Overview of the Competition Law
The Competition Law of Vietnam was enacted for the first time on 9 November, 2004 and came into effect on 1 July 2005.
Implementing legislations have subsequently been promulgated, dealing with various issues of the competition law in more details, notably:
§ Decree 116/2005/ND-CP of 15 September, 2005 of the Government on detailed provisions for implementation of the Law on Competition;
§ Decree 120/2005/ND-CP of 30 September, 2005 of the Government on dealing with breaches of competition law and regulations;
§ Decree 05/2006/ND-CP of 1 September 2006 of the Government on establishment, functions, duties, powers and organizational structure of the Competition Council;
§ Decree 06/2006/ND-CP of 1 September 2006 of the Government on functions, duties, powers and organizational structure of the Competition Management Department under the Ministry of Trade.
The Competition Law (“the Law”) recognizes the right of businesses to freely compete with each other. However, the competition practices must be within the legal framework and not infringe the national interests, public interest and the legitimate rights and interest of other businesses and consumers.
The Law deals with two categories of competition practices: practices in restraining competition, including agreements in restraint of competition, abuses of dominant market position or monopoly position and economic concentration, and unfair competitive practices. It also regulates the establishment, functions and powers of administrative bodies for competition and competition legal proceedings.
The Law is applicable to organizations and individuals conducting business of all economic sectors, including domestic private enterprises, State owned enterprises, foreign invested enterprises and overseas enterprises operating in Vietnam. It is to be noted that under the laws of Vietnam, “foreign invested enterprises” comprises joint venture enterprises and wholly foreign owned enterprises, that are considered as Vietnamese legal entities, while “overseas enterprises” are understood to encompass branch office, representative offices and other forms of commercial presence of foreign entities in Vietnam.
Industry associations (comprising trade associations and professional associations) are also subject to the Competition Law.
The Competition Law also applies to State administrative bodies, but only in so far as they are prohibited from the following prescribed practices aimed at hindering competition in the market:
- forcing an enterprise, organization or individual to buy or sell goods or services to or from an enterprise appointed by such State administrative body, except for goods and services belonging to sectors deemed by law to be State monopoly sectors;
- discriminating between an enterprise in the industry or locality which the State administrative body manages and any other enterprise;
- forcing industry associations or enterprises to associate with each other aimed at excluding, restricting or hindering other enterprises from competing in the market;
- other practices which hinder the lawful business activities of enterprises.
Practices in restraint of competition
Practices in restraint of competitionare defined as practices that reduce, distort or hinder competition in the market. They include agreements in restraint of competition, abuse of dominant market position and monopoly position, and economic concentrations.
Agreements in restraint of competition
Regulation of agreements in restraint of competition in Vietnam appears to be limited to horizontal agreements (ie agreements between competitors, often referred to as cartels), with vertical arrangements being regulated solely under the abuse of dominant market position provisions.
Under the Competition Law, the following agreements in restraint of competition are strictly prohibited with no exemptions:
- Agreement which prevents, impedes or does not allow other enterprises to participate in a market or to develop business;
- Agreement which excludes from a market other enterprises not being parties to the agreement;
- Collusion to allow one or more parties to win a tender for supply of goods or services.
The following agreements in restraint of competition are prohibited only where the participating parties have a combined market share of 30% or more of the relevant market:
- Price-fixing (direct or indirect) agreement;
- Agreement to divide markets or sources of supply of goods and services;
- Agreement to restrain or control quantity or volume of production, purchase or sale of goods or supply of services;
- Agreement to restrain technical or technological development or restrain investment;
- Agreement to impose on other enterprises conditions for entering into contract for purchase/sale of goods or services or to force other enterprises to accept unrelated obligations.
However, enterprises with 30% of combined market share or more may be entitled to exemptions for the above activities if such agreement (i) rationalizes organizational structure or business scale and increases efficiency, (ii) promotes technical or technological progress, improving the quality of goods and services, (iii) promotes uniform applicability of quality standards and technical norms of certain types of products, (iv) unifies conditions on trading, delivery of goods and payment but not those relating to price or any pricing factors, (v) increases the competitiveness of medium and small-sized enterprises; or (vi) increases the competitiveness of Vietnamese enterprises in the international market. The Ministry of Trade will decide whether or not an exemption is granted. An exemption must be obtained before execution of the agreement and the exemption may only be enjoyed during a period of time as decided by the Ministry of Trade.
