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Vietnam - new comprtition law
1Vietnam – new competition lawFreshfields Bruckhaus Deringer, January 2005Vietnam’s long-awaited Competition Law was finallypassed by the National Assembly on 9 November 2004,four years after the initial draft was circulated. This newlaw, which will come into effect on 1 July 2005, is yet onemore important step in the ongoing development of acomprehensive system of commercial law in the country.Competition rules before the CompetitionLawThe main regulations on anticompetitive measuresbefore the Competition Law was passed included thefollowing.• The 1997 Commercial Law, which contains severalprovisions to protect consumers (includingprohibitions on increasing or reducing prices to thedetriment of producers and consumers, deceiving ormisleading customers, using deceptive advertisementsor conducting unlawful commercial promotions) andto prevent other unhealthy competitive acts(including speculation for market control, dumpingof goods, defamation, obstructing, enticing, bribingor threatening the staff of customers or of otherbusiness entities and infringing the industrialproperty of other enterprises).• Pricing regulations, in particular the Ordinance onPrice of the Standing Committee of the NationalAssembly, dated 26 April 2002, that prohibit anyagreements to fix prices aimed at dominating themarket or exceeding the market share stipulated bylaw.• Decree 54 of the Government dated 3 October 2000on the protection of intellectual property rightsregarding trade secrets, geographical indication, tradenames and protection against unhealthy competitivepractices relating to intellectual property. Decree 54defines certain practices as unhealthy competitiveacts, including using misleading materials to takeadvantage of or damage the prestige or reputation ofanother business.However, these provisions were poorly enforced and hadlittle effect on actual market competition due to the lackof a comprehensive system of regulations focused oncompetition issues.Overview of the Competition LawThe Competition Law is the first law comprehensivelygoverning competition in the market. It regulatesunhealthy competitive practices and practices in restraintof competition by all businesses in Vietnam, including‘overseas enterprises operating in Vietnam’.The Competition Law also establishes supervisoryauthorities to regulate competitive practices in themarket and sets out measures to enforce its provisions.Unhealthy competitive practicesThese are defined as business practices that are contraryto the normal norms of business ethics and that cause, ormight cause, detriment to the interests of the state or thelegitimate rights and interests of other enterprises orconsumers.BRIEFINGSummaryVietnam’s long-awaited Competition Law,passed by the National Assembly on 9 November 2004, comes into effect on 1 July2005. The Competition Law regulatesunhealthy competitive practices andpractices in restraint of competition,including agreements in restraint ofcompetition, abuse of dominant marketposition or monopoly position, andeconomic concentrations. The law alsoestablishes a Competition Commission andCompetition Council and sets outenforcement measures. It is anotherimportant step in the development of acomprehensive system of commercial law.January 2005Vietnam – new competitionlaw 2Vietnam – new competition lawFreshfields Bruckhaus Deringer, January 2005The criteria for whether such activities are agreements inrestraint of competition are based on the enterprises’combined market share and not the activities themselves.Therefore, enterprises with less than a 30 per centcombined share of the relevant market may engage inactivities that restrain competition.This places a heavy burden on the new (to Vietnam) anddifficult concept of market share. In order to calculate anenterprise’s share of the relevant market, the authoritieswill use the following definitions set out in theCompetition Law.• ‘Relevant market’ is the market containing the goodsand services that are substitutable in respect ofcharacteristics, usage and price (relevant productmarket) or a specific geographical area in whichgoods and services are substitutable in similarcompetitive conditions and that is significantlydistinct from the adjacent areas (relevantgeographical market).• ‘Market share’ is the percentage of the sales turnoverof an enterprise over the total sales turnover of allenterprises trading the same goods or services in therelevant market or the percentage of the purchaseturnover of an enterprise over the total purchaseturnover of all enterprises trading the same goods orservices in the relevant market, as calculated in amonth, quarter or year.Although the regulation of practices in restraint ofcompetition will rely heavily on these two concepts, thedefinitions are unfortunately vague enough that investorswill have to wait to see how they are applied in practice.Abuse of dominant market position or monopolypositionAbuse of dominant market positionEnterprises that have dominant market positions will besubject to additional restrictions. An enterprise will bedeemed to hold a dominant market position if it (i) holdsa market share of 30 per cent or more of the