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Courting trouble?

Liberalising legal sector

Given the resistance within the legal profession to even mild doses of external liberalisation, the Commerce Ministry has taken the prudent step of placing before the fraternity, the stakeholders and the nation, the state of play in various countries and their stated expectations from India with regard to external liberalisation of the legal services sector. The government has just embarked on measures for internal liberalisation. Till the benefits accrue, external liberalisation must wait for a level-playing field.

The Commerce Ministry, in its Web site, recently hosted a discussion paper on the opening up of legal services in India. The stated purpose of this document is "to increase awareness on the main issues, challenges, and, most important, opportunities relevant to the legal services sector." It also seeks to gather inputs on the kind of approach India should take and the types of goals the legal services sector would like to see achieved in these service negotiations.

Liberalising the legal sector
Given the resistance within the legal profession to even mild doses of external liberalisation, the Ministry has taken the prudent step of placing before the profession, the various stakeholders and, indeed, the nation, the state of play across countries and their stated expectations from India with regard to external liberalisation of this crucial service sector.

With services contributing to more than 50 per cent of GDP, it is estimated that India's interest in future negotiations within the World Trade Organisation is interlinked to services liberalisation. India stands to gain significantly from liberalisation of trade in services by other member-countries as it is an acknowledged services powerhouse with the potential to emerge a global superpower in the immediate future. In the context of effectuating this potential, the discussion paper on legal services seeks to act as a trigger for building a national strategy on the external liberalisation of this sector.

No free lunch
Obviously, when other countries are providing market access to the legal service providers, it is natural that they would also seek to penetrate the Indian legal market. In the WTO world, there is no free lunch;. the cunning lies in placing something less and obtaining something more.

This calls for strategic positioning during the negotiations playing to one's strengths both while seeking and providing market access. Since one cannot estimate precisely the benefits accruing to the legal fraternity from the liberalisation, it is important that the domestic experiences of other comparable sectors are factored in while evolving the strategy for the legal service providers.

Accountants, a case in point
The immediate reference point for the Indian legal fraternity would be the accounting profession. The entry of the Multinational Accounting Firms (MAFs) into India has coincided or even preceded the establishment of the WTO regime.

That is, as the coordinates for the WTO itself were being finalised, the Government allowed the MAFs to enter India.

This was in sharp contrast to countries, notably the developed ones, which were busy erecting barriers and legalising them through the GATS-WTO regime.

The premature entry of the MAFs is believed to have had a debilitating impact on the accounting profession in India. This should not happen to the legal fraternity as well.

A crucial issue that needs to be factored in is that external liberalisation of services has pitted the unbranded accounting services with the branded services of the MAFs. This skewed the playing field in favour of the MAFs, so much so that even after a decade, it is impossible to comprehend the emergence of a pan-Indian accounting firm.

Consequently, after a decade-long experience with MAFs, the accounting profession is fast becoming a weakened and marginalised local force. By playing the global game at the local level, the MAFs have succeeded in weakening the accounting profession even within India. After all, globalisation is a war of entrepreneurs.

A caveat for legal profession
Competition with foreign firms even within India calls for extreme preparation. And the timing of liberalisation has to be precise.

One reason for legal services providers to face foreign competition is to acquire size and become multidisciplinary.

The government has just embarked on measures for internal liberalisation. Till the benefits accrue,, external liberalisation must wait for a level-playing field. Multinational firms with deep pockets would be interested in setting up branches in India and with the best talent. With Indian legal firms struggling to hold on, the proposed quid pro quo of allowing them to practice aboard would be reduced to a theoretical proposition.

The next question is that of allowing competition between professionals with different ethical codes. It is suggested that a way out would be to allow foreign firms to engage in legal consultancy and prevent them from practising in Indian courts. This would, as the experience with the MAFs in India shows, place such entities virtually out of the ethical parameters.

Thus, in effect, we could have a large number of legal firms constrained by the ethical requirements and a small number of foreign firms with deep pockets, unconstrained by any legal restrictions and cornering the lucrative consulting practice. What is worrying is that some foreign firms have already entered India and tied-up with local biggies.

`GATS-compatiable'
It may not be out of place to mention that the S. V. S. Raghavan Committee, constituted for the purpose of drafting the Competition Policy, suggested amendments to the statutes governing professions and to make them "GATS compatible." For instance, allowing some sort of advertisement/marketing for professional services.

Ostensibly, the idea is to allow greater competition and choice to the consumers.

Nevertheless, what was missed out was the inability of the legal firms to compete with foreign ones in an alien regulatory (read "GATS compatible") atmosphere even within India. There appears to be a problem with the external liberalisation process and, in the process, we are missing the woods for the trees.

Domestic liberalisation must precede external liberalisation. The government needs to ensure that a sizeable number of domestic legal firms acquire pan-Indian presence and multidisciplinary practices. Given the experience, post-Uruguay Round, it is unlikely that Indian lawyers will set up practice abroad. Even the offer list of other countries annexed to the discussion paper seems to suggest a host of barriers to the entry and practice of the Indian lawyers in developed countries, especially in the US and the EU.

It is crucial that the Indian legal services does not suffer the fate of the chartered accountants. The legal fraternity should also take this as a wake-up call from the government, pull up its socks and be ready to face competition.

Published at: http://www.thehindubusinessline.com/2006/08/14/stories/2006081400560800.htm

Last modified on Friday, 19 July 2013 17:14

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