The Facts, The Fiction, And The Folly: How And Why The Foreign Law Firms Have Come To India
Part II of a Three Part Series.
- The lobbying pressure behind the move. A long and continued effort.
It was well known in the Indian legal community that Western governments were applying relentless pressure to allow foreign law firms in India. Foreign firms lobbied intensely through their government to convince India for opening up the domestic market in legal services. As detailed by the Bombay High Court case, firms have been trying to secure a foothold since 1995.
Last decade, Prime Minister David Cameron’s government actively tried to persuade the Indian government to liberalise on legal service market. [Prime Minister’s speech was reported: “We in Britain have welcomed your expertise … we want you to reduce the barriers to foreign investment in banking, insurance, defence manufacturing and legal services …”] Justice Kenneth Clarke, then Secretary of State of the United Kingdom, pushed for reforms on this issue during his visit to India in 2011. The response of the Indian Government has consistently been lukewarm.
During the 8th United Kingdom-India Economic and Financial Dialogue 2016, the then Finance Minister of India, Mr. Arun Jaitley, and Chancellor of Exchequer George Osborne issued a Joint Statement stating: “India will press ahead with liberalising the Indian legal services market to allow foreign lawyers the right to operate in India.” “[Liberalisation] should be progressed by the relevant authorities as a matter of urgency.” Hence, the restricted legal sector of India was held as a barrier to greater foreign investment in the country. As the Indian economy has grown in past decades, the salivating prospect to make money from India has taken root across conference rooms of international (mostly UK and USA) law firms.
Recently, India and the United Kingdom have been engaged in talks to sign Free Trade Agreement [FTA]. No surprise should come from seeing this move by the BCI in a larger picture to ease out differences between both nations on the restricted legal sector of India. Assuming such is the case, then it decision of the BCI is far worse than it appears, because such an important policy decision that can have a bearing upon the legal administration of India, cannot and should not be taken simply to please foreign governments or global investors.
- What is causing this “reinvigorated” interest in India? Foreign Law Firms are here just for “business purposes”.
A familiar old story goes like this,” The wolf came in sheep’s clothing, mixes up with the flock, and day-by-day sheep start to disappear. Finally caught by the shepherd and hanged, the others were surprised at the hanging of the sheep. It amused the shepherd, and he finally revealed: that it was the wolf all along but only in a sheep’s skin.” Foreign law firms are the wolves that the Indian legal fraternity is tasked to face. This time, however, these firms are not even playing sheep, their sheer audacity is apparent; they find it lousy to hide under the skin. They are coming in their own coat. This time wolves are coming as wolves.
The “apparent motive” is imputed to cross-country application of laws where any lawyer based in India having qualification in Indian law only would not be able to assist when it comes to international law or “third country” law. Most international transactions stipulate governing laws that are not domestic Indian laws, therefore the need for specialization or qualification with respect to such situations can be handled by specialized international law firms. Thus, it is a case for better facilitation.
The “real motive” however, is altogether different. It is an open secret that foreign law firms follow “a private only-for-profit style corporate model” which is squarely focused on short-term revenue generation. This makes them a business house where partner lawyers may come and go and work, on a usually short-term basis, in the same building. That also means that partners are valuable only when they can generate legal work through sources or clients and are paid only on their ability, this practice also fancily called “eat what you kill.” If there exists any romanticism reagrding ethical obligations or welfare philosophy, it is plain foolishness. The founding aim of these firms is to make money.
This makes the calculation a bit simpler: the “real motive” of these foreign law firms spot the potential emerging markets with a base of high-volume foreign investment, thus generating a demand for rationalisation of laws across jurisdiction or in most cases to building a speedy framework for dispute resolution. [After the 2008 financial crisis, a clear trend is visible where most growth in legal works in coming from developing countries.] In short, these firms hunt for big-paying pockets. India is next on the list. India is a shining spot—the 3rd largest economy by Purchasing Power and 5th largest on a nominal basis and 3rd largest in the number of billionaires— because of its huge developing market, which is more than sufficient for these law firms to secure their presence here.