Where the participating parties have less than 30% combined share of relevant market, the above agreements are not prohibited even if the agreements have the effect of substantially restraining competition.
As whether an agreement in restraint of competition is prohibited heavily depends on the combined share of relevant market of the participating parties, how to determine the combined share of relevant market will be critical. The Competition Law defines the terms as follows:
‘Relevant market’ is the market containing the goods and services that are substitutable in respect of characteristics, usage and price (relevant product market) or a specific geographical area in which goods and services are substitutable in similar competitive conditions and that is significantly distinct from the adjacent areas (relevant geographical market).
‘Market share’ is the percentage of the sales turnover of an enterprise over the total sales turnover of all enterprises trading the same goods or services in the relevant market or the percentage of the purchase turnover of an enterprise over the total purchase turnover of all enterprises trading the same goods or services in the relevant market, as calculated in a n month, quarter or year.
These definitions seem vague and not clear enough. Though Decree 116 provides more detail on how to determine the ’relevant market’ and ’market share’, how these provisions are applied in practice will depend on how these concept is interpreted by the competition authorities.
Abuse of dominant market position or monopoly position
Market dominance and monopoly themselves are not prohibited. But abuse of those positions is unlawful and strictly prohibited by law.
An enterprise will be deemed to hold a dominant market position if it (i) holds a market share of 30 per cent or more of the relevant market or (ii) is capable of significantly restraining competition. A group of enterprises acting together will be deemed to hold a dominant market position if they hold a combined market share of 50 per cent or more (for two enterprises), 65 per cent or more (for three enterprises) or 75 per cent or more (for four enterprises) in the relevant market. It appears that parallel action by the group of enterprises is sufficient to constitute action together, without need for an agreement.
An enterprise or group of enterprises holding dominant market position is prohibited from engaging in any of the following activities which are considered as abuse of dominant market position or monopoly:
- Selling goods or providing services below total prime cost of the goods aimed at excluding competitors
- Fixing an unreasonable selling/purchasing price or fixing a minimum reselling price for goods/services, thereby causing loss to customers
- Restraining production or distribution of goods and services, limiting the market, or impeding technical or technological development, thereby causing loss to customers:
- Applying different commercial conditions to the same transactions aimed at creating inequality in competition
- Imposing on other enterprises conditions precedent prior to signing contract for purchase/sale of goods or services, forcing other enterprises to accept obligations which are not related in a direct way to the subject matter of the contract:
- Preventing market participation by new competitors
An enterprise will be deemed to be in a monopoly market position if there are no other enterprises competing in the relevant market for the goods that it trades or the services it provides. An enterprise in a monopoly market position is subject to the same prohibitions on its competitive practices as enterprises holding dominant market positions. In addition, it may not impose disadvantageous conditions on customers or abuse its monopoly position to unilaterally change or rescind a signed contract without a legitimate reason.
Under the Competition Law, economic concentration includes mergers, consolidations, acquisitions, and joint ventures and other forms (undefined) of economic concentration.
Any economic concentration in which the participating parties have a combined share above 50% of relevant market is prohibited unless the economic concentration results in a small or medium sized enterprise ("SME") or an exemption is granted. However, the parties may apply for an exemption from such prohibition if one or more of the participating parties is at risk of being dissolved or becoming insolvent (as decided by the Minister of Trade) or where the economic concentration enhances export, socio-economic development or technical progress (as decided by the Prime Minister).
Any economic concentration where the participating parties have a combined market share of 30%-50% must be notified to Vietnam Competition Administration Department (VCAD) under the Ministry of Trade, unless the economic concentration results in a SME. VCAD must confirm in writing whether the proposed economic concentration can proceed without exemption or requires prior exemption. At this notification stage, VCAD is not entitled to exercise any discretion - its role is simply to confirm how the proposed economic concentration may proceed under the Competition Law.
The proposed economic concentration can only be carried out after written confirmation has been received from VCAD that the economic concentration is not prohibited.
Notification is not required in cases where the participating parties have a combined market share of less than 30%, or if the economic concentration results in a SME.
