On July 1, 2019, the new Law on Competition (“2018 Law”) will take effect and it has some significant differences from the existing Law on Competition (“2004 Law”). While certain details are yet to be determined, below we will outline some of the significant differences that businesses should note between the two laws. In addition, on October 22, 2019, a draft decree was published for discussion purposes providing more details on certain provisions of the 2018 Law (“Draft Decree”). While it is not clear, how closely the final issued decree will follow the contents of the Draft Decree, where appropriate we have incorporated references to the Draft Decree herein.
In general terms, perhaps the most significant change is that the 2018 Law moves away from the 2004 Law’s strict market share driven analysis in many areas and applies a more substantive analysis to potential anti-competitive conduct. While this removes the absolute safe harbours provided by the 2004 Law, this should lead to more effective enforcement and, given the difficulty in obtaining accurate market share information, may lead to greater certainty for many businesses.
Under the 2004 Law, it was not clear that the scope of the law applied to conduct which occurred outside of Vietnam even where it had competitive impact in Vietnam; this included foreign to foreign mergers between companies with Vietnamese subsidiaries where the local entities were not directly engaged in an economic concentration. We note that the Vietnam Competition Authority (“VCA”) has recently been applying the 2004 Law to foreign to foreign mergers, but this marks a significant change from its previous interpretation of the statutory language.
While earlier drafts of the 2018 Law attempted to expressly incorporate extra-territorial conduct within the scope of the law, the 2018 Law, as enacted, simply adds “which have or may have a competition-restraining impact on Vietnam’s market” to the statement of its scope. While this is a broad statement that may be interpreted as incorporating extra-territorial conduct, it is not clear how this will be applied; particularly as, according to Article 2, the 2018 Law still only applies to, among others, “foreign enterprises operating in Vietnam”. We note that Article 2(3) expressly includes “related domestic and foreign agencies, organizations and individuals” within the scope of the applicable entities subject to the 2018 Law; which, pending clarification, appears to expand extraterritorial application of the 2018 Law to entities related to those identified by Articles 2(1) and 2(2). Hopefully, for greater certainty, clarification will be provided on how “operating in Vietnam” will be interpreted under the 2018 Law.
Conflict of Laws
The 2004 Law expressly prevailed over any other legislation dealing with practices in restraint of competition or unfair competition practices. In contract, the 2018 Law provides that any other law that regulates “practices in restraint of competition, forms of economic concentration, unfair competitive practices and dealing with unfair competitive practices” shall apply. This may create a confusing array of applicable laws and practices in Vietnam’s competition regime as sector-specific and more general legislation that address these issues will apply in lieu of the comprehensive general competition regime contemplated under the 2004 Law.
There are a number of important changes in this area. Under the 2004 Law, certain conduct was either strictly prohibited or prohibited when the combined market share threshold was exceeded. This led to an interpretation that the anti-competitive agreement provisions of the 2004 Law only applied to agreements between competitors; as discussed below, the scope of the prohibitions under the 2018 Law is more complex.
Under Article 11 of the 2018 Law, the following are considered agreements in restraint of competition:
- Agreements either directly or indirectly fixing the price of goods and services.
- Agreements to share customers or to share consumer markets or sources of supply of goods and services.
- Agreements to restrain or control the quantity or volume of goods produced, purchased or sold and services provided.
- Agreements in order for one or more parties to the agreement to win a tender when participating in tendering for supply of goods and services.
- Agreements which prevent, impede or do not allow other enterprises to participate in the market or to develop business.
- Agreements which exclude from the market other enterprises not parties to the agreement.
- Agreements to restrain technical or technological developments or to restrain investment.
- Agreements to impose on other enterprises conditions for signing contracts for purchase and sale of goods or supply of services, or to force other enterprises to accept obligations which are not related in a direct way to the subject matter of the contract.
- Agreements not to trade with parties not participating in the agreements.
- Agreements to restrain the product sale market or sources of supply of goods and services of parties not participating in the agreements.