One illustration is enough to make this point: China was the world’s 7th largest economy in 1992. There were 12 foreign law firms in China at that time. By 2014, China was 2nd largest economy and the number of foreign law firms grew to 232. By 2020, due to renewed global competition and politics, the number of these law firms has come down to 185. The reasons for this particular decline are attributable to reduced cross-border. Now, the Chinese domestic legal market is doing much of the job.
Hence, the sentimental public appeal of the decision as a promotion of globalisation is an innocent misconception. Likewise, other business approvals granted by the Government, this too should be assessed only on the potential effect on the domestic legal system. The barometer is simple: will this decision help or hurt the Indian legal fraternity?
- The BCI’s reliance that other countries are allowing foreign law firms too. The argument is grossly insufficient.
Wise people would not dare to venture into the uncertain world of comparisons. Every country puts its political consideration at the top when it lets entry of foreign players into its market. For example, the downward spiral of relations between China and the US has made Dentons, the largest Western law firm in China, announce separations of its Chinese businesses, future growth, and growing strategic competition weighed more on its mind than the commitment to foster confidence in international legal order. Some learned commentators cited Singapore as an illustrating example of how to grow into an arbitration powerhouse. Truth is that things are seldom this simple—a city-state, one partly free one-party rule state, with a population of less than six million, does not share a similar list of priorities with India, it does not have a local legal sector the one like India.
Kindly consider this amusing statistic: there are 6,273 legal practitioners in Singapore. Even then, Singapore has faced problems of many lawyers fighting for fewer jobs, growing dissatisfactions, and other job opportunity issues. Fears of digitalisation and globalisation haunt Singaporean lawyers as well. Much like anywhere else in the world. The BCI can surely learn from the renowned robust regulatory monitoring system as applicable to foreign firms in Singapore. The notification issued by the BCI falls short on this front also.
Indian law firms may perhaps face challenges, which Germany faced around the 90s; aggressive mergers forced German law firms to fall under the umbrella of International law firms. Experiences vary from country to country. India is simply unique.
- Efforts of imperialistic imposition. India has no “absolute” obligation to open up its legal market under the International law.
False fear is generated in the hearts of stakeholders by invoking that India has a profound legal commitment to open every domestic legal sector. It is purely mischievous and way off the point. The relevant law in this regard is the Treaty of World Trade Organisation [“WTO”] General Agreement on Trade in Service 1995 [GATS], finalised in Uruguay round and it applies to most of the services. All founding members are bound by the GATS and India is also a founding member state. Open trade in services with the least restriction is the aim of GATS. However, GATS does not advocate for the blind rush.
Legal services is also one of the services topics falling under the head of “Business and Professional Services.” To become bound to open up a particular service sector specific commitment has to be made. (Article XX) That commitment must not generate conflicts with General or Security Exceptions (Article XIV) As far as the general press reporting, India has not made any commitment to open up its legal sector to the world at large.
Article XIX , grants a leeway to member states [“liberalization … due respect for national policy objectives and the level of development of individual Members, both overall and in individual sectors. … appropriate flexibility for …Members for opening fewer sectors, liberalizing fewer types of transactions, progressively *(towards greater liberalization)”]. This pretty much settles the case for impending doom and gloom scenarios in case India does not open its legal sector to foreign law firms.
There is another serious implication that warrants attention. A fine lawyer specialised in business law would ask: What happens when India opens up its domestic legal market, say under FTA on the principle of reciprocity, to the United Kingdom? Will India not fall under obligation vis-à-vis other member countries of WTO if other members offer the same reciprocity in legal sectors like the United Kingdom? What happens when China, with which India does not share all-friendly relations offer India to allow access to Chinese law firms on a reciprocity basis? Would India’s denial then mean a discriminatory practice?
