy relies largely on foreign investments and international trading. The involvement of foreign legal services in this regard is indispensable. Especially at the moment, language remains the major obstacle for the communication between business partners in the East and West. From a foreign investor or trading partner’s perspective, it is simply too risky to leave matters of legal consequence to lawyers who do not speak the same language. Furthermore, the Chinese legal system and legal profession have not reached the level of maturity that could command the confidence of foreign investors and trading partners.

Foreign legal services are a necessary supplement to the legal services provided by Chinese legal professionals. However, they threaten to derail or at least forestall the development of the infantile Chinese legal industry with their overwhelming financial and organizational strength. A struggle between Chinese legal profession and its foreign counterparts is bound to ensue. State intervention will be vital for the survival of the Chinese legal profession. But how will the Chinese authority balance this interest with its obligations as a member of the WTO?

Four modes of supply – through which cross-border delivery of services are realized – were incorporated into GATS. Three of the four – Cross-border Supply, Commercial Presence, and Temporary Movement of Natural Persons – are relevant to this topic. The discussion will focus on Commercial Presence, which is the delivery of legal services through direct foreign investment. Since the delivery of legal service on aspects other than Chinese law does not rely on access to the Chinese legal service market, our discussion will be confined to legal services concerning only Chinese law. We will take a close look at the effect of the presence of FLSP on the Chinese legal service market, and the discrepancies between China’s WTO commitments and their implementations in reality.

This paper is set in the context of the conclusion of China’s Cultural Revolution and its subsequent adoption of the open door policy. Part II provides background information, including the development of China’s legal profession alongside its economic reform. Part III examines the challenges facing the Chinese authority: on one hand, they are under the mounting pressure of globalization and its WTO obligations to liberalize its service market; and on the other, the state’s interest of protecting an infant industry and the political interest of keeping the society under the tight grip of the Communist Party. Part IV examines the scope of China’s GATS Commitments. Part V examines China’s domestic legislative measures for the implementation of its GATS Commitments. Part VI looks at the effect of the implementations, including the current status of the legal service market, and whether or not China has delivered on its promises. Part VII looks at the unique position of legal service providers from China’s Special Administrative Regions (SAR), and its implication on the future of FLSP in China. Part VIII expresses the author’s opinion as to the future of China’s legal reform and its legal profession as the conclusion of the paper.