The first Law on Competition in Vietnam was enacted in 2004 to regulate market competition between companies manufacturing and selling products within the Vietnam market. In 2018, faced with a new era of a globalized and digitalized economy, and having experienced different situations where enterprises adopted unfair or anti-competitive ways of doing business, the Government issued a new Law on Competition in 2018 (2018 LoC), replacing completely the 2004 version.
However, despite the advances achieved in the 2018 LoC, there remained some general articles in the Law which required to be further detailed in order to ensure their smooth implementation in practice. Accordingly, in March 2020, the Government issued Decree No. 35/2020/ND-CP (Decree 35) elaborating on several provisions of the LOC.
Overview of the Decree
In particular, Decree 35 provides specific guidance on Articles 9, 10, 13, 26, 31, 32, 33, 36, 56 and 82 of the 2018 LoC.1 It provides detailed regulations in relation to a number of issues, including the relevant market, anti-competitive effects, and agreements, substantial market power, economic concentration, evidence, investigation, and settlement of competition cases. The National Competition Commission (NCC) is the authority in charge of implementing the 2018 LoC and Decree 35.
Relevant market
The concept of the relevant market is a key principle of competition law which essentially determines the scope of the market over which antitrust rules will apply.
The 2018 LoC defines the relevant market on the basis of two pillars:2
- The relevant product market, i.e. “all products and/or services which are regarded as interchangeable or substitutable by reason of the products’ characteristics, prices and intended use”; and
- The relevant geographical market, i.e. the “specific geographical areas in which provided goods and services are interchangeable under homogeneous conditions of competition, and which is considerably differentiated from neighboring geographical areas”.
The above definitions have been drafted broadly and the LoC did not contain detailed provisions regarding their implementation. Decree 35 now remedies this situation by providing specific elements and criteria to be taken into account to define the relevant market. For the relevant product market, it provides a list of primary and secondary factors to be taken into account to determine whether products are interchangeable.3 It also provides a number of parameters to define the boundaries of the relevant geographical market.4
Assessment of anti-competitive agreements
The 2018 LoC outlaws a number of horizontal and vertical agreements, including price-fixing; allocation of customers, markets, or suppliers; restrictions on the production, sale, or purchase of goods; tender rigging, barriers to market-entry, market exclusion, etc. Other anti-competitive agreements, both vertical and horizontal, will only be prohibited if they cause, or may cause, substantial anti-competitive effects on the Vietnamese market.5
The 2018 LoC provides a general list of factors to be considered by the NCC when assessing the anti-competitive effects of agreements. These include market shares, barriers to market entry, technological limitations, restricted infrastructure access, etc.). Decree 35 elaborates on this matter by providing further details on the factors to be
considered by the NCC and listing situations where agreements are regarded as not causing, or unlikely to cause, anti-competitive effects.6
Significant market power
Similar to the provisions on anti-competitive agreements, the 2018 LoC generally prohibits enterprises holding a dominant position on a market from abusing such dominant and from committing a number of abusive and anticompetitive actions. 7
Under the 2004 Law on Competition, the criteria to determine whether an enterprise held a dominant position was whether it held 30% of the shares of the relevant market. The 2018 LoC has broadened this concept and now provides that an enterprise may also be considered as holding a dominant position if it has “significant market power”.8
Under the 2018 LoC, the factors to be taken into account for determining ‘significant market power’ include market shares; financial strength and size, barriers to market entry, technological or infrastructural advantages, rights to infrastructure and IP, etc.9 However, the wording of the 2018 LoC remains general and lacks specificity. Decree 35 now clarifies how the NCC should assess each such factor by setting out a detailed description of the characteristics to be considered.10
Prohibited economic concentrations11
The 2018 LoC prohibits economic concentrations (i.e. mergers, consolidations, acquisitions, joint ventures, etc.)12 which cause or may probably cause, anti-competitive effects on the Vietnamese market.13 In this regard, an acquisition is defined as the acquisition, in whole or in part, of assets or shares of another enterprise sufficient to control or influence the acquired enterprise.14
Decree 35 now explains the circumstances in which a buyer will be deemed as to ‘control or influence’ the target the purchaser:15
- Receives ownership of more than 50% of the target’s charter capital or total voting rights;
- Acquires rights over 50% or more of the assets of the target for one or all of its business lines;
- Holds one of the following rights:
- The right to appoint, dismiss or remove, directly or indirectly, the majority or totality of the board of directors, its chairman, and the director or general director of the target;
- Decide on amendments to the charter of the target; or
- Decide on important business matters such as business activities, location, and strategies; changes to business size or industry; or forms and methods for raising capital.
In addition to the above, Decree 35 also introduces the thresholds applicable to determine whether an economic concentration will trigger merger control. Businesses in an economic concentration that meets the following conditions will be subject to merger notification and approval:16
- The total assets of the company (or group of companies in which one of the parties is a member) are worth VND 3,000 billion or more during the fiscal year preceding the economic concentration;
- The total sales or purchase volume of the company (or group of companies in which one of the parties is a member) are worth VND 3,000 billion or more during the fiscal year preceding the economic concentration;
- The economic concentration is valued at VND 1,000 billion or more; or
- The enterprises participating in the economic concentration jointly account for at least 20% of the shares of the relevant market during the fiscal year preceding the economic concentration.
Therefore, the actors involved in the Vietnamese mergers and acquisitions market will need to keep those thresholds in mind when participating in transactions. It should also be noted that credit institutions, insurance companies, and securities companies are subject to different thresholds.
The NCC is responsible for assessing and approving such economic concentrations. In doing, it will consider both the anti-competitive and positive effects of the projected transaction.17 Within 30 days of receiving a complete merger notice dossier, the NCC will issue a preliminary assessment which may either conclude that the economic concentration is authorized or that it requires a further appraisal.
Conclusion
Decree 35 provides detailed guidance and clarifications on some key articles of the 2018 LoC, offering the legal certainty sought after by businesses. Such provisions will therefore help enterprises to assess their strategies and support the development of their operation, all while remaining in compliance with the Law. In turn, these advances should lead to the development of a healthier and more competitive business environment and ensure the protection of customer rights and interests.
1 Art. 1 of Decree 35
2 Art. 9 of the 2018 LoC
3 The primary factors cover the characteristics, components, physical and chemical properties, technical properties, and other distinctive properties of the products or services. The secondary factors include Additional may also be considered, including consumption habits, the useful lifespan of products or services, law affecting substitutability of products and services; and distinguishability in terms of buying and selling prices between different consumer groups. In terms of price, products will generally be considered interchangeable if the price difference does not exceed 5%. See Art. 4 of Decree 35.
4These include the geographical area with business engaging in the distribution of related goods or services, the cost and time for transport of the products, barriers to market entry and expansion, consumer habit, etc. See Art. 7 of Decree 35.
5 Arts. 11 and 12 of the 2018 LoC
6 Art. 11(1) and (2) of Decree 35
7 Art. 27 of the 2018 Loc
8 Art. 24(1) of the 2018 LoC
9 Art. 26 of the 2018 LoC
10 Art. 12 of Decree 35
11 Chapter V of Decree 35
12 Art. 29 of the 2018 LoC
13 Art. 30(1) of the 2018 LoC
14 Art. 30(3) of the 2018 LoC
15 Art. 2(1) of Decree 35
16 Art. 33(1) of the 2018 LoC and Arts. 13 and 14 of Decree 35
17 Arts. 31 and 32 of the 2018 LoC, Arts. 15 and 16 of Decree 35