relevantmarket or (ii) is capable of significantly restrainingcompetition. A group of enterprises acting together willbe deemed to hold a dominant market position if theyhold a combined market share of 50 per cent or more(for two enterprises), 65 per cent or more (for threeenterprises) or 75 per cent or more (for four enterprises)Unhealthy competitive practices consist of such unethicalpractices as falsifying product information, infringingbusiness secrets, coercing or defaming another enterprise,disrupting the business activities of another enterprise,using misleading advertisements and promotions,discriminating within an industry association, engagingin illegal multilevel selling of goods, and other acts ofunhealthy competition as prescribed by the government.All such practices are prohibited and no exemptions willbe granted for such activities.Practices in restraint of competitionThese are defined as practices that reduce, distort orhinder competition in the market. They includeagreements in restraint of competition, abuse ofdominant market position and monopoly position, andeconomic concentrations.Agreements in restraint of competitionBoycotts and tender collusions are considered agreementsin restraint of competition, regardless of the market shareof the enterprises concerned, and no exemptions will begranted for such activities.Enterprises that hold a combined market share of 30 percent or more of the relevant market are prohibited fromentering into price fixing and market sharing agreements;agreements to restrict output, technical developments,technology or investment; or agreements to imposetrading conditions on other parties.However, these enterprises may apply to the CompetitionCommission (see below) for an exemption for the aboveactivities if such an agreement (i) rationalises anorganisational structure or business scale and increasesefficiency, (ii) promotes technical or technologicalprogress, improving the quality of goods and services,(iii) promotes uniform applicability of quality standardsand technical norms of certain types of products, (iv)unifies conditions on trading, delivery of goods andpayment but not those relating to price or any pricingfactors, (v) increases the competitiveness of medium andsmall-sized enterprises; or (vi) increases thecompetitiveness of Vietnamese enterprises in theinternational market. The Minister of the Ministry ofTrade (MOT) will decide whether or not an exemption iswarranted. 3Vietnam – new competition lawFreshfields Bruckhaus Deringer, January 2005in the relevant market. It appears that parallel action bythe group of enterprises is sufficient to constitute actiontogether, without need for an agreement.Such an enterprise or group of enterprises is prohibitedfrom selling below cost, fixing unreasonable selling orpurchasing prices or minimum reselling prices,restricting production or distribution, restricting themarket or technical or technological developments,applying discriminatory commercial conditions,imposing conditions for signing contracts, bundlingunrelated obligations into a contract or preventing otherenterprises from entering the market.Several of these practices are not prohibited per se butare prohibited if they actually cause loss to consumers orhave the intention of harming competition. However, nocriteria or guidelines for assessing such effect orintentions are set out.Abuse of monopoly positionAn enterprise will be deemed to be in a monopolymarket position if there are no other enterprisescompeting in the relevant market for the goods that ittrades or the services it provides. An enterprise in amonopoly market position is subject to the sameprohibitions on its competitive practices as enterprisesholding dominant market positions. In addition, it maynot impose disadvantageous conditions on customers orabuse its monopoly position to unilaterally change orrescind a signed contract without a legitimate reason.State monopoly sectors The state will continue to control state-owned enterprises(SOEs) operating in sectors it has declared to be ‘statemonopoly sectors’ by deciding the quantities, volumes,prices and market scope of goods and services that theseenterprises produce. However, if an SOEin a statemonopoly sector conducts business outside this sector, itwill be held to the same standards as private enterprises(eg if an electric utility began selling ice-cream, the ice-cream sales would be subject to the Competition Law). Itis unclear if its activities in the state monopoly sector aresubject to other provisions of the Competition Law (ieprohibited from unhealthy competitive practices andpractices in restraint of competition).Economic concentrationEconomic concentrations, including mergers,acquisitions, consolidations, joint ventures and otherforms of economic concentration, are subject to newregulations. These regulations apply to existing foreign-invested enterprises, but they would not apply to a newforeign investor with no other presence in Vietnam or ifthe proposed economic concentration would result in a‘small or medium-sized enterprise’.A small or medium-sized enterprise is defined by Decree90 of the Government dated 23 November 2001 as adomestic enterprise having a registered capital of nomore than 10bn dong or