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Legal Services: Does More Trade Rhyme with Better Justice 81
Box 3.5: Self-Regulation Often Results in Cartelization of the Legal Profession
It is particularly challenging for policy makers to engage professional bodies
effectively in reform. Professional associations often resist increased competition.
Indeed, a weak or excessively protectionist professional body may delay the evolution
of the legal profession.
There is evidence that the self-regulation of legal services does not work well and
that deregulation can have substantial benefits. For example, after the 180-year
monopoly of the legal profession in the United Kingdom ended in 1983 in the
provision of the services required to buy or sell real estate, the average price for
conveying services dropped by 10 percent over the following three years, despite an
increase in the value of the underlying housing transactions (World Bank 2004).
Moreover, consumers buying or selling real estate after demonopolization have
reported the same or greater satisfaction with the services.
Cartelization of legal services with the associated adverse impacts on pricing and
service quality is an even bigger problem in developing countries, in which press and
public oversight is generally weaker than it is in the countries of the Organisation for
Economic Co-operation and Development. In this context, policy makers can try to
facilitate discussions between professional bodies and legal service users to help
identify commercial needs that domestic law firms can strive to meet. Exposing
professional bodies to successful counterparts is another practical means of helping
such entities adopt international best practices. The efficiency and credibility of these
approaches to bring down prices and ensure access to high-quality legal services will
be enhanced if the initiatives are complemented by an opening up of parts of the
domestic legal market to international competition and by anchoring reforms in
international agreements with partner countries.
to achieve a broad set of public policy objectives. For example, qualification and
licensing requirements are designed to protect consumers from substandard legal
advice. But the same rules also have an influence on market access and national
treatment and, hence, determine a country’s ability to participate in the trade in
legal services.
In many countries, legal services are subject to a combination of regulations
and restrictions. Prevalent measures concern nationality and residency requirements;
restrictions on incorporation, partnerships, and multidisciplinary practices;
qualification requirements; the reservation of certain activities for local
firms or lawyers only; and restrictions on fee setting and advertising. Indeed, in a
survey of restrictions on trade in professional services, Nguyen-Hong (2000) has
found that legal services (together with accounting) were the most highly regulated
sectors in terms of measures related to establishing a presence and measures
pertaining to continuing operations. Similarly, analysis by Paterson, Fink, and
Ogus (2003) on regulation of the legal profession in European Union countries
suggests a more rigid environment than, for example, in the technical professions,
at least with respect to conduct regulations. Concerning market entry and