Research: Trends and Conclusions: Trade & Customs 2013

Trade and customs work sits at a unique junction between legal, political and economic spheres of influence, and by definition it is among the most international in scope of the practice areas we cover. A range of factors are driving work in this sector and making new demands of the world’s leading firms and counsel.

The single largest source of work for trade lawyers over the last 12 months has been international sanctions. Iran is the main focus, accounting for “70 to 80 per cent of this work” according to our sources. A tremendous amount of emphasis has been placed on sanctions by governments in recent months, with the US leading the way, and the penalties involved have escalated. In June 2013, The Bank of Tokyo-Mitsubishi agreed to pay New York state $250 million in connection with sanctions violations in relation to Iran, Sudan and Myanmar, and this follows on a year after Standard Chartered paid $327 million to regulators to settle allegations that it breached US sanctions with Iran. “When you start to see penalties in the hundreds of millions of dollars this focuses the minds of clients,” said one leading lawyer. “They are now taking notice of their compliance obligations.”

This work requires a high level of expertise – “You have to take care not to be listed as an accomplice” – so it is a difficult sector to enter for lawyers and those with the strongest track records are in very high demand. One might assume that sanctions work will continue to be busy for the foreseeable future, but as it is absolutely dependent on geopolitical factors and the attitude of the US government in particular, this is not guaranteed. As one lawyer noted, if Iran rejects its nuclear programme there may be some relaxation: “A few years ago sanctions relating to Libya were driving similar levels and they have essentially now been all but lifted, taking the work with them.”

The political climate continues to drive a lot of activity in the export control sector. Recent reform has created much work for clients looking to stay on top of their obligations, with the promise of still more to come. European lawyers in particular are very busy in this sector. Digital trade and data management are playing an evolving role in this sector, as business increasingly entails the smooth flow of data across boundaries and trade concerns become of greater import. Contentious work is also on the rise and criminal sanctions are becoming more common, as are non-civilian implications – “Heaven help you if you send military information from the UK to Germany,” said one nominee.

We received mixed reports in relation to levels of trade remedy work, with antidumping and countervailing keeping some practitioners busy, although in general it was characterised as bread-and-butter work for existing clients rather than new ones. In Brussels there has been significant activity around the recent high-profile Chinese solar panels case, but aside from that “it has been quiet this year” with a relative dearth of new cases being initiated. Predicting the future is difficult, with much depending on the progress of European economies. If they continue to struggle then the EU will aim to protect jobs – to create “Fortress Europe”, in the words of one source – with emerging countries such as Indonesia a greater focus for scrutiny alongside the obvious candidates of India and China. Relations with the latter remain precarious in the wake of the solar panels case and there is perceived to be a certain reluctance to pursue new avenues of dispute, as reflected by the EU’s recent deferral of potential action against Chinese telecoms companies.

EU specialists also reported an increase in collaboration with their WTO-focused counterparts. A significant amount of WTO disputes work was reported by our sources, on an ever-widening global scale:  Cuba launched its first challenge earlier this year joining countries such as Dominican Republic, Honduras and Ukraine in challenging Australia’s tobacco packaging laws, and Russia made its entrance in 2012 in a move noted with interest across the legal market. This diversification of the client base creates a requirement for expert counsel from a wider range of countries, a requirement that firms with the broadest international networks are well placed to meet, as are their local boutique counterparts in each jurisdiction. Taken alongside a continuing focus on China and Japan, there has been a “real uptick in WTO work” in recent times which is predicted to endure for the foreseeable future.

Lawyers also cited internal investigations work as an area of growth for their firms. Here, as in many other practice areas, private practitioners are increasingly being called upon to advise clients on the ramifications of the US Foreign Corrupt Practices Act and the UK’s Anti-Bribery Act. Export control and sanctions experts are also being sought for their anti-corruption counsel as the issues overlap to an ever-greater extent. Audits are becoming more popular and trade compliance in general is a hot area, with the web of applicable regulation and liability on an international scale making expert outside counsel ever-more important.

There was also said to be “an enormous amount of meaningful trade negotiations going on, for the first time in a long time”. Whereas prior US administrations focused on establishing free trade agreements which were arguably more significant for their political ramifications than their economic ones (the 2011 agreement with Panama cited as an example by our sources), the mooted agreements between the US and Japan and the European Union are a different matter. How much work this will ultimately generate for the legal community is up for debate, but there is certainly an excitement across the trade community about the potential for future agreements that has not been felt for some years.

