After the civil war of the 1950s that divided the country, the Republic of Korea (ROK) has emerged over the past 60 years as one of Asia’s greatest economic success stories. Today, it is the world’s 11th largest economy, as well as its sixth most complex, according to the Observatory of Economic Complexity, with the telecommunications, shipbuilding, automobile, chemical and steel industries featuring prominently in economic analyses. Korea boasts some of the world’s largest businesses in these sectors, including Samsung, Hyundai, LG, SK Innovation and Hanwha. As a result of these companies’ international success, the ROK’s economy is geared largely towards international exports, which totalled $577 billion in 2017, accounting for 43 per cent of GDP. As such, Korea’s legal market has seen a flourishing of international firms opening shop.
Following the election of President Moon in 2017, the economy enjoyed the benefits of strengthened consumer confidence due to new government policies, increasing wages and state spending on infrastructure, all of which translated into annual GDP growth of 3.1 per cent in 2017. However, this is far below the rampant GDP growth of a decade ago. It is clear that the Republic’s economy is – like many developed economies – now showing signs of slower economic growth year-on-year. Furthermore, it faces challenges in the form of one of the world’s most rapidly ageing populations, and an economy that is export-dependent. Considering that 25 per cent and 12 per cent of its exports go to China and the US respectively, South Korea’s economy is particularly susceptible to shifts in geopolitical strategies, such as the trade tariffs and sanctions introduced by the USA in the past two years. This ultimately makes the South Korean market a challenging one, but also one filled with opportunity.
Arbitration enjoys strong state backing in the ROK, with the Arbitration Industry Promotion Act of 2016 establishing a legal framework for the promotion of domestic arbitration. As such, alongside the ICC, the LCIA and other international institutions, Korea has its own Korean Commercial Arbitration Board (KCAB). With the creation of an international arm of the KCAB, the ROK is openly positioning itself to “become the next Singapore” in terms of arbitration, as lawyers told us. Furthermore, South Korea is “a market where clients would not hesitate to take on an arbitration”, which is understandable given that the economy’s growth is partly achieved through the international expansion of domestic companies. This has made it a very sophisticated jurisdiction in terms of arbitration.
The combined effect of this pro-arbitration environment is a very active market. Practitioners reported to us that arbitration cases in the jurisdiction are on the rise, with one interviewee imparting that “we are bursting at the seams in terms of work and we can’t hire people fast enough”. This growth in arbitration is partly due to an increase in construction disputes, “particularly cases coming out of the Middle East”, as well as a “big influx of Chinese game licensing cases”.
Due to the sheer amount of demand in the arbitration market, it seems that the legal market’s current form is set to change. According to interviewees, currently “five or six firms handle the international arbitration cases” with “a lot of small firms doing good work” in domestic arbitrations. As a result, “competition is very tough” between firms, but with “new and smaller firms getting involved” it seems the market is set to become less top-heavy as competition increases.
Perhaps due to the spiralling costs of arbitration in this market, mediation is also enjoying an increased profile, with “a lot more proceedings where judges seek to act as mediator” being seen in the market. In terms of more traditional litigation, sources report that the “current government is more hands-on in regulating – so litigation has been busy”.
Finally, since the election of President Moon and his government in 2017, white-collar crime investigations that focus on abuse of authority and power have been a focus of prosecutors. Interviewees also report that, increasingly, “Korean law firms are working with international firms as co-counsel or opposing counsel”, which has positively impacted the market and quality of work.
There have been a number of changes in Korea’s corporate landscape in the last year. Firstly, with the new government in 2017 has come “increasing aggressiveness from the tax authorities” in order to align Korea with stricter tax regimes in Europe and the US. This has generated a change in attitude to taxation, where the focus of corporates and individuals is now more “how to pay the right amount of tax and not get in trouble” rather than the creation of complex tax structures. As such, the Big Four accounting firms “are not involved in any interesting tax issues anymore in Korea – they are involved instead in tax compliance”. Secondly there are signs that the economy is becoming slightly less reliant on international exports. Franchise specialists impart that they have seen “a significant increase in foreign franchise brands coming to Korea”, namely in the form of hotels and fast food brands that hope to exploit a booming tourist sector.
The legal market in South Korea is also undergoing something of a rapid metamorphosis. Sources report that the introduction of a new law school system, more akin to that of the UK, has “changed the legal market a lot, and the number of lawyers has substantially increased”. Not only are home-grown Korean lawyers putting more pressure on the market, but there has also been an observable uptick in the number of “foreign law firms coming into Korea and creating more competition”. This increase in practitioners, allied with a slowing economy, has created a level of competition that is “getting a bit ridiculous” according to some market commentators. Practitioners are seeing large firms in Korea “undercutting bids at ridiculous prices” in order to secure clients.
Going forward, the legal market in the ROK faces a number of challenges. Its economy is, like many East Asian economies, experiencing slowing economic growth as it develops. Furthermore, the economy’s dependence on international exports makes the country’s economic stability susceptible to shifts in geopolitical strategies in the US, China and Europe. As such, lawyers may have to contend with an economy that has lower levels of demand for some corporate legal services. Meanwhile, competition is set to grow even fiercer as increasing numbers of lawyers qualify in Korea and more international firms seek to increase their profile in order to take advantage of a truly global economy. Where lawyers may find opportunity is in the growing fields of arbitration and mediation, which benefits from strong state backing, and which typically do well in slowing economies which are seeing a squeeze in corporate profit margins.