The National Assembly of Vietnam passed an updated version of the Law on Competition on June 12, 2018. The new law governs merger control and anti-competitive activities in the Vietnam market and will take effect on July 1, 2019, replacing the current Law on Competition of 2004.
One of the notable changes of the new Competition Law is that the Vietnamese competition authorities will have discretion to prohibit competition-restricting agreements and economic concentration on the basis of whether they “have or potentially have the effect of significantly restricting competition in the market,” instead of focusing solely on market share conditions as in the 2004 Competition Law. In addition, the body in charge of competition issues will be the National Competition Commission, a sub-unit of the Ministry of Industry and Trade of Vietnam formed by consolidating the existing Vietnam Competition Council and Vietnam Competition Authority.
Other key changes include the following:
Applicability to Foreign Companies
In addition to business entities and trade associations operating in Vietnam, the new Competition Law has expanded its scope to include “related domestic and foreign organizations, establishments and individuals.” Though this is vaguely defined, the implication is that foreign companies which are related to competition-restricting agreements, economic concentration, or unfair competition, whether or not they have subsidiaries in Vietnam, could be subject to Vietnamese competition law. This has been the view of the Vietnamese competition authorities, in practice, for many years before the issuance of the new law.
New Types of Competition-Restricting Agreements
In addition to the eight types of competition-restricting agreements listed in the 2004 Competition Law (including agreements on price fixing and market sharing), the new Competition Law, under Article 11, adds the following three new categories:
- Agreements to not transact with other entities that are not parties to the agreement;
- Agreements on restricting consumer markets or the sources of supply of goods and services of other entities that are not parties to the agreement; and
- Other agreements restricting or potentially restricting competition.
Agreements under the three categories above will be prohibited if they “have or potentially have the effect of significantly restricting competition in the market.” This condition will be evaluated by the National Competition Commission based on factors such as the market shares of the enterprises participating in the agreements; barriers to market entry or expansion; and the increase in fees or time spent by customers.
Vertical restraints (competition-restricting agreements between two or more enterprises in different phases of the same production, distribution, or supply chain for specific goods or services) are also subject to the “significantly restricting competition” condition.
The new law provides exemptions in certain cases, if the competition-restricting agreements are seen to benefit customers and offer improvements in specified areas, such as increasing Vietnamese companies’ competitiveness in the international market.
Economic Concentration and Impact on M&A Activities
Under the new law, acts of economic concentration of enterprises (defined as mergers, consolidations, acquisitions, joint ventures, and other acts of economic concentration prescribed by law) are prohibited if, again, they are evaluated to “have or potentially have the effect of significantly restricting competition in the Vietnam market.”
The National Competition Commission will evaluate factors such as the combined market share of the participating companies; the level of concentration in the relevant market before and after the economic concentration; competitive advantages gained from the economic concentration; etc. The National Competition Commission is also required to evaluate the positive impact of economic concentration, though there is no further guidance yet on whether this could lead to exemptions.
The law also provides thresholds at which enterprises must notify the National Competition Commission of their economic concentration before implementation. The reporting thresholds are based on the following: (i) total assets in the Vietnamese market of the combining entities; (ii) total revenue in the Vietnamese market of the combining entities; (iii) value of the transaction; and (iv) combined market share of the combining entities in the relevant market. Such conditions will need detailed guidance in subsequent legislation.