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May 15, 2020

Decree 35 Provides Important Guidance on Vietnam’s New Competition Law

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On March 24, 2020, the government of Vietnam issued Decree No. 35/2020/ND-CP detailing a number of articles of the Competition Law (Decree 35). Decree 35 took effect on May 15, 2020, and provides much-needed elaboration on various ambiguous issues under the 2018 Competition Law, which has been in effect since July 1, 2019. Notably, it clarifies the conditions triggering the restrictions on anti-competitive agreements and economic concentration (e.g., M&A transactions).

1. Definition of Relevant Market

“Relevant market” is a key term used for determining whether entering into an agreement with anti-competitive elements or carrying out an M&A transaction would be restricted or subject to any requisite conditions under Vietnamese law. The definition of relevant market is based on the determination of the relevant product market and the relevant geographical market. Decree 35 provides new guidance for such determination by the National Competition Commission (NCC), the new competition authority.

For determination of the “relevant product market”, Decree 35 sets out new regulations for determining the interchangeability or substitutability of goods and services:

  • In terms of characteristics – Under the previous regulations, it could be argued that the factors to be considered to determine interchangeability were only suitable for goods, and did not sufficiently cover the characteristics of services. Decree 35 has sealed this gap and stipulates factors which could capture the characteristics of both goods and services, including features, compositions, technical functions, side effects on users, users’ absorbability, and/or other specific attributes and qualities.
  • In terms of price – Decree 35 newly sets out that goods/services are considered substitutable if the difference in price between the goods/services in similar transaction conditions is not greater than 5%. However, no definition of “similar transaction conditions” is given, making the application of this provision less straightforward than it may seem.

For determination of the “relevant geographical market”, Decree 35 introduces some new factors for determining the boundaries of geographic areas, including consumption habits and cost and time for customers to purchase goods/services.

2. Prohibited Anti-Competitive Agreements

According to Articles 12.3 and 12.4 of the 2018 Competition Law, various types of anti-competitive agreements will be prohibited if they cause or are likely to cause a “significant anti-competitive effect” in the market. Decree 35 provides the clarification that an anti-competitive agreement would not be considered to cause or be likely to cause such “significant anti-competitive effect” in the following cases:

  • For enterprises in the same relevant market, the combined market share of the enterprises intending to participate in the agreement is less than 5%.
  • For enterprises intending to participate in the agreement from different stages in the same chain of production, distribution, and supply of specific goods/services, the market share of each participating enterprise is less than 15%.

3. Restricted M&A Transactions

M&A Transactions Subject to Notification Requirement

According to the 2018 Competition Law, if an intended M&A transaction reaches any of the thresholds set out by law, the enterprises intending to participate in such transaction must submit a notification to the NCC prior to carrying out the transaction. Decree 35 sheds more light on these thresholds by determining that the thresholds triggering the notification requirement include the following:

  1. Total assets in the Vietnamese market of each enterprise intending to participate in the transaction, or the group of affiliated companies of which such enterprise is a member, is worth VND 3,000 billion (approximately USD 126.3 million) or more in the financial year preceding the planned year of the transaction; or
  2. Total revenue in the Vietnamese market of each enterprise intending to participate in the transaction, or the group of affiliated companies of which such enterprise is a member, is VND 3,000 billion (approximately USD 126.3 million) or more in the financial year preceding the planned year of the transaction; or
  3. Value of the transaction is at least VND 1,000 billion (approximately USD 42.1 million); or
  4. The combined market share of the enterprises intending to participate in the transaction is at least 20% of the relevant market in the financial year preceding the planned year of the transaction. It is worth noting that this combined market share threshold under Decree 35 is stricter than the threshold set out under the prior notification regime (30% to 50%).

The foregoing thresholds would change if the enterprises intending to participate in the M&A transaction are credit institutions, insurance companies, or securities companies.

This notification requirement is also applicable to M&A transactions implemented outside of Vietnam. In this case, the thresholds under (i), (ii) and (iv) above would be applied.

Prohibited M&A Transactions

As mentioned above, under the 2018 Competition Law, if an intended M&A transaction causes or is likely to cause a “significant anti-competitive effect,” such transaction will be prohibited. Decree 35 elaborates on this provision by providing that M&A transactions will be permitted (will not be considered to cause or be likely to cause a significant anti-competitive effect) if the combined market share of all entities intending to participate in the transaction is below 20% of the relevant market.

If the combined market share of all entities intending to participate in the transaction is 20% or above, the NCC will further assess whether such transaction is prohibited based on established criteria, including mathematical formulas.

For more information on Decree 35, please contact us at [email protected].

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