New competition law of Vietnam
On June 12, 2018, the National Assembly of Vietnam voted to approve a new Competition Law, which will take effect on July 1, 2019. The goal is to modernize Vietnam’s competition law. The new law is a welcome improvement, but it presents a number of new risks for those doing business in Vietnam. It is expected that regulations and guidance clarifying the new law will be issued by the Government, and the ultimate significance of these risks may be ameliorated, but it is important for parties doing business in Vietnam to keep apprised of these changes.
The law contains a great number of changes, including to the organization of the enforcement authority, the grant of exemptions, the investigative and adjudicative process and settlements, to name just a few. We focus below on those deemed most important, and will provide a further briefing once the Vietnamese authorities release guidance on the new law.
First, the legislation uses a market share test to define dominance and sets the threshold for presumption of dominance at 30%. It is not uncommon to use market share as a proxy for market power, but most regulatory regimes set the threshold at 50% or higher. Relying solely on market share is also problematic because market definition can be very complicated in some cases and market share does not reflect issues that affect market power such as entry barriers and price elasticity. Making the presumption rebuttable would address some of these issues, but the legislation is silent on the matter. Companies operating in Vietnam should be aware that what may be a relatively low and benign market share in one country, may be problematic in Vietnam. Given the complexity associated with market definition, any company doing significant business in Vietnam may want to secure legal advice to assist it in accurately estimating its market share for competition law purposes.
Second, the law incorporates a theory of “collective dominance”, which is defined as two companies having 50% market share or more, three companies with 65% or more, four companies with 75% or more or five companies with 85% or more. This would impose liability on parties who are not independently dominant, but are part of a collectively dominant group within an industry even if the parties are not engaging in concerted activity and are not otherwise related. This is problematic because it may impose burdens on parties who are acting unilaterally and are unaware of the market share and actions of their competitors. Absent further guidance from the Government, any company that operates in a concentrated Vietnamese market with a small number of competing companies is at special risk of running afoul of local competition law.
Third, there is a vaguely defined prohibition on predatory pricing by companies which hold dominant market positions. These companies are banned from selling products below “total prime cost” if it could harm competitors. This likely means that companies with a dominant market position are prohibited from selling items below the total cost of materials and labor. However, “total prime cost” is left undefined and (unlike many other jurisdictions) there is no requirement to show the defendant’s anti-competitive purpose, e.g. that it would benefit by recouping its losses at a later point. This has the potential to create a cloud of uncertainty around pricing decisions for market participants in Vietnam. Any dominant party engaging in an aggressive pricing strategy is in jeopardy of violating the new law and should be sure to discuss their plans with legal advisors.
Fourth, the new law establishes a leniency program. This will encourage cartel participants to self-report and cooperate in subsequent investigations, but the current legislation provides little guidance as to how the leniency program will operate and raises important issues:
- It is not clear whether the grant of immunity by the competition authority would insulate the company from prosecution under the Penal Code of Vietnam.
- Cartelists deemed to have played a role in “arranging” or “forcing” others to participate in an anti-competitive agreement are not eligible for leniency.
- The leniency program only applies to “enterprises” and not individuals.
- The subjective nature of the new enforcement regime reduces the ability of companies to predict the benefits of cooperation.
Companies which may be connected to a cartel in Vietnam should be aware not only of the potential benefits of self-reporting and cooperation, but also the costs.
Finally, the pre-merger notification requirements in the new law are unclear and overbroad. The statutory language is out of step with international best practices which generally require at least two or more of the merging parties to have local turnover and/or assets because the risk of anti-competitive effects are low in cases that lack a meaningful local nexus. A plausible reading of the law, however, is even more broad and could require notification in any transaction over a specific (as yet unidentified) threshold value even if no party to the transaction has any connection to Vietnam. That said, comments from senior officials of the Vietnam Competition Commission suggest a strong interest in curing this ambiguity such that reviews will be limited to transactions that pose possible anticompetitive effects within Vietnam. Furthermore, whether or not there is a nexus to Vietnam, if the specific thresholds are as low as in the draft decrees, there will be a substantial increase in the number of notification filings in Vietnam. Companies contemplating acquisitions or similar activities in Vietnam should ensure they employ legal advisors familiar with the changes in Vietnam merger policy, and those considering international transactions must give more consideration to Vietnam.
The future course of competition law enforcement in Vietnam will depend upon the anticipated regulations and guidance from the Government and the extent of the commitment of the new leadership of the Vietnamese Competition Commission to enforcement.