PRIMER: Vietnam’s new competition law
The new rules introduce the concepts of significant market power and extraterritoriality, in line with international standards
Why is the law being changed?
Vietnam’s revised competition law, which comes into effect on July 1 2019, aims to bring the country’s existing 2004 law, in line with international standards. For instance, the law introduces a leniency programme and prohibits all economic concentrations which have or potentially have a significant competition restraining impact in the market.
How is the enforcement authority being changed?
The National Competition Committee (NCC) is the new authority in charge, and will bring together the Vietnam Competition Authority and the Vietnam Competition Council. The NCC will assist the Ministry of Industry and Trade in competition administration, organising investigations, handling competition cases, reviewing exemption requests and economic concentrations.
What are the highlights of the new law?
One of the notable changes of the new law is that the Vietnamese competition authorities will have discretion to prohibit competition-restricting agreements and economic concentrations, including mergers and acquisitions, on the basis that they have or potentially have the effect of significantly restricting competition in the market. This is a new provision as the 2004 legislation focused solely on market share conditions.
The new law introduces thresholds at which enterprises must notify the NCC of their economic concentration before implementation. The reporting thresholds are based on: (i) total assets in the Vietnamese market of the combining entities; (ii) total revenue in the Vietnamese market of the combining entities; (iii) value of the transaction; and (iv) combined market share of the combining entities in the relevant market. More detailed guidance around these thresholds will be provided in subsequent legislation.
A new concept being introduced is significant market power. An enterprise is deemed to be in a dominant position if it has a market share of 30% or above, or significant market power. Criteria used to determine significant market power include: financial strength and scale, advantages of technologies and technical infrastructure, and ownership and right to use objects of intellectual property rights.
What areas will businesses find most challenging?
A new change which might pose a challenge to foreign companies with business activities in Vietnam is the expanding scope of the law. According to article 2 of the new law, all agencies, organisations and individuals, whether inside or outside of Vietnam, which relate to a competition-restraining practice or agreement, economic concentration, or unfair competition, will be subject to the new law.
“Even if some types of transactions, for example, an M&A deal, take place entirely abroad, if they have or potentially have the effect of significantly restricting competition in the Vietnamese market, the parties to the transaction will be subject to the governance of the new law,” said Tu Ngoc Trinh, attorney-at-law, Tilleke & Gibbins.
For example, foreign companies will need to notify the NCC of their economic concentration before implementation. Under the new law, acts of economic concentration of enterprises (defined as mergers, consolidations, acquisitions, joint ventures, and other acts of economic concentration) are prohibited if they are evaluated to ‘have or potentially have the effect of significantly restricting competition in the Vietnam market’.
"While it was not explicitly stated in the prior law that vertical agreements were not covered, there was a general understanding that enforcement around competition-restraining agreements was focused on horizontal arrangements"
Trinh said that the NCC will evaluate factors such as the combined market share of the participating companies; the level of concentration in the relevant market before and after the economic concentration; and competitive advantages gained from the economic concentration. The NCC is also required to evaluate the positive impact of economic concentration, though there is no further guidance yet on whether this could lead to exemptions.
Phuong Nguyen, managing partner, ZICO Law said that a move away from pure market share considerations (30% for dominant market position and 50% for prohibited economic concentrations) means that the process for determining significant market power, requires more regulatory discretion when applying the metrics for making such determinations. Exemptions for prohibited economic concentrations, available under the prior law, are no longer an option. An economic concentration that is prohibited after a full review is a final determination without exception.
Additional agreements have been added to the list of prohibited competition-restraining agreements. Nguyen said that businesses may find that these agreements will not impact not only horizontal arrangements but also vertical arrangements.
“While it was not explicitly stated in the prior law that vertical agreements were not covered, there was a general understanding that enforcement of competition-restraining agreements like these was focused on horizontal arrangements only,” said Nguyen.
The new law appears to highlight that this is no longer the case.
The economic concentration review process could take up to six months or more from the receipt date of a completed application dossier so certain transactions or deals which require approval from the NCC might face significant delay.
What are areas that lack clarity?
"Even if some types of transactions take place entirely abroad, if they potentially have the effect of significantly restricting competition in the Vietnamese market, the parties will still be subject to the governance of the new law"
Trinh notes that as the new law still offers state authorities, such as the NCC, wide discretion in the interpretation of a number of provisions, and in evaluating the effect of significantly restricting competition of competition-restricting agreements and economic concentration or significant market power of enterprises or the group of enterprises with dominant market position. He adds that some still contend that certain provisions or factors for evaluation are too broadly drafted and doubt whether the enforcement of the law would be as effective as expected. The new law provides some exemptions from the prohibited competition-restricting agreements under article 14, such as cases where the competition-restricting agreements are carried out for the benefit customers or where they may help to promote technical or technological progress or improve the quality of goods and services, or increase the competitiveness of Vietnamese enterprises in the international market. However, exemptions are granted in limited circumstances only, and the conditions are very general; whether exemption is granted or not will depend on the NCC’s evaluation.
While foreign companies are required to notify the NCC of their economic concentration before proceeding with the deal, Trinh said that the law does not specifically set out a monetary threshold which will trigger such notification obligation.
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