GATS' applicability to transnational lawyering and its potential impact on U.S. state regulation of lawyers.

• Author: Terry, Laurel S.
• Position: General Agreement on Trade in Services

ABSTRACT

This Article examines the impact of the General Agreement on Trade in Services, or GATS, on legal services, and more specifically on the legal ethics rules in the United States. The Article begins by explaining background information about the global nature of legal services. Then, the Author details the structure and operation of the GATS, including its relevant exemptions, and its applicability to legal services. Next, the Article explores developments that have occurred since the signing of the GATS, including the possible significance to U.S. regulation of the legal profession. Subsequently, the Author identifies remaining questions about the effects of the GATS on U.S. legal ethics in the twenty-first century and identifies possible scenarios to which the GATS might be applied. Lastly, the Author calls for an increase in monitoring of, and participation in, the ongoing GATS 2000 negotiations by U.S. lawyers who may be affected by its results.

**********

Last year I was asked by the Reporter of a state MDP (1) committee what impact, if any, the GATS had or should have on the state ethics rule that prohibits MDPs. (2) Although I have written extensively about MDPs and have briefly explored (3) the topic of the treatment of legal services in the General Agreement on Trade in Services or GATS, (4) I found that I had difficulty directly answering this question. As a result, during the past twelve months, I have worked to develop an answer to this question of the effect of the GATS on U.S. state ethics rules.

The "short version" of my answer is found in a two-page answer I gave in an e-interview with the "Crossing the Bar" website. (5) This Article represents a much longer, much more detailed answer, which I hope will provide interested lawyers with the resource material they need.

Obviously, there are a significant number of normative issues connected with the issue of the GATS' effect on legal services. One might ask what is the purpose of the GATS and the effect and the desirability of including legal services within the ambit of the GATS. In my view, however, before one can address these normative questions, one must understand what is happening. And, as this Article shows, understanding the GATS' effect on legal services is not necessarily a simple task.

Accordingly, my goals for this Article are rather modest. My first goal is to explain the structure and operation of the GATS, especially with respect to legal services. In doing so, I hope to correct some of the misinformation that has been circulated about the GATS and to raise the awareness level of U.S. lawyers with respect to the GATS and its potential effect on U.S. lawyer regulation. Second, this Article explores the important developments that have occurred since the signing of the GATS. If I accomplish the first two goals, then I hope that lawyers will be in a better position to address the normative questions about the effect of the GATS and GATS 2000 on legal ethics in the twenty-first century. Finally, I hope that this Article, together with an article I wrote during the Spring 2001, (6) might inspire more U.S. lawyers to monitor and participate in the ongoing GATS 2000 negotiations. (7)

Section I of this Article provides background information on the global nature of legal services, which helps explain why the GATS applies to legal services. Section II of this Article focuses on the GATS and explains its applicability to legal services. The first part of Section II sets forth three key aspects of GATS, which are its general obligations, the most-favored nation exemption, and the significance of a country including legal services on its Schedule of Specific Commitments. (8) In setting forth these aspects of the GATS, I have highlighted those provisions that are most significant. Section II also explains the meaning of the "modes of supply" terminology that must be used in a country's Schedule of Specific Commitments and highlights some examples from the Schedule of Specific Commitments that the United States filed with the WTO with respect to legal services. Section II concludes by focusing on the implementation and enforcement mechanisms included within the GATS.

Section III of this Article focuses on the developments that have occurred subsequent to the signing of the GATS, including their possible significance to U.S. regulation of the legal profession. In particular, this section explains the developments that have occurred in the accountancy sector, which theoretically might be extended to the legal profession during the ongoing GATS 2000 negotiations.

Section IV identifies questions that I have had when thinking about the GATS' application to U.S. lawyers. Section V is an "issue-spotting" section and identifies some of the arguments that have been made or might be made about the GATS' effect on a state's regulation of both transnational and domestic lawyers. Section VI concludes by attempting to synthesize this information and answer a slightly revised version of the question posed by this Symposium, which is the impact of the GATS in the twenty-first century on global legal practice and ethics, especially U.S. legal ethics rules.

