A new Law on Competition (Competition Law 2018) will take effect from 1 July 2019 in Vietnam. Some key changes in the Competition Law 2018 are as follows:
- Broader scope of application: The Competition Law 2018 now governs any activities whether by Vietnamese or foreign entity or individual which have or may have the “competition restraining impact” to Vietnam market. Competition restraining impact means impact which excludes, reduces, distorts or hinders competition in the market. Under the Competition Law 2018, the competition authority of Vietnam now has clear authority to deal with offshore activities and transactions which has impact on Vietnam market. In addition, the Competition Law 2018 now also apply to public service units such as hospitals, or schools which are technically not enterprises.
- Besides the principle of honesty, companies are required to compete with each other in accordance with the principles of justice and fairness.
- Relationship with other laws: Contrary to the old competition law, the new Competition Law 2018 will not prevail other laws in case such other laws have regulations on action in restraints of competition, form of economic concentration, activities of and dealing with unfair competition.
- Under the new Competition Law 2018, a State agency is prohibited not only from forcing but also from “requesting or recommending” enterprises or individuals or organisations to perform or not to produce and sell specific goods, provide and use specific service, or produce and sell goods to or provide and use services of specific enterprises.
- Market share calculation: A new method is added to determine the market share of an enterprise in a relevant market, i.e. method based on percentage of number of units of goods and service sold or purchased of such enterprise to the total units of goods and services sold or purchased by all enterprises in the relevant market on a monthly, quarterly or annual basis.
- Anti-competitive agreements: The new Competition Law 2018 has provided new types of prohibited anti-competitive agreements. These include (1) agreements to share customers, (2) agreements to not have transactions with enterprises not being parties to the agreement, (3) agreements to limit the product sale market, source of goods and service provision of enterprises not being parties to the agreement, and (4) “other agreements” which have or may have significant competition restraining impact.
Under the old competition law, agreements in restraint of competition are usually prohibited if the combined market share of parties to the agreement is 30% or more. However, under the new Competition Law 2018, when determining whether an agreement should be prohibited or not, the competition authority will apply several criteria on assessment of whether such agreement has or may have significant competition restraining impact to the market. Such criteria include (1) market shares, (2) market entry barrier, and (3) access to critical infrastructure facility. The agreements in restraint of competition could be a horizontal agreement between parties in the same industry or vertical agreement between parties in different industries but in the same supply chain.
An agreement in restraint of competition may be exempted for up to 5 years. Labour agreement, cooperation agreement in specialized sector which is governed by other laws is subject to regulations of such laws, not the new Competition Law 2018.
For the first time, the new Competition Law 2018 introduces a leniency policy. In particular, enterprises entering into agreement in restraint of competition may have its penalty reduced or exempted if such enterprises voluntarily report its violation to the competition authority before an investigation decision is issued. This leniency policy is unavailable for enterprise forcing or organizing for other enterprises to participate in the agreement. This policy applies to first three successful applicants. The first applicant can receive an exemption of up to 100% of penalty. The second and the third applicants can receive a reduction of 60% and 40% of penalty respectively.
- Abuse of dominant market position: Under Competition Law 2018, five enterprises with total market share of 85% or more in the relevant market are also considered as a group of enterprises with dominant market position. However, enterprise with market share of less than 10% in the relevant market is not counted in the group of enterprises with dominant market position.
In addition to market share, the new Competition Law 2018 adds criteria of “significant market power” (sức mạnh thị trường đáng kể) to determine whether an enterprise or groups of enterprises may have dominant market position. Under Article 26 of Competition Law 2018, significant market power of an enterprise or a group of enterprises can be assessed based on (i) market share between enterprises in the relevant market, (ii) financial strength and size of enterprise, (iii) barriers to entry and expansion of the market for other enterprises; (iv) possibility of holding, accessing and controlling the market for distribution and sale of goods or services or the supply of goods and services; (v) technological advantages, technical infrastructure; (vi) ownership, holding, access to infrastructure; (vii) the right to own or use intellectual property right objects; (viii) the ability to move to supply or demand for other goods and services; and (ix) particular factors in the branch or domain in which the enterprise is operating.
The new Competition Law 2018 prohibits activities of abusing dominant market position regardless of actual consequence happening or not. That means activities which may cause damage to customers, may eliminate the competitor, or may hinder another enterprise to participate in or expand the market are also prohibited.
- Merger control: Previously, an economics concentration transaction (e.g., a merger, consolidation or buy-out) is prohibited only if the combined market share of enterprises in economics concentration is more than 50% of the relevant market. However, under the Competition Law 2018, this condition is replaced by factors as to whether an economic concentration has or may have significant competition restraining impact.
The competition authority will assess several criteria to determine significant competition restraining impact of economic concentration. These criteria include (1) combined market share in the relevant market; (2) the level of concentration in the relevant market before and after the economic concentration; (3) the relationship of enterprises participating in economic concentration in the chain of production, distribution and supply of a certain kind of goods or services or lines of business of enterprises in economic concentration being inputs or complementary to one another; (4) competitive advantage due to economic concentration in the relevant market; (5) the possibility of enterprises after the economic concentration to increase price or the rate of profit on turnover significantly; (6) ability of enterprises after economic concentration to remove or prevent other enterprises from joining or expanding the market; and (7) particular factors in the branches and domains where enterprises participate in economic concentration.
Similarly, under the old competition law, an economics concentration transaction needs to be reported to the competition authority, if the combined market share of enterprises in economics concentration is 30% or more of the relevant market. However, under the new Competition Law, parties planning to carry out the economics concentration must inform NCC if they are subject to notification thresholds which are based on (1) total assets and total turnover of such enterprise in Vietnamese market, (2) transaction value, or (3) combined market share in relevant market.
In short, the trigger for a merger notification is not as clear as before. Therefore, one must wait for the implementing regulations of the new Competition Law 2018 to determine whether an economic concentration transaction is subject to notification requirement under the new Competition Law 2018.
The Competition Law 2018 introduces two-phase review process for economic concentration case including preliminary review and official review. This regulation replaces single-phase review process under old competition law. After the two-phase review process, instead of outright rejection, the competition authority may now decide to allow a transaction to go forward with certain conditions attached (e.g., dividing or selling part of capital or assets of enterprises participating in economic concentration; or controlling contents related to purchase prices, sale prices of goods or services or other transaction conditions in contracts made by enterprises formed after economic concentration).
A buy-out is now defined to mean an indirect or direct purchase of all or parts of the equity interest or assets of an enterprise so to acquire control of such enterprise or a business division of such enterprise. This definition is much clearer than the definition under the old competition law which fails to include purchase of equity interest.
Monetary penalty for violation of regulations relating to economics concentration is reduced from 10% to 5% of total turnover of the violating enterprise in the relevant market in the preceding financial year.
This post is contributed by Le Minh Thuy, a trainee at Venture North Law.