Trends in the Trade & Customs Legal Market: 2015
Economic sanctions have been the buzzword among trade and customs lawyers for this year. The increase in sanctions across a wider geographical region has led to an upsurge in the demand for specialist expertise in this area, as companies find that consideration for such economic measures have become a central concern to their business.
Thus many lawyers have experienced a shift in the focus of their practice towards regulatory and compliance work. This uptick in demand for trade and customs legal advice is further fuelled by the continued negotiation and also conclusion of several important trade deals this year, such as the Trans-Pacific Partnership (TPP), which are designed to deepen economic ties between the countries involved and promote international trade into the future. Indeed, political influences on global trade can be further felt in the recent increase in litigation focusing on the renewable energy industry, as governments see this as central to achieving cheap alternative fuels. The general proliferation of technology across the industry sectors is becoming ever more central to large commercial transactions and helping to facilitate access to goods in the international market, providing opportunities to law firms for increased specialisation within their trade and customs legal teams. Consequently the legal market is itself very buoyant for trade and customs lawyers from this increase in demand for the provision of such legal services, with firms expanding and looking to develop their expertise in the wide range of specialisms now comprising trade and customs law.
“Sanctions remain hot.” As the geopolitical tensions in Ukraine/Russia and Syria, Iran and Iraq continue to resonate on the international stage, sanctions were discussed by almost all practitioners we spoke to as a major issue affecting their practice in the last year. Long-standing sanctions continue to affect trade and economic activity against countries such as North Korea, Burma, Zimbabwe, Syria, Libya, Somalia and the Democratic Republic of the Congo; but the effect of the sanctions between the big trading players of the European Union, the United States of America and Russia are only now becoming visible. Russia has seen prices soar, with, for example, cabbage costing almost double what it did last year, pork increasing by nearly a third, and potatoes by a quarter. This is accompanied by a corresponding drop in the value of the rouble, and the Russian economy is now expected to contract up to 6 per cent this year, fuelled in particular by the dropping price of oil. Similarly, trading with Syria and Iraq has been affected by the imposition of sanctions this year. The increase in trading sanctions has led to a considerable uptick in the demand for legal services, particularly in terms of regulatory advice and compliance work for companies doing business in affected jurisdictions. As sanctions have increased, a wider range of companies across industry sectors are requiring legal services in order to carry out their day-to-day business, and tackle regulatory differences between markets. As one lawyer put it: “What was relatively rare advisory work has become the bread and butter of trade lawyers.”
Adding to this, in some areas of the world international sanctions are also being loosened. For example, following the agreement on the Joint Comprehensive Plan of Action (JCPOA) in July the EU, the UN and the US (as well as other countries) have changed their positions towards Iran. Businesses will be eager to expand into these new jurisdictions and capture new shares of the market while looking to clarify their lawful trading position. Consequently lawyers have tended to experience a shift in the focus of their practice towards this area of law, with “the last two years seeing more sanctions work than the previous 30 years”. This increased demand also offers firms the opportunity to capitalise on what is highly sought after, expanding into and strengthening their specialist expertise in the provision of sanctions-related services, which have become “an everyday part of deals”.
A further opportunity for lawyers on the horizon is potential renegotiation of the relationship between the US and Cuba; an end to the 54-year embargo between these countries depends on the outcome of the US presidential elections. President Obama has already urged Congress to scrap the embargo, having chipped away at US restrictions on trade and travel to Cuba using existing authorities, and announced that Havana and Washington, DC would normalise diplomatic relations. Indeed the two countries reopened embassies in August. This could lead to a significant advance in relations between the US and its Latin American neighbours and an increase in trading opportunities.
However it is worth considering the long-term impact of economic sanctions, which after all impede the flow of international trade. Critics deem them the “ineffective default mode of western diplomacy” and “the acceptable face of aggression”. In Russia, for example, many civilians are blaming the West for their worsening economic conditions, which could lead to international trade being severely hampered in future years as international relationships are strained by such measures. Moreover, in the long term this could lead to an overall downturn in demand for trade and customs expertise pertaining to certain jurisdictions.