International trade law is a highly complex web, which can trigger onerous consequences when a member state makes a reckless move. Surely, FTA is a bilateral treaty that mostly promotes trade by bringing down trade barriers. However, the Most Favoured Nation treatment principle (Article II) states that one member country will treat all trading partners on equal terms the way it treats one particular partner. Non-discrimination is a cardinal principle when all other aspects are equal. That is an open door to unintended consequences. The principle of reciprocity brings many complexities into the picture. It is a double-edged sword. The decision will create more problems for the Central Government in the future.
- Glorification of a bygone age. Globalisation is a dead horse and greater National Security Concerns.
Isn’t everyone hiding something? Many rich countries have understood the gains of protecting strategic interests. The North American Free Trade Agreement (NAFTA) attained notoriety for killing millions of American jobs, which forced the US to supersede NAFTA to protect its interest. There is generational wisdom that prevailed across Indian Governments to be highly selective in picking subjects for competition at a global scale. India pulled out of negotiations on the world’s largest trade deal, the Regional Comprehensive Economic Partnership (RCEP), on concerns about trade deficits. The BCI’s case for letting foreign law firms is founded on the benefits of globalisation. Although, as we closely watch the world around us. The stronger force is not globalization but efficient localization.
From a National Security perspective foreign law firms present a troubling problem. These firms have been accused by many countries to avoid or by-pass their national laws. This greatly compromises the sovereignty of nation-states. The Pandora Papers highlighted this aspect. Their documented diversion of wealth to tax heaven and the key role played by big US law firms. Recently, another example that gathered news concerned a London-based prominent law firm, Hogan Lovell, which was implicated in the “money laundering scandal of South Africa.”
The Indian Government cannot afford to underestimate the nefarious capabilities of international players, their global footprint is connected to influential decision-makers across jurisdictions, which by and large have been out of reach of even highly efficient regulators. Almost all developed countries find it difficult to rein them.
The BCI must answer these concerns because the principal disciplinary control remains with the “reciprocating country or bar.” Additionally, the BCI has no institutional history or experience to deal with this new phenomenon. Nobody can learn all the things overnight. The BCI with no previous groundwork for regulatory mechanism or planning to introduce pilot basis entry in a staggered manner puts this whole decision under clouds of grave concerns.
- Before it is too late. Take a pause and think it through.
Protection of self-interest comes first. There cannot be double standards of benefits; one, that applies to developed economies when seeking fewer trade barriers to exploit developing markets on the strength of their superior capabilities, two, when these countries work to erect barriers to protect themselves when developing countries best them in competition. West has almost nothing to lose from the radical globalization of legal services. Borrowing from President Cleveland of the United States, we can say, “The business of the [West] is business.” It is then for India to figure out its interest, and its interest is surely not promoted by the decision of the BCI. Indian legal fraternity can only beg eagerly to pay attention to what the Roman poet Virgil wrote, “Trust not the horse, O Trojans. Be it what it may, I fear the Greeks when they offer gifts.”
“Please, stay this notification and think it through. Talk to us before going ahead.” A fear-stricken first-generation lawyer prays—perhaps a futile exercise. All of this has happened so quickly. A self-invited thunder has rocked the Indian legal landscape and nobody has any good answers. Why have we done what we have done? For what goals, exactly?
[This is Part II of a Three Part Series. Part One shows why allowing foreign firms is the most far-reaching decision ever been taken in Indian legal history. However, important stakeholders were not taken into confidence before making the decision. Some fear that this may very well mark the beginning of the end of the Indian identity in the legal field and its practice. (Read Part One Here) Part Three is concerned with the consistent criticism of local law firms and lawyers. Golablisation is not a box of chocolates as generally portrayed. Sheer numbers of lawyers working in India and market dynamics are enough to make one overly cautious. Enhanced technological integration and financial difficulties of the marginalised make the decision even more worrisome. Part Three will be published shortly.]
Author is a Lawyer practicing in the Delhi High Court, Sessions & District Courts Delhi.
[The opinions expressed in this article are those of the author. Verdictum does not assume any responsibility or liability for the contents of the article.]