Unhealthy competitive practices
Unhealthy competitive practices are defined by the Competition Law as business practices that are contrary to the normal norms of business ethics and that cause, or might cause, detriment to the interests of the state or the legitimate rights and interests of other enterprises or consumers.
Unhealthy competitive practices consist of such unethical practices as falsifying product information, infringing business secrets, coercing or defaming another enterprise, disrupting the business activities of another enterprise, using misleading advertisements and promotions, discriminating within an industry association, engaging in illegal multilevel selling of goods, and other acts of unhealthy competition as prescribed by the government. All such practices are prohibited and no exemptions will be granted for such activities.
Competition authorities consist of VCAD and Competition Council.
Vietnam Competition Administration Department
VCAD was established under the MOT with the power and duty to control economic concentrations, accept applications for exemptions and make recommendations to the MOT or the Prime Minister on such requests, investigate cases concerning practices in restraint of competition and unhealthy competitive practices and impose fines for unhealthy competitive practices. One of the main issues with the new law is whether this body will be truly independent given that numerous businesses have been established by the MOT itself
Competition Council is an independent executive body that is responsible for dealing with competition cases and resolving complaints with respect to practices in restraint of competition. The Competition as 11 to 15 members appointed by the Prime Minister at the recommendation of the MOT.
Competition legal proceedings
Any organization or individual believing their rights and interests have been infringed by a breach of the Competition Law has the right to lodge a complaint with VCAD. VCAD can also initiate an investigation if it discovers a breach of the Competition Law.
VCAD will conduct a preliminary investigation of the competitive practice. Then, if the preliminary investigation indicates the existence of an offence, an official investigation will be conducted.
During the investigation stage, the head of VCAD may impose administrative preventive measures (such as temporary detention of persons and material evidence, searches) on the recommendation of the investigator or at the request of the complainant.
If indications of a criminal offence are identified during competition investigations, the matter will be referred for criminal investigation. If there are no grounds for criminal prosecution, the case will be returned to VCAD and the official investigation will be resumed.
After official investigation, if an unfair competitive practice is proved, the head of VCAD will make a decision on dealing with the case. A fine must be imposed.
According to Decree 120/2005/ND-CP of 30 September, 2005 of the Government on dealing with breaches of competition law and regulations, there are 3 bands of fines: Band 1 is subject to VND5-10 million fine; Band 2 is subject to VND15-25 million fine; Band 3 is subject to VND50-70 million fine. Depending on the seriousness of the offence, additional sanctions, such as confiscation of the facilities used to commit the offence, public retraction, may be imposed.
After official investigation, if a prohibited practice in restraint of competition is proved, the case is transferred to the Competition Council and a panel will be established to consider whether an investigative hearing is required. All concerned parties are entitled to present arguments at a hearing. During the hearing stage, the Competition Council chairman may impose administrative preventive measures.
The sanctions and penalties for a breach of the Competition Law’s provisions on practices in restraint of competition are very severe and based on a % of the total turnover for the preceding financial year. A fine must be imposed. For a ’first-level’ offence, fines of up to 5% may be imposed. For a ’second-level’ offence (eg where the relevant goods are food), fines of 5% to 10% may be imposed. Depending on the seriousness of the offence, additional sanctions may also be imposed, such as contract amendment, corporate restructure or divestiture.
Compensation may also be payable by a party in breach of the Competition Law where such breach causes loss to the interests of the State, an individual or an organization.
A warning or fine may be imposed on individuals committing ’other acts in breach of the laws on competition’, such as failure to supply information upon request by the competition authorities or disruption of a competition investigation.
Any concerned party disagreeing with a part or all of a decision on dealing with a competition case (or a decision on exemption) may lodge a complaint, but only within 30 days of signing of the decision. In the case of decisions on dealing with unfair competitive practices, complaints are lodged with VCAD and resolved by the Minister of Trade. In the case of decisions dealing with practices in restraint of competition, complaints are lodged with the panel and resolved by Competition Council. Complaints must be resolved within 30 days of receipt, extendable in (undefined) complex cases but for not more than another 30 days.
Any concerned party disagreeing with a part or the whole of a decision resolving a complaint has the right to institute administrative proceedings at the provincial-level people’s court.
By Tran Anh Hung
BROSS & Partners