This year has also seen the conclusion and advancement of several important trade negotiations. Recently, the landmark Trans-Pacific Partnership (TPP) was announced. Described as the “largest trade deal in a generation”, it affects 12 countries from around the world who are collectively responsible for 40 per cent of the world economy: Japan, Malaysia, Vietnam, Singapore, the US, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. The pact aims to liberalise trade by deepening economic ties between these nations, cutting tariffs and creating new economic growth. For example, more than 18,000 taxes on US products have been removed by the various countries which imposed them. In addition, the deal is a particularly “remarkable achievement” due to the different approaches and standards within the member countries towards issues such as workers’ rights, regulatory coherence, protecting the environment and special protection measures which some countries have for specific industries.
Another important trade deal still currently being negotiated is the Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States. Trade between the US and the 28 EU member states is currently estimated to be around €2 billion every day; thus, if successful, this agreement will be the world’s biggest bilateral trade and investment deal. It aims to create growth by, similarly to the TPP, eliminating red tape and tariffs to reduce costs and thus make it easier for companies on either side of the Atlantic to access each other’s markets. Many products will become cheaper as they no longer have to undergo double testing to satisfy rules for both the European and American markets. It is anticipated to benefit Ireland more than any other EU member state as almost half (49 per cent) of Irish exports outside of the EU end up in the US, compared with the combined average of 16 per cent for all member states, and 25 per cent of foreign direct investment in Ireland comes from the US. As a result, Ireland in particular is expected to see an uptick in its demand for trade and customs legal services, providing an opportunity for particularly domestic law firms to take advantage of.
Such major negotiations are expected to fuel a general increase in global trade, and a corresponding demand for trade and customs expertise, as companies look to take advantage of the negotiations and expand into new markets. On one hand the large scale of the TPP and TTIP and the standardisation of certain laws affecting these different jurisdictions, will make it easier for law firms to offer their expertise to a broader range of companies in a much wider geographical area. On the other hand, lawyers who currently specialise in complex cross-border trading between the different jurisdictions affected by these deals, may find an increase in competition for their market share in the coming years. Furthermore such large-scale agreements will bring new issues and disputes to the fore, and therefore are expected to also bring a future increase in trade litigation until the interpretation of these agreements has been clarified by the international courts.
An additional opportunity for law firms operating for clients in the US and Canada is the imminent renewal of the current softwood lumber agreement between these two countries. The most recent agreement, the Canada–US Softwood Lumber Agreement 2006 (SLA), returned more than $5 billion in duty deposits to Canadian companies and encouraged steady access to the US market. This has been especially valuable to Canadian exporters and forest-dependent communities during the recent period of unprecedented difficulties in the Canadian forest sector. In January 2012 Canada and the United States agreed to extend the Agreement by an additional two years, until October 2015; a further extension to this deadline is currently under consultation. It is hoped that trade in this sector will continue to flourish between these two countries, creating a demand for trade and customs legal advice and providing the opportunity for law firms to expand and tailor their trade expertise to companies operating within this sector.
Practitioners have reported a significant increase in trade disputes this past year. The steel industry has been highlighted in particular through an uptick in the number of cases being filed. This rise in disputes was triggered by global overproduction and a corresponding drop in the price of steel, led by China – which owns six of the world’s top 10 steel companies, and whose crude steel output reaches approximately 50 per cent of global production. Jurisdictions such as the United States, Canada, the EU, Australia and ASEAN countries have all been involved in investigating dumping cases in relation to China’s steel exports. This has kept many lawyers “extremely busy over the last 12 months”; however, it is felt by some practitioners that while cases will continue to be played out, “the spike is now over”. They point instead to energy being the sector of growth in the near future, with disputes concerning renewable energy coming to the fore. Indeed, the ongoing row over solar power panels between China and the European Commission shows no signs of abating, as EU ProSun, an association of EU producers, has lodged a complaint accusing Chinese rivals of trying to evade import tariffs by shipping their products via third countries, and dumping cheap goods in Europe. Chinese solar panel production quadrupled between 2009 and 2011, exceeding the entire global demand. EU producers allege that Chinese companies have captured more than 80 per cent of the European market from a starting point of almost zero a few years ago. Chinese-made panels are up to 45 per cent cheaper than those made in Europe, and thus Chinese manufacturers are accused of destroying Europe’s solar panel industry. As this issue rolls on, trade lawyers are likely to see an increased demand for their expertise right across the renewable energy sector, which leading economies view as the key to achieving a carbon-free future. As one lawyer put it, energy “is the future for trade disputes”.
