The “vodka war” waged in Brussels throughout last year may look, to the casual drinker, like a storm in a shot glass. Do we really care how the European Commission defines a spirit that, to many palates, has no taste? In a world market worth about £6.5 billion a year — and rising — the answer, for business, government and, increasingly, members of the legal profession, turned out to be a resounding “Yes”.

On a wider level, this particular Brussels furore also highlights the changing nature of international trade and the consequent challenges to international law firms. It demonstrates how governments are increasingly willing to intervene on behalf of companies that are seen as representative of the national interest. In return, these “national champions” are calling on domestic governments to support them in furthering their aims abroad.

The vodka hostilities broke out because the commission attempted to reform the EU spirits regime, focusing on the spirits that are entitled to write “vodka” on their labels. Instantly, the commission was divided firmly along national lines.

Finland, Sweden and Poland all lobbied hard for a more restrictive definition of vodka, covering only those spirits that have been distilled from potato or grain. Britain, Spain and Hungary argued that the original definition — drafted in 1989 before many of the leading vodka producers became EU members and allowing a range of raw materials — should be kept.

In January the European Parliament’s environment committee rejected the commission’s proposals to restrict the definition. After all, the future of two thirds of the vodka production outside the Baltic region, including nearly one third of the UK’s total vodka output, was at stake. The final, full Parliament vote is expected at the end of April.

Politicians are used to dealing with the challenge of governments strongly championing domestic companies, but lawyers, who are relatively new to this arena, are moving into a front-seat role as clients, such as multinationals, increasingly turn to them for advice on how to deal with these external influences.

One law firm to seize the opportunities offered by this function is Clifford Chance. Michael Smyth, head of public policy, says: “Law firms act as facilitators, and it is right that we should develop our role to offer a much wider range of different products to our clients.”

One of the events that acted as a catalyst to this process was Hillary Clinton’s response to the £3.3 billion takeover of P&O by Dubai Ports World. A deal that should have run smoothly was almost derailed because Clinton — along with other US politicians — raised concerns about the potential security risk of having ports in the United States under foreign ownership. Fresh-fields Bruckhaus Deringer brokered a compromise — that Dubai Ports would sell on P&O Ports America, which it did, last December — and the deal went ahead.

Smyth believes that this event “provided a much-needed wake-up call to both lawyers and bankers of the importance of politics to international cross-border mergers and acquisitions”.

In the past, lawyers have often shied away from getting their hands dirty with the political aspects of this type of cross-border transactional work. “Previously, to be seen to be leading the policy debate would have been considered both dangerous and inappropriate,” Smyth says. “However, it is often now in our clients’ best interests for Clifford Chance to be seen to be leading the debate, and not to be afraid of being seen as opinionated.”

The commercial benefits to firms that offer their clients a wider range of services seem clear. However, according to Smyth, further benefits arise from a change of role for the lawyers themselves: “This kind of change encourages lawyers to climb out of their silos and become more like Victorian men of affairs.”

The opportunities created by governmental interference look set to continue. One area where this is apparent is in the European energy market. The deadline for the full liberalisation of Europe’s energy markets is this July and governments are likely to attempt to try to use it to bolster support for their “national champions”. They are likely to be engaging in interventions of the type seen last year in France with the £5.4 billion merger of Suez and Gaz de France (GDF). This was essentially engineered by the French Government as a preemptive way of blocking a hostile takeover bid from Enel, the Italian energy company.

Not surprisingly, given the sums involved, such cross-border takeovers can create tensions between governments. As well as the vodka wars there is the continuing row over the proposed £18 billion takeover of Endesa, the Spanish energy firm, by the German company E.ON. The commission and World Trade Organisation are often little more than spectators at the disputes.

It seems certain that the changes to the way in which international law firms go about their business will continue long after the hangover from the vodka wars has subsided.

The author is a trainee barrister

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