Vietnam’s draft competition law targets foreign companies

Vietnam’s Ministry of Industry and Trade has put out a draft competition law that aims to bring the country’s existing competition laws more in line with international markets. Unlike the existing law, the draft law explicitly covers foreign entities, and introduces anti-competition effect and market power concepts. It is expected to be submitted to the National Assembly later this year and will probably come into force in mid-2018.

Old law revamped

The new law has a number of features that were not in the previous law:

  • Leniency programme - a company that voluntarily reports its participation in a cartel may be entitled to exemption or reduction of sanctions;
  • Anti-competition effect, defined as the effect of eliminating, reducing, distorting or hindering competition on the market;
  • Significant market power criteria - in determining a market dominant position, the new criteria for significant market power will be decided by factors such as financial and technology capacity of the company, and capability of accessing and controlling the market;
  • Economic concentration notification - new thresholds of:
  • either party holding 20% market share or more; or
  • a total revenue of $23 million in the year before a transaction (previous threshold was a combined market share of 50% or more); or
  • value of the transaction is more than $13 million;
  • Explicit inclusion of foreign companies - the law will be applicable to offshore enterprises, whether or not they are operating in Vietnam.
Bui Ngoc Anh

“With the new law, market share is no longer the sole criterion, allowing the competition authority to evaluate the effect of an anti-competition agreement or an economic concentration more thoroughly,” says Bui Ngoc Anh, partner at VILAF. ”It will also allow the authority to look at a matter from a vertical rather than just a horizontal perspective.”

“Certain acts of abusing market-dominant position are newly added, such as a request for other enterprises to contract only with the market-dominant enterprise, and refusing to enter into contract without good reason,” adds Anh. “But the draft law still uses the market share threshold and this may cause inconsistency in the application of the law.”

The existing competition council and competition authority will consolidate into one and will be called the National Competition Commission.  “The new competition agency will directly come under the Vietnamese government, giving it more independence and power,” says Vinh Quoc Nguyen, senior associate at Tilleke & Gibbins.

Motivations for the new law

The existing competition law has been in effect since 2005 and needs to be updated to reflect changes in other Vietnamese laws such as the laws on investment and enterprises. A number of cases that highlighted deficiencies in the existing law have also motivated the creation of the draft law. “In 2013, transport services companies MSC, Maersk, CMA CCM signed a framework agreement to set up a joint venture in the UK,” says Nguyen. “All the companies had operations in Vietnam and the Vietnam Competition Authority considered whether there was economic concentration, but the wording of the law did not clearly spell out those foreign entities were under its coverage. With the new law, foreign companies are explicitly included.”

“The new law is arguably a response to the recent cross-border M&A transactions which happened outside of Vietnam but had a potentially huge competition effect on the Vietnamese market, such as the merger between Abbott Laboratories and CFR Pharmaceuticals and the acquisition of Big C supermarket chain by Central Group,” says Anh.

Vinh Quoc Nguyen

Nguyen says past cases about alleged unfair competition bring other new additions to the law to the fore: “Last year, a tourist company complained to the competition authority about the dominant position held by a competitor but there was no measure to target the issue. This will change with the newly added abuse of dominance feature.”

More clarification needed

While the draft law introduces a number of new concepts, and will have new triggering events for merger filing, it is not clear how broad the competition authority’s discretion will be. “Foreign companies involved in M&A and joint venture activities, both in and outside of Vietnam should beware of the new law as they may trigger the conditions for notification,” says Nguyen. “More guidance legislation will be required now unclear but it seems that the threshold for triggering notification under the draft are set quite low.”

“The draft law is still silent on whether an exclusive agency agreement (an agreement where the agent is not allowed to sell competitors’ products) is considered as an anti-competition agreement,” adds Anh.

As the draft law evolves into a more final version later this year, businesses should take heed of whether their operations may be anti-competitive and be prepared to engage with the competition authority if their business triggers notification criteria.