As technology across all sectors improves, the continuing growth of e-commerce is expected to exert a growing influence on the pattern of international trade in the near future. The rise of consumers using screens to make purchases, and the huge growth in e-commerce platforms such as Amazon and eBay, has changed the way in which consumers access domestic and international markets for a wide variety of goods. New companies, particularly in emerging markets (such as the Chinese company Alibaba and the Japanese firm Rakuten) are continuing to grow and expand into multiple new markets. On top of this, the rates of internet access, particularly among consumers in these markets, continues to improve. According to one study, between 2013 and 2014 the use of the internet for shopping by Indian respondents increased from 20 per cent to 32 per cent, and between 2010 and 2014 the number of people with internet access in India more than doubled. Such developments are likely to have a profound impact on international trade as the role of e-commerce will become ever more central to transactions, thus creating significant opportunities for law firms to expand their services into this sector. Indeed, an increasing number of large commercial transactions are being conducted on almost an exclusively e-commerce basis, for example from the negotiation and agreement of contracts by email to the conclusion of the transaction and the delivery of the goods under the agreement by the presentation of an electronic Bill of Lading. In this context, it will be increasingly important for trade lawyers to develop their expertise in this area as e-commerce and international trade continue to converge.
The legal market for trade and customs work is “extremely strong”. With an increasing demand for trade and customs lawyers’ expertise, the current market is an encouraging environment for firms to expand their practice, with the majority we spoke to having hired, or looking to hire, new practitioners. This growth is reflected in the increasing numbers of leading industry experts we identify in our research over the last few years, as firms look to exploit this increased demand by attracting the top talent in the field. In addition, firms report a “notable explosion” in the number of law students currently interested in international trade and customs as a practice area; this gives firms an the opportunity to take the best advantage of a widened pool of talent at trainee level.
While there is some competition from boutique firms, larger law firms are thriving in the current environment due to the depth and breadth of expertise they can provide. Increasing globalisation combined with growing legal pressures and demands in relation to trade and customs law have played to the strengths of international law firms who offer larger teams of practitioners with a greater capacity to address the comprehensive legal needs of a company. For example, if a company is exporting goods to 90 different jurisdictions it is potentially facing 90 different disputes, which smaller teams of specialist experts in boutique firms are less well positioned to deal with. In addition, practitioners spoke about the importance of providing advice “in real time” to clients who require answers immediately; this can often only be achieved when there is the “appropriate manpower”. Having a “deep bench with such expertise is absolutely necessary for firms” that want to compete in the legal market, according to some practitioners. As a result, mergers are continuing to take place, with a particularly notable union between Dentons US and McKenna Long. Dentons’ expanded US team comprises 1,100 lawyers and professionals to provide clients with even greater skill and knowledge in more locations throughout the world. Yet boutique firms often foster relationships between other boutique firms, and thus offer an alternative to clients: unique networks of specialists with expertise in certain niche areas, able to provide advice regarding specific trade and customs issues at a lower cost.
A few practitioners spoke of the growth of Singapore as an increasingly real competitor to London as a centre for the conclusion of trade and customs legal affairs. Indeed at the start of this year Singapore opened an International Commercial Court (SICC) with the specific aim of providing an alternative location for arbitration in Asia. This comes as part of a series of substantial investments in its legal sector and follows the establishment of the Singapore International Mediation Centre (SIMC) in 2014. Notably, the SICC is expected to reduce the high legal costs of doing business in this part of the world, amid fears that rising fees are pushing London a step further to pricing itself out of the market. Adding to this, Singapore is the fourth largest financial centre in the world, and “uniquely positioned to capture the international market.” However, practitioners observed that this development is in fact fuelling their own practices, providing another suitable location out of which they can expand their offering and access new markets.
Trade and customs lawyers, say our sources, are “doing very well at the moment”. The impact of the international political environment has fuelled an increase in the need for legal advice in this area. Law firms will do well to take advantage, expanding their legal teams and increasing the breadth of expertise in this sector to provide a service that can meet the increasingly complex needs of their clients.