Alongside this activity, China will continue to drive work in this sector. The country recently became the world’s biggest importer of oil, and friction is predicted by lawyers across the energy regulatory sector. Sanctions work on behalf of state-owned entities is reported to be a great generator of work for law firms, and many are actively targeting the acquisition of Chinese clients. Working for such clients is not without its complications, as lawyers reported difficulties in relation to communication, receiving payment and client loyalty – “you can do a very good job for them but they will move next time if someone gives them a 5 per cent discount” said one. These considerations notwithstanding, the volume of potential work has led to a very high level of competition, with international firms and lawyers jostling for position but relatively few managing to corner the market.

Similarly, the emergence of Russia at the WTO is being viewed as a potentially lucrative source of future work. While it is not expected to create the same glut as surrounded China’s entrance, such is the tension around the energy sector in Europe that conflicts are all but inevitable, and firms have been investing in Russian speakers for their Brussels offices in order to gain a foothold in what is predicted to be a lucrative sector.

Customs work is reported to be steadily increasing, along similar lines to previous years but on a more global scale with disputes coming from further afield. Enforcement actions are reported to be more aggressive and border issues remain numerous, and it is generally said that the focus of US customs agencies’ scrutiny is moving from supply-side security back towards a more commercial agenda. While FTAs should in theory equate to a reduction of customs work this has not always been the case in practice, and reclassifications have led to disputes in the high-tech industry, among others, which is driving legal work. We also received reports of a greater enforcement focus on false or incorrect customs declarations and larger fines being levied.

For law firms, this practice area originally encompassed trade remedy work then grew to encompass WTO matters, and is now recognised as a growth area on an international scale which interfaces with an ever-growing range of work across an increasing number of countries. As ever, there is a split between boutique firms and their global equivalents, and each is well represented in our research. Dumping cases were categorised by some as commoditised work and viewed to be the province of smaller firms, and we received reports of a general trend of respondent lawyers moving to boutique firms or setting up their own in the face of the inherent billing pressures of larger firms. Several of these smaller firms receive significant recognition as market leaders in this edition, and they are said to be “extremely competitive” with their smaller overheads giving advantages on costs. “They are eating the lunch of the larger firms,” in the words of one lawyer. 

Trade practices can be difficult to support within global firms, with the highly skilled and effective boutiques providing competition both for mandates and for lateral hires. However, across the board law firms are keen to play up their international credentials, and trade law is becoming more important in serving clients on a global basis. While there was a certain cynicism around how many firms can truly be said to successful in these aims – “Everyone who has been to Canada is now calling themselves an international lawyer,” said one US practitioner – it is certainly a pre-eminent focus for firms looking to navigate difficult trading conditions and most of the lawyers in this edition have been the subject of headhunters’ attentions in recent months as firms look to acquire or bolster their trade capability.  

There has been a certain amount of lateral movement in the market, driven by the difficulties in growing the requisite levels of expertise from within and, aside from hiring from government departments, there are few opportunities outside of rival law firms to acquire such experience. The biggest clients often prefer the full service capability that a larger firm can provide, and it is possible for such firms to acquire a high level trade law capacity through the hiring of a relatively small number of individuals. International firms have seen the levels of work around the sanctions area and have noted from their experiences in other sectors a new willingness from clients to pay for compliance advice, and trade work can form an effective and potentially remunerative part of the overall service they provide. As other practice areas become intertwined with this sector – the intellectual property aspects of Section 337 work flagged as an example by several lawyers we spoke to – trade law is predicted to become ever more integral to law firms’ full-service offering on a global scale.

On the other hand, this is a unique practice area which requires expert navigation, and in many cases boutique firms are best placed to do so. As much of the work is representing governments, “it involves a very different way of getting clients than in other areas”, and they are characterised as reluctant to forsake the counsel they have worked with for many years making it a difficult sector for new firms to break into. The trade and customs bar is a small world where everyone knows each other, and there is a relatively small number of experts worldwide with a limited pipeline of new entrants into private practice from government. In recent years some of the older deans of the practice have spun off their own boutiques, and their success would suggest more will follow in years to come. Looking forward, it is likely to be much the same group of lawyers who are recognised in our research as the leading experts in the field, but whether they are still at the same firms is open to question. The development of the bar in the past, alongside the influence of factors from the wider spheres of politics, economics and law firm management, suggest that trade and customs law will be an increasing focus for firms both large and small into the future.

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Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.

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W11 1QQ, UK