- Other agreements which have or may have a competition-restraining impact.
We note that the agreements listed at # 9, 10 and 11 are new to the 2018 Law. As alluded to previously, under the 2004 Law, the relevant prohibitions only applied to agreements between competitors and either were applied on a per se basis or based on the parties’ combined market shares. Under the 2018 Law:
- Agreements # 1, 2 and 3 are strictly prohibited between enterprises in the same market (which we assume applies to horizontal agreements);
- Agreements # 4, 5, and 6 are strictly prohibited between any enterprises;
- Agreements # 7, 8, 9, 10 and 11 are prohibited between enterprises in the same market when they cause or have the ability to cause a significant competition-restraining impact in the market; and
- Vertical agreements of the types listed at # 1, 2, 3, 7, 8, 9, 10 and 11 are prohibited when they cause or have the ability to cause a significant competition-restraining impact in the market.
The 2018 Law contains provisions detailing the assessment of a significant competition-restraining impact as well as a number of exemptions. In particular, Article 13(1)(a) contemplates the National Competition Committee (“NCC”), the new regulator created under the 2018 Law, considering, among other factors, the market shares of the relevant parties in determining the significant competition-restraining impact of an agreement. The Draft Decree states that the NCC will consider the significant competition-restraining impact on the basis of market shares where the combined market share of the parties in a horizontal agreement is 10% or greater or the market share of any party in a vertical agreement is greater than 10%.
With respect to exemptions, we note that labour or industry/sector specific co-operation agreements are exempted if they are implemented in accordance with the provisions of any other law. Further an exemption may be granted for a defined period for agreements, except those listed at # 4, 5 and 6 above, if they are found to benefit consumers and meet certain listed conditions.
Another significant new addition in the 2018 Law is the formal leniency policy which will offer exemptions for up to three enterprises that voluntarily report on prohibited agreements. The leniency will not be available to enterprises which organize, or force other parties into, anti-competitive agreements.
Abuse of Dominance
With respect to determining when an enterprise has a dominant market position, the 2004 Law had both a market share test as well as criteria, set out in a sub-decree, to determine whether an enterprise is capable of substantially restraining competition. While perhaps not a significant change, in addition to setting out a market share test, the 2018 Law directly incorporates the criteria for the assessment of significant market force into the legislation and adds additional criteria to its assessment factors.
While there have been some minor language changes in the list of prohibited conduct for dominant enterprises, an addition of note is the prohibition against acts that are prohibited by other laws. It will be interesting to see how this will be applied and interpreted.
There have been significant changes to the merger regime under the 2018 Law of which some of the more important are:
- It is no longer restricted to horizontal economic concentrations;
- The thresholds to determine whether a transaction is notifiable are no longer restricted to market shares and now also include criteria such as assets, revenues and value of the transaction;
- In a related change, the proposed threshold for control under the Draft Decree of an acquisition of 36% of the charter capital is a significant decrease from the 50% of the voting rights threshold established under the relevant regulation of the 2004 Law.
The Draft Decree proposes the following thresholds:
One of the parties has total assets or turnover of VND one trillion (approximately USD 43 million) in Vietnam;
The transaction value is VND five hundred billion (approximately USD 21.5 million) or more; or
The parties’ combined market share is 30% or more
- Economic concentrations are no longer prohibited based solely on market share, but will be reviewed based on various criteria (including market shares) to determine if the concentration will, or is capable of, significantly restricting competition;
- Economic concentrations can be cleared with conditions;
- The 2018 Law varies the period for review of an economic concentration by permitting a preliminary review of 30 days with an official investigation, if needed, that is twice as long as under the 2004 Law prior to the extensions permitted under both laws.
If you would like further information in regard to the above or would like to discuss these issues, please contact either Hoang Phong Anh (Phonganh.Hoang@dfdl.com) or David Fruitman (David.Fruitman@dfdl.com).
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Partner, DFDL Vietnam
Regional Competition Counsel & Senior Consultant, DFDL Cambodia