Hong Kong And Macao Law Firms in China: Still

This has happened, but the result is a little puzzling.

"Independent Tariff Zone", though not generally the term used to refer to Hong Kong and Macao, does in fact refer to these two Special Administrative Regions of the PRC. Both Hong Kong and Macao have customs and tariff systems that are completely legally separate from the rest of China, and both regions are referred to as "separate customs territories" in the PRC, Foreign Trade Law as well as in China's Protocol of Accession, part of the accession agreements that delineate the requirements and parameters of China's WTO membership.

Unsurprisingly, Article 34 has been deleted from the April regulations, but otherwise the language of the two pieces of legislation is nearly identical. The ministry has simply substituted the phrase "Hong Kong and Macao" in the April legislation for "foreign" in the January legislation at every reference.

The crux of both pieces of legislation is found under the "Scope and Rules of Business" section. There are five activities that a representative office of a foreign law firm or Hong Kong or Macao law firm can engage in. The five are identical in each piece of legislation: a) providing clients with advice on the laws and regulations of the firm's home country; b) handling the legal affairs of the home country when so entrusted by their clients or by Chinese law firms; c) entrusting Chinese law firms to deal with Chinese legal affairs on behalf of foreign clients; d) entering into contracts for long-term entrustment relations with Chinese firms to act on Chinese legal affairs; and e) providing information on the Chinese legal environment.

As Wong and Cox note in a previous issue of China Law & Practice, points d) and e) are the most interesting, though as no further information is given in relation to these points in the Hong Kong and Macao legislation it is still not clear what they allow or prohibit. ¹

Legal Provisions and actual practice

Raymond Ho, Chairman of the Law Society of Hong Kong's Mainland Legal Affairs Committee and a Partner at Hong Kong firm Fred Kan & Co., which has an office in Tianjin, agrees that these two points are the most interesting from a business perspective.

" 'Mutual referrals', forming a long-term entrustment relationship, is an important area of cooperative practice, but how to utilize it is a difficulty," Ho says. Practically, this is a problem as many mainland firms have different ideas about fee collection and an entrustment relationship with one firm could actually mean a tie-up with that firm. In addition, partners at mainland firms often operate almost as independent practices with their own individual accounts, somewhat akin to a chamber or group practice, which makes understanding the fee structure even harder.

With regard to offering advice on the Chinese legal environment, Ho says that Hong Kong or Macao firms are in no better a legal position than foreign firms, and still cannot practise mainland law. "Giving legal advice is still possible, so long as you don't hold yourself out as a mainland PRC lawyer," Ho says.

What'S going on at the MOJ?

Another question that has surfaced is the three-month time lag between the issuance of the two pieces of legislation. It seems that Ministry of Justice officials might have been considering a clearer definition of the role of Hong Kong and Macao law firms in China and what exactly defines a Hong Kong or Macao firm.

Was the Ministry of Justice prepared to define a separate legal sphere for Hong Kong or Macao law firms? "Perhaps they (the Ministry of Justice) were thinking of doing something differently but there was pressure at the end not to make any inroads into this issue," says Huen Wong, Managing Partner of Simmons & Simmons.

Given the time lag, this opinion makes sense. It's not unreasonable that during the three-month period, there may well have been debate about the scope of definition of Hong Kong or Macao firms, but in the end it appears that answering the tough questions was deferred.

This possibility is supported by the fact that there were reports earlier in the year that the Hong Kong and Macao legislation would break some new ground. And last September at a WTO conference held in Hong Kong, Duan Zhengkun, deputy minister at the Ministry of Justice, proposed certain initiatives to boost Hong Kong-mainland law firm cooperation. Duan proposed that Hong Kong residents be allowed to sit for the mainland lawyers qualifying examination and be authorized to practise Hong Kong law in mainland law firms, and even be permitted to become partners after a certain period of time.

Commentators have speculated that that there was a draft version of the Hong Kong and Macao legislation that circulated in the ministry and that contained some new points regarding the definition of Hong Kong or Macao firms; but these points were ultimately struck from the final version as they were seen as problematic.

Ho, however, doesn't see this as necessarily the reason for the delay, and doubts that any changes to Hong Kong and Macao law firms' practices in China were actually planned anyway. China's Protocol of Accession committed the country to eliminate special trade arrangements with "third countries and separate customs territories", thus apparently eliminating the possibility that the Hong Kong and Macao legislation would offer anything new. As Wong and Cox note, however, Articles 2 and 5 of the GATS might allow concessions for Hong Kong or Macao law firms as integral parts of China,² but these possibilities were not utilized in the Hong Kong and Macao legislation.

The mooted China-Hong Kong economic and trade agreement, known by its acronym CEPA (Closer Economic Partnership Agreement), might be a way that trade agreements, including those covering the provision of services, could include new provisions that make improvisations on China's WTO agreements. "Through CEPA, it is possible that Hong Kong firms could gain better access to China," Ho says, but the agreement hasn't gone much beyond the planning and consultation stage.

New Law licences

Perhaps by way of appeasement for the conservatism of the Hong Kong and Macao legislation, five new licences were issued in April this year for law firms to open second offices in China. These are the first five second office licences to be issued. As with first office licences, the selection process was a bit opaque. All five of the second office licences went to Hong Kong law offices: Deacons; Tony Kan & Co.; Johnson, Stokes & Master; Koo & Partners; and Vivien Chan and Co.

"These five are in response to China's WTO Protocol of Accession, and can be seen as a 'trial' opening, similar to the way other industries are opening up gradually in China. I think it is only a matter of time for the other law firms which apply for second office licences and which satisfy the requirements to be allowed to open these offices," says Franki Cheung, Partner at Deacons.

There is a good possibility that changes to the status and opportunities for Hong Kong and Macao firms working in China have been deferred until issuance of the implementing rules for the January legislation governing foreign law firms. It will be interesting to see whether the implementing regulations broaden the business scope of Hong Kong and Macao firms in China, or make a clear distinction between such firms and international law firms.

Endnotes

1 For a fuller treatment of the January legislation, see Huen Wong and Owen Cox, "Foreign Law Firms Set to Expand in China," China Law & Practice, March 2002, 16(2), pp. 54-58.

2 Ibid, pp. 54