1. BACKGROUND--THE GLOBALIZATION OF LEGAL SERVICES

   The GATS was the first multilateral trade agreement that applied to services, rather than goods. (9) Trade agreements were expanded to cover services because the global trade in services is increasingly important. (10) Although U.S. lawyers may not be accustomed to thinking in these terms, legal services are important not just to clients, society, and lawyers, but are also part of the world services economy and the U.S. services economy.

   For example, in the United States, trade in "services" is a much larger part of our economy than is trade in goods and represents eighty percent of the gross domestic product. (11) Moreover, legal services are a significant part of this services trade. In 1999, legal services were the third largest U.S. export in the business services sector. (12) In 1999, $844 million in legal services was imported into the United States (13) and $2.56 billion in legal services was exported by U.S. lawyers. (14) During at least five of the last ten years, the export of U.S. legal services has experienced double-digit growth, increasing at a rate of approximately ten percent per year. (15)

   A recent analysis of the U.S. balance of trade regarding legal services showed that for every country listed, the U.S. exported more in legal services than it imported:

   [GRAPHIC OMITTED]

   Furthermore, the 2001 Annual Report on Recent Trends in U.S. Services Trade noted that many lawyers believe that the value of U.S. cross-border exports of legal services is substantially understated and that the actual value may be closer to twice the $2.6 billion figure. (16) U.S. firms have advised the Department of Commerce that they expect that opportunities in Europe will continue to grow. (17) In short, these government statistics show why it is that many U.S. lawyers feel that it is increasingly likely that clients in the United States--and thus U.S. lawyers--will encounter foreign lawyers in the United States and why U.S. clients--and thus U.S. lawyers--will be involved in matters outside of the United States.

   This export of U.S. legal services occurs both in the context of temporary services, in which lawyers "fly in" or appear "virtually" in the foreign jurisdiction, and through "establishment," in which the lawyer or law firm opens a branch office in the foreign jurisdiction. With respect to establishment, Carole Silver has reported that in 1999, seventy-two of the largest or most international of U.S. law firms had offices in other countries. (18)

   In sum, these statistics help explain why the GATS applies to legal services and also support the conclusion that the GATS will be relevant to U.S. lawyers and regulators. Because global multijurisdictional practice is only increasing, (19) U.S. regulators will likely have to confront issues of the GATS' effect on U.S. regulation of foreign lawyers in the United States. Moreover, if the GATS ultimately affects U.S. state regulation of foreign lawyers and results in differential treatment of foreign lawyers and out-of-state U.S. lawyers, then out-of-state lawyers may demand equivalent treatment. Accordingly, although GATS currently has very little impact on the regulation of lawyers in the United States, I am convinced that its potential regulatory impact is large and that the scope and impact of the GATS are topics that should be of interest and reflection to every U.S. lawyer.

2. THE GATS' APPLICABILITY TO LEGAL SERVICES (20)

   The GATS is one of many trade agreements that were signed in April 1994 as part of the set of agreements creating the World Trade Organization; technically, the GATS is "Annex 1b" to the Agreement creating the World Trade Organization. (21) The GATS and other trade agreements emerged from a round of trade negotiations that are commonly referred to as the "Uruguay Round." These multi-year negotiations concluded on December 15, 1993; the resulting agreements were signed on April 15, 1994 in Marrakech, Morocco. (22) The "Final Act" agreements, as they are called, include several annexes in addition to the GATS, such as the GATT and TRIPS, twenty "Decisions," three "Declarations," and one "Understanding." (23) Eight "Decisions" and one "Understanding" are relevant to the GATS; one of these "Decisions" directly addresses professional services, which includes legal services. (24)

   As of June 2001, 141 countries had signed the GATS, including the United States. (25) The GATS itself has six parts, twenty-nine articles, eight annexes--one of which is relevant to legal services--and is approximately twenty-four pages long, without annexes. (26)

   Legal services are included within the basic framework of the GATS. (27) Because the GATS is the first multilateral trade agreement that applies...