Last Updated on April 2, 2024 by Ranking
The legal services sector plays a crucial role in providing advisory and representation services in domestic and international law. However, the extent of trade restrictiveness within this sector varies significantly across countries. In this article, we will delve into the findings of Services Trade Restrictiveness Index (STRI) for the legal services sector in 2022 and explore the key factors driving trade restrictiveness. By understanding these factors, we can gain insights into the potential for regulatory reforms and their impact on cross-border trade in legal services.
Understanding the STRI in the Legal Services Sector
The STRI is a comprehensive index that measures the level of trade restrictiveness in various sectors, including legal services. In the legal services sector, the average STRI in 2022 was 0.37 out of a maximum of 1, indicating a relatively high overall level of restrictiveness. However, it is important to note that individual country scores diverge considerably within this sector, ranging between 0.1 and 1.
Best Performing Countries in the Legal Services Sector
Among the countries analyzed, Costa Rica, Colombia, and Chile emerged as the best-performing countries in the legal services sector. These countries demonstrated a relatively lower level of trade restrictiveness compared to others. On the other hand, countries like Australia, New Zealand, and Kazakhstan recorded significant regulatory reforms in 2022, indicating their commitment to reducing trade barriers within the sector.
Key Drivers of Trade Restrictiveness in the Legal Services Sector
The main drivers of trade restrictiveness in the legal services sector are restrictions on foreign entry. These restrictions contribute to 64% of the total index values in OECD economies and 70% in non-OECD economies. Market access for foreign suppliers is largely defined by the requirements for obtaining a license to practice and the activities reserved for licensed professionals. In cases where only nationals can obtain a license and a license is required to practice and hold shares in law firms, market access for foreign suppliers is severely limited.
Impact of Regulatory Reforms on Cross-Border Trade
According to OECD estimates, reducing the distance to best practice in the legal services sector by half is associated with a reduction in the costs of cross-border trade in legal services between 6% and 20% for the average country included in the STRI database. These estimates highlight the potential benefits of regulatory reforms in terms of cost reduction and increased cross-border trade in legal services.
Analyzing Trade Restrictions in the Legal Services Sector
To gain a deeper understanding of trade restrictions in the legal services sector, let’s explore the specific measures that contribute to trade restrictiveness across different policy areas.
Foreign Entry Restrictions
Foreign entry restrictions play a significant role in trade restrictiveness within the legal services sector. These restrictions include barriers related to establishing and operating companies, such as foreign equity limits and requirements on the board of directors. Additionally, limitations on cross-border data flows can further hinder foreign entry. These measures collectively contribute to the overall restrictiveness in the sector.
Movement of People Restrictions
Restrictions on the movement of people also impact cross-border trade in legal services. These restrictions involve barriers that affect the temporary entry of foreign service providers, including quotas, labor market tests, and short durations of stay. Licensing and recognition of foreign qualifications procedures can significantly affect the practice of legal services, particularly for domestic law. Requirements such as nationality, residency, and local examinations limit the ease of engaging in legal services across borders.
Other Discriminatory Measures
Discrimination against foreign services suppliers in terms of taxes, subsidies, and public procurement is another significant factor contributing to trade restrictiveness in the legal services sector. Barriers related to accessing public procurement markets, such as restrictions on foreign tenderers, can pose challenges for foreign suppliers. Furthermore, restrictions on competition, including minimum capital requirements and limitations on advertising, can further hinder the growth and entry of legal service providers.
Regulatory Transparency
Regulatory transparency is an essential aspect of reducing trade restrictiveness in the legal services sector. Measures related to transparency include information on consultations and dissemination of laws and regulations. Additionally, obtaining a license or visa should be a transparent and streamlined process. However, in some countries, procedural hurdles related to business visas and limited public consultation processes hinder regulatory transparency.
The Need for Regulatory Reforms in the Legal Services Sector
The findings of the STRI highlight the necessity for regulatory reforms to reduce trade restrictiveness in the legal services sector. By addressing the key drivers of trade restrictiveness, countries can create a more conducive environment for cross-border trade in legal services.
Promoting Foreign Entry and Competition
To reduce trade restrictiveness, countries should focus on liberalizing restrictions on foreign entry, such as foreign equity limits and requirements on the board of directors. Additionally, measures that promote competition in the legal services sector, such as reducing minimum capital requirements and easing advertising restrictions, can foster a more open and competitive market.
Facilitating the Movement of People
Streamlining procedures for licensing and recognition of foreign qualifications is crucial to facilitate the movement of people in the legal services sector. By removing unnecessary nationality and residency requirements and establishing clearer pathways for foreign professionals to practice, countries can encourage the international exchange of legal expertise.
Enhancing Regulatory Transparency
Improving regulatory transparency is vital for reducing trade restrictiveness in the legal services sector. Countries should strive to enhance public consultation processes, provide timely information on new laws and regulations, and simplify the procedures for obtaining licenses and visas. These measures will promote greater transparency and predictability for legal service providers.
The legal services sector exhibits varying levels of trade restrictiveness across countries. The STRI provides valuable insights into the factors driving trade barriers and the potential benefits of regulatory reforms. By addressing restrictions on foreign entry, facilitating the movement of people, and enhancing regulatory transparency, countries can create a more open and competitive environment for cross-border trade in legal services. These reforms have the potential to reduce costs, promote economic growth, and foster international cooperation in the legal services sector.
source: OECD https://www.oecd.org/trade/topics/services-trade/
