2017 07 November

Vietnam Legal Alert: Clarification on the Scope of Competition Law

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Despite ongoing uncertainty surrounding this issue, foreign businesses that do not have direct operations, physical, or legal presence in Vietnam are more likely to fall within the scope of the Competition Law on the basis of having local subsidiaries or sales into Vietnam.
 
Several aspects of Vietnam’s Law on Competition (No. 27/2004/QH11) (the “Law”) have been difficult to interpret due to a lack of formal clarification and guidance. One of the most crucial issues is the scope of the Law and how it applies to a foreign business’s activities that occur outside of the country. Article 2 of the Law states, in part, that the Law applies to “Enterprises” which is defined to include “overseas enterprises operating in Vietnam.” This phrase is not defined in the Law nor in the relevant implementing regulations. As a result, this has created confusion in determining what level of activity is necessary to satisfy this threshold.
  
Below we describe a recent clarification of this threshold based on the Vietnam Competition Authority’s (“VCA”) Annual Report and subsequent consultations with VCA officials. Nonetheless, this issue is still sufficiently problematic that recently published drafts of proposed amendments to the Law have incorporated language to ensure that the scope of the law includes “foreign enterprises” without the “operating in Vietnam” qualification.
 
Historically, this “operating in Vietnam” threshold has often been tentatively interpreted as requiring some legal or physical presence in Vietnam by the relevant overseas business in order for it to be deemed an Enterprise under the Law. However, this interpretation has generally been qualified to reflect that it has never been set out officially.  It has been recognized that the risk exists that the threshold could be interpreted as including other activities such as operation or ownership of a Vietnamese subsidiary, or even mere sales into Vietnam.
 
This lack of clarity has significantly impacted the ability of participants in foreign to foreign economic concentrations to determine whether they are subject to the Law’s merger control regime. This has been particularly problematic where one or more of the participants have a Vietnamese subsidiary or physical operations which will not be directly involved in the proposed transaction. For example, where a transaction occurs outside of Vietnam and the Vietnamese subsidiaries of the relevant parties are not legally participating in an economic concentration as defined in the Law.
 
Previous informal consultations with VCA officials have provided some comfort that the VCA had been applying a relatively narrow interpretation of this threshold to require some form of physical or legal presence in Vietnam and that the merger regime would not apply where local subsidiaries were not participating directly in an economic concentration undertaken by their foreign parent companies.

This no longer appears to be the case. In its 2016 Annual Report, the VCA stated that it had received a notification in regard to the Sanofi/Boehringer transaction. It stated that while the acquisition occurred outside of Vietnam, both relevant entities participating in the economic concentration had business activities in Vietnam on the basis of one owning a Vietnamese subsidiary, and the other apparently only distributing into Vietnam. This was considered sufficient for both foreign participants to be deemed to be Enterprises, therefore rendering the foreign to foreign transaction subject to the Law’s merger regime.
 
This more expansive interpretation has been confirmed through subsequent consultations with a VCA official who stated that having products distributed in Vietnam was sufficient to fall within the scope of the Law. Previous Annual Reports had already suggested that ownership of a local subsidiary might be sufficient to satisfy the criteria of “operating in Vietnam”; although this was not explicit.
 
Consequently, we now advise all participants engaging in foreign transactions to carefully consider potential implications of the Law where the parties directly or indirectly own Vietnamese subsidiaries or have products distributed in Vietnam (potentially even through third parties), regardless of which legal entities are engaging in the economic concentration.  In light of this clarification as to the scope of the Law, we recommend that foreign companies with Vietnamese subsidiaries or sales into Vietnam also consider whether their activities may potentially come within the scope of other provisions of the Law. This includes activities such as abuse of dominant position, anti-competitive agreements, and unfair trade practices regardless of which legal entities engage in the potentially infringing behaviour.
 
While the situation remains unclear, we draw your attention to the fact that the VCA has a history of welcoming informal and formal consultations on issues where the application of the Law is uncertain. 

If you seek further information on the above or would like to discuss these issues in more detail, please contact either Hoang Phong Anh at PhongAnh.Hoang@dfdl.com or David Fruitman at David.Fruitman@dfdl.com.
             
The information provided in this email 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.

DFDL Contact:



Hoang Phong Anh
Country Partner, Vietnam

phonganh.hoang@dfdl.com


David Fruitman
Regional Competition Counsel;
Senior Consultant, Cambodia

david.fruitman@dfdl.com