employing on average no morethan 300 employees in a year. As the Competition Lawdoes not define small or medium-sized enterprises, thedefinition from Decree 90 will likely be applied, thoughthe implementing decree will have to confirm this.If the parties to an economic concentration have acombined market share of between 30 per cent and 50 per cent of the relevant market they must notify theCompetition Commission 30 days before the proposedeconomic concentration. The proposed economicconcentration can only be carried out after writtenconfirmation has been received from the CompetitionCommission that the economic concentration is notprohibited.If the participating parties have a combined market shareabove 50 per cent in the relevant market, an economicconcentration is prohibited. However, the parties mayapply to the Competition Commission for an exemptionfrom such prohibition if (i) one or more of the parties tothe economic concentration is at risk of being dissolvedor declared bankrupt or (ii) the economic concentrationhas the effect of contributing to socioeconomicdevelopment, technical progress or the increase ofexports. Applications for the first type of exemption willbe decided by the MOT, while the Prime Minister willdecide whether to grant exemptions for the second type.Competition authoritiesCompetition activities will be administered by theCompetition Commission and the Competition Council. 4Vietnam – new competition lawFreshfields Bruckhaus Deringer, January 2005Competition CommissionThe Competition Commission will be established underthe MOTwith the power and duty to control economicconcentrations, accept applications for exemptions andmake recommendations to the MOTor the PrimeMinister on such requests, investigate cases concerningpractices in restraint of competition and unhealthycompetitive practices and impose fines for unhealthycompetitive practices. One of the main issues with thenew law is whether this body will be truly independentgiven that numerous businesses have been established bythe MOTitself.Competition CouncilThe Competition Council will comprise 11 to 15members appointed by the Prime Minister at therecommendation of the MOT. The Competition Councilwill be responsible for hearing and resolving casesconcerning practices in restraint of competition.Competition proceedingsAny organisation or individual that believes its legalrights and interests have been infringed due to a breachof the Competition Law can submit a complaint to theCompetition Commission. The CompetitionCommission can also initiate an investigation if itdiscovers a breach of the Competition Law.The Competition Commission will conduct apreliminary inquiry. Where indications of an offence arefound, an official inquiry will be conducted. Theinvestigator’s report on the results of the official inquirymust be forwarded to the Competition Council, whichcan hold a detailed hearing. In addition, the investigatormay refer a breach of the Competition Law for criminalprosecution in certain cases.The consequences of a breach of the Competition Laware different for unhealthy competitive practices andpractices in restraint of competition. For the latter, finesof up to 10 per cent of the total turnover in the precedingyear are possible, and divestitures can be required forunlawful economic concentrations. In addition,compensation may have to be paid to those who havesuffered loss.Please see the next page for an overview of theCompetition Law enforcement structure.For further information please contact Tony FosterT+84 4 8247 422F+84 4 8268 300Etony.foster@freshfields.com 5Vietnam – new competition lawFreshfields Bruckhaus Deringer, January 2005Filing of complaint to theCompetition CommissionPreliminary investigationOfficial investigationCompetition CouncilEnforcementEnforcementEnforcementEnforcementEnforcementAppeal to MOTHearing panelDecisionAppeal to Competition CouncilCourtDecision on unhealthycompetitive practices by theCompetition CommissionStay investigationCriminal proceedingsRefer backRefer backEnforcement structureThe information and opinions containedin this bulletin are not intended to be acomprehensive study, nor to provide legaladvice, and should not be relied on ortreated as a substitute for specific adviceconcerning individual situations.©Freshfields Bruckhaus Deringer 2005www.freshfields.comReportReturn foradditionalinvestigation10388Practices in restraint of competitionUnhealthy competitivepracticesSanctions:• Warning• Monetary fine• Confiscation• Public rectificationSanctions:• Warning• Monetary fine• Confiscation• Restructuring• Division, separation ofenterprise, compulsoryresale of the acquiredportion of enterprise• Public rectification• Removal of unlawfulterms from the contractor the transaction• Withdrawal of businesscertificate, licence orprofessional practisingcertificate• Other measures to limitthe anticompetitive effectCriminal offencesSanctions:• Criminal sanctionsdepending on the cases . of acomprehensive system of commercial law. January 200 5Vietnam – new competitionlaw 2Vietnam – new competition lawFreshfields Bruckhaus Deringer, January. 1Vietnam – new competition lawFreshfields Bruckhaus Deringer, January 200 5Vietnam s long-awaited Competition Law was finallypassed