New Competition Law of Vietnam – What should foreign businesses know?
Vietnam’s new Competition Law 2018 was passed by the National Assembly of Vietnam on 12/6/2018 and came into force on 01 July 2019, replacing its Competition Law 2004. With various comprehensive reforms, the new Competition Law 2018 is expected to create a great push to promote the business environment, free competition and equality among business entities in the economy.
The review of practical implementation of Competition Law shows that the provisions of Vietnam’s Competition Law 2004 have not really come to life, not promoted the mission of protecting fair and healthy competitive environment, as a driving force for economic development. The number of competition cases detected, investigated and handled was still limited, while many potential negative impacts have been made on the competition environment in Vietnam, especially, in large-scaled industries and fields such as energy, pharmaceuticals, distribution, retail, transportation, logistics, tourism, technology applications.
In addition, the process of investigating and handling competition cases, economic concentration faces many difficulties because the provisions of the Law are still rigid, leading to errors, omission of violations, difficulties in proving violations of enterprises. There was no specific mechanism and criteria for competition agencies to assess the impacts of the competition restriction acts, economic concentration, based on which to prevent and handle violations, ensuring and promoting effective competition.
The issuance of Vietnam’s Competition Law 2018
The 2018 Competition Law of Vietnam consists of 10 chapters and 121 articles. Chapter I comprises a general provision (Articles 1 to 8) concerning the scope, regulated objects, interpretation of terms, State’s policies on competition, competition rights and rules in business; roles of regulatory agencies in competition and prohibited acts related to competition. Chapter II consists of regulations on relevant market and market share. Chapter III sets out provisions on anti-competitive agreements. Chapter IV lays down regulations on abuse of dominant market position and abuse of monopoly position. Chapter V provides on economic concentration. Chapter VI comprises provisions on prohibited unfair competition practices. Chapter VII provides on the National Competition Commission. Chapter VIII consists of regulations on competition legal proceedings. Chapter IX provides on sanctions against violations of competition law. Chapter IX contain provisions on implementation of the 2018 Competition Law of Vietnam.
Many new amendments under Competition Law 2018
Broader scope of application: The Competition Law 2018 now governs any activities whether by Vietnamese or foreign entity or individual which have or may have the “competition restraining impact” to Vietnam market. This provision creates a legal corridor to investigate and fully handle all competition acts, wherever they occur, but with impacts or likely to cause negative impacts on the Vietnamese market. This overcomes the fact that over the past time, many mergers and acquisitions with large transaction values have been conducted outside the territory of Vietnam, but have a negative impact on the competitive environment in Vietnam such as the deals: Abbott Group acquired CFR Pharmaceutical Company or Central Group (Thailand) acquired Big C Supermarket System in Vietnam.
In addition to business entities and trade associations operating in Vietnam, the new Competition Law has expanded its scope to include “related domestic and foreign organizations, establishments and individuals.”
Anti-competitive agreements: In addition to the eight types of competition-restricting agreements listed in the Competition Law 2014 (including agreements on price fixing and market sharing), the new Competition Law 2018 has provided new types of prohibited anti-competitive agreements. These include (1) agreements to share customers, (2) agreements to not have transactions with enterprises not being parties to the agreement, (3) agreements to limit the product sale market, source of goods and service provision of enterprises not being parties to the agreement, and (4) “other agreements” which have or may have significant competition restraining impact.
Agreements under the three categories above will be prohibited if they “have or potentially have the effect of significantly restricting competition in the market.” This condition will be evaluated by the National Competition Commission (“NCC”). Accordingly, when determining whether an agreement should be prohibited or not, the NCC will apply several criteria on assessment of whether such agreement has or may have significant competition restraining impact to the market. Such criteria include (i) market shares, (ii) market entry barrier, and (iii) access to critical infrastructure facility. The agreements in restraint of competition could be a horizontal agreement between parties in the same industry or vertical agreement between parties in different industries but in the same supply chain.
Vertical restraints (competition-restricting agreements between two or more enterprises in different phases of the same production, distribution, or supply chain for specific goods or services) are also subject to the “significantly restricting competition” condition.
The Competition Law 2018 introduces a leniency policy, according to which a party to a competition-restraining agreement may be entitled to exemption or reduction of penalties if it voluntarily declares the breach before the issuance of an investigation decision. This entitlement is applicable to only the first three enterprises submitting an application for leniency.
Abuse of dominant market position: In order to assess a dominant market position, besides the currently applied 30% market share threshold, the new concept of “significant
market force” and the factors to determine it are introduced. Those enterprises which have a market share of less than 10% in the relevant market are no longer considered as belonging to “the group of enterprises which hold a dominant market position”.
Notably, under Article 26 of Competition Law 2018, significant market power of an enterprise or a group of enterprises can be assessed based on several factors such as:
- The financial strength of the firm;
- Technological advantages and technical infrastructure;
- Ownership and the right to possess and access infrastructure or use items of intellectual property rights;
- Correlation of market share among firms in the market; and
- Other factors specific to their sectors.
The new Competition Law 2018 prohibits activities of abusing dominant market position regardless of actual consequence happening or not. That means activities which may cause damage to customers, may eliminate the competitor, or may hinder another enterprise to participate in or expand the market are also prohibited.
Change in the approach to economic concentration:
The approach in controlling economic concentration in the Competition Law has fundamentally changed, whereby economic concentration is considered to be the right of enterprises in business activities associated with the right to business freedom. Competition law no longer stipulates a rigid prohibition on economic concentration based on the combined market share of enterprises participating in economic concentration, which account for over 50% of the relevant market as in the Competition Law 2004. In other words, the threshold of 50% combined market share is no longer used to determine an economic concentration in the new Competition Law 2018. Acts of economic concentration of enterprises (defined as mergers, consolidations, acquisitions, joint ventures, and other acts of economic concentration prescribed by law) are prohibited under the Competition Law 2018 if, they are evaluated to “have or potentially have the effect of significantly restricting competition in the Vietnam market.”
The NCC will make the final decision based on the following factors:
- Combined market share;
- Level of concentration before and after the economic concentration;
- The relationship of the firms in the chain of production, distribution, or supply of goods/services or whose business lines acts as an input or is complementary in nature;
- Competitive advantages due to the economic concentration;
- The probability of the participating firms to significantly increase the prices or rate of profit after economic concentration; and
- The capability of the firms to remove or prevent other firms to enter the market;
In the previous version, economic concentrations activities that could lead to a market share of 30 percent or more were required to be reported to the relevant authorities. Under the new law, economic concentrations need to be reported to the NCC if they are subject to certain thresholds based on the below factors:
- Totals assets and turnover of the firms in the domestic market;
- Transaction value; and
- Combined market share.
Violations of economic concentration regulations will attract a penalty of five percent of the total turnover (preceding financial year) of the violating firm. Earlier the penalty was 10 percent
Mergers and acquisitions
Before a merger, acquisition, or joint venture, the entities have to notify the regulator if certain thresholds are crossed such as assets and turnover as per the 2018 Law on Competition. While not mandatory, a pre-merger consultation with the entities involved and the regulator is helpful to see if there are any issues. This can be an informal, cost-free step to clarify merger regulations.
Once the entities submit to the regulator, the preliminary review should be completed in 30 days. If the NCC requires further time, it can extend the review to another 90 days, which can be further extended to 60 days for complex issues.
Vietnam Competition Law 2018 is built on the previous regulation, but it has provided investors with clearer guidelines on the regulations. The move underlines the government’s intent to match Vietnam’s laws to international standards and this bodes well for foreign investors in the country.