Vietnam Issues New Competition Law
In June 2018, Vietnam passed a new Competition Law, replacing the 2004 version of the law. The new law which focuses on competition restraining agreements, market dominance, economic concentration, and unfair practices, will be in effect from 1 July 2019.
Scope of the law
The new Competition Law has expanded its scope and now includes both Vietnamese and foreign companies and individuals in case their actions have or potentially have a competition restriction impact on the domestic market. Competition restriction impact is the impact which will exclude, reduce, or hinder competition in the market.
The Vietnamese government will also have the authority over offshore activities if there is an impact on the domestic market. The law will apply to foreign entities part of competition-restricting agreements, economic concentration, or other unfair activities even if they do not have a subsidiary in Vietnam.
In addition, public service units such as hospitals and schools have been brought under the ambit of the law, which was not the case in the previous version.
Under the new law, the existing Vietnam Competition Authority and the Vietnam Competition Council have been merged to form the National Competition Committee (NCC). A Competition Investigation Agency has also been established under the NCC, which will be responsible for monitoring and investigating breaches of competition law.
The NCC will be a unit under the Ministry of Industry and Trade.
The new law prohibits certain types of anti-competitive agreements if the firms are in the same market or if the agreements can impact the market competitiveness.
Agreements prohibited in case firms are in the same market:
- Directly or indirectly fixing prices;
- Sharing customers or markets or supply sources; and
- Controlling the quantity of goods produced, sold, or bought as well as services provided.
Agreements prohibited in case they have a negative impact on the market competitiveness:
- Restraining investments, technical, and technological capabilities; and
- Forcing other companies to sign contracts related to the buying or selling of goods and services or bind them into commitments not related to the content of the contract.
Earlier, these agreements were only prohibited in case the combined market share of the parties were 30 percent or more.
A leniency program has also been introduced in the new law. Now, companies that are part of an anti-competitive agreement may be entitled to leniency if they voluntarily reach out to the government authorities before an investigation is formally opened. This program will only be available to the first three applicants, with the first applicant being eligible for a penalty exemption of 100 percent, while the second and third will be eligible for an exemption of 60 percent and 40 percent respectively.
Earlier, economic concentration activities such as mergers, consolidations, acquisitions, and joint ventures were prohibited in case the combined market shares of the entities were above 50 percent.
Now the combined market share condition has been removed and such activities can be prohibited even if they have a significant competition restraining impact on the 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 which 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.
From July 2019, firms will be considered to be in a market dominating position if it has a market share of 30 percent or more and if it has a significant market power. Market power will be determined by 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.
Although the new Competition Law is quite thorough, it still lacks clarity in certain areas and the government is expected to issue further guidelines on the implementation of this policy before it comes into effect in 2019.