The Competition Law 23/2018/QH14 (Competition Law 2018) in Vietnam took effect on July 1 2019 and replaced the old Competition Law 27/2004/QH11 (Competition Law 2004). The new law contains substantial changes to the old law, and such changes may have an impact on foreign investors' business practices in Vietnam. In this article, we explain one of those changes using the following hypothetical case:
Companies A and B are manufacturers in Vietnam and started sharing information with a view toward business collaboration. The information to be shared may include sensitive and confidential information such as the product prices of A and B.
Is the above information sharing permissible under Vietnam's antitrust regime?
Changes included in the new Competition Law
In Vietnam, competition restriction agreements are categorised into two types: (1) 'per se' prohibition (agreement itself is illegal); and, (2) conditional prohibition (agreement is prohibited only if it falls under certain conditions). Under the Competition Law 2004, a market share approach was used for type (2) agreements (that is, only if the combined market share of the parties to the type (2) agreement was 30% or more, such agreement was prohibited). The new Competition Law 2018 changed that 30% market share-based approach to an effect-based approach (in other words, the type (2) agreement is prohibited only if such agreement has a substantial competition restraining impact). This shift is in line with the global trend and will be beneficial for foreign investors in Vietnam in the sense that not all the agreements are prohibited merely due to their formality. On the other hand, the new approach will cause less predictability, especially where enforcement practice is not well established. In this context, it should be noted that no decree detailing the Competition Law 2018 has been issued at the time of writing this article, although the law itself is already effective. Such a lack of detailed guidance may further reduce the predictability of the new law in practice.
Returning to the hypothetical case, agreements for (a) price fixing, (b) market sharing, and (c) output limiting among competitors (horizontal relationship) were previously categorised as a type (2) conditional contract. This means that they were not restricted as long as their combined market share remained less than 30% (Articles 8.1 and 9.2 of the Competition Law 2004). Under the Competition Law 2018, these three types of agreements are categorised as (1) 'per se' prohibition agreement. This means they are banned, regardless of the market share or importance of the competition restrictive impact. (Articles 11 and 12 of the Competition Law 2018).
On a related note, it was unclear if these agreements among vertical relationship parties (for example, supplier, manufacturer, and sales agent) were prohibited under the Competition Law 2004, but the Competition Law 2018 clarifies that those vertical agreements are also prohibited as type (2) agreements (in other words, they are prohibited if they have a substantial competition restraining impact, either in the upstream or downstream market).
Risk of information sharing under the Competition Law 2018
Similar to other jurisdictions, Vietnam's antitrust system does not prohibit information sharing itself. However, the sharing of sensitive and confidential information may raise suspicions if it is an arrangement for prohibited competition restriction agreements. In assessing the risk posed by the information sharing, three main questions should be addressed: (i) with whom is the information being shared? (ii) what are the details of the information to be shared? and, (iii) why does such information need to be shared with competitors?
With whom is the information being shared?
As explained above, horizontal anti-competitive agreements are per se prohibition, while vertical agreements are prohibited depending on their impact on competition. Therefore, if companies A and B in the hypothetical case above are competitors, the risk of information sharing is higher compared to where companies A and B are supplier and manufacturer.
What are the details of the information to be shared?
The antitrust risk posed by information sharing practices may vary based on the nature of the information to be shared. A mere exchange of general information such as political trends, or a regulatory update, is generally less risky than an exchange of sensitive and confidential information such as price, cost, customer list (division of customer/market), or production volume.
In the situation above, the information to be shared contains product prices of A and B, and it may raise suspicions of a price-fixing arrangement.
Why does such information need to be shared with competitors?
If information sharing is conducted between the vertical companies, the purpose of such information sharing is an important factor in determining if it is prohibited as an anti-competitive agreement. For example, if the information sharing is for the purpose of joint research and product development between the supplier and manufacturer and such joint research and product development rather enhances competition in the market, such information sharing is less likely to be prohibited. Even in a horizontal relationship, information sharing for a certain purpose that is permissible under other laws may be exempted as an exception under the Competition Law 2018. How an agreement under which the pro-competitive effect outweighs the anti-competitive effect within the Vietnam market is treated is unclear under the Competition Law 2018, but we hope that guidelines or enforcement practice will clarify that such agreement will not be prohibited and the authority's exemption decision process is not required for such a purpose.
In the situation above, depending on the purpose of information sharing and the collaboration between A and B, such information sharing may be allowed under the Competition Law 2018.
Vietnam's Competition Law is still under development and only a limited number of precedent cases under the old law have been published. How the competent authority may view or interpret an act of information sharing and how strictly they will enforce it under the new law remains uncertain. It would be no surprise if the competent authority were to enhance its investigation of the anti-competitive agreements considering the stricter regulation under the Competition Law 2018. A leniency programme newly introduced under the Competition Law 2018 may also give rise to a new trend in enforcement practice.
Anti-competitive agreement is just one of the areas to which changes have been made under the new Competition Law 2018. Other areas such as the abuse of dominant market position and economic concentration, have also been subject to substantial changes under the Competition Law 2018. Market practice in Vietnam, however, is not yet well established and the old habits/customs of local companies may expose foreign investors (including offshore investors, as the Competition Law 2018 clearly provides its extraterritorial application) to the risk of unconscious/unintended violation of these new regulations. It is a key to success in a developing market like Vietnam to consult with experts and adequately manage these risks. Accordingly, we hope that our article will be of some help to you in being aware of such potential risks.
|Kazuhide Ohya||Cao Bao Tran|