Being known as a very dynamic market in Southeast Asia, Vietnam is also a challenging playground for both foreign investors and domestic participants. Recently, the market has witnessed many remarkable M&A transactions across sectors, which entails matters related to market concentration and competition. Not to be left behind by this trend, Vietnam has established an effective legal framework for anti-competitive practices and supervising bodies to oversee market competition.
In this article, we will provide a brief overview of Anti-competitive practices and the enforcement trends in Vietnam in recent years.
1. Introduction
1.1 Development of Competition Legislation in Vietnam
Economic competition is regarded as a material characteristic of every market economy. In Vietnam, such a market economy was not officially established until the late 1980s with the abolition of the former ineffective ‘Bao Cap’ regime, in which the State played an exclusive role in distributing most of the commodities circulated in the economy. The transformation to a market economy in Vietnam has brought about the urge to have competition legislation in place to regulate the business conduct of its participants to secure a fair competitive process and to incentivise firms to create more economic outcomes.
In Vietnam, the legal framework on competition mainly rests on the 2018 Law on Competition and its implementing regulations (‘2018 LOC’), which is a replacement of the former and the first formal legislation on competition in Vietnam introduced in 2004 (‘2004 LOC’). The 2004 LOC established the very first foundation for competition law in Vietnam by introducing the basic concepts on competition.
Given that the 2018 LOC does not provide any direct references individually applied to foreign entities to restrain their conduct when it comes to the competition process, foreign entities are subject to entry barriers on many industries when doing business in Vietnam under investment regulations for the sake of public safety and the public interest of Vietnam.
In this article, we will not discuss such investment entry barriers as a restraint of competition but aim to provide readers with a quick recap of the competition landscape in Vietnam by focusing on the legislative tools used to oversee the competition of market participants.
1.2 To Whom it Applies Anti-competitive practices
The 2018 LOC touches on a wide range of entities in Vietnam or offshore, which may exert their influence over Vietnam’s markets. The entities could be both individuals or enterprises manufacturing, supplying goods or providing services, either in the private or public sectors. The monopoly of the State on some public utilities such as electricity and rail travel is also regulated by the 2018 LOC.
Further to the said entities which are involved directly in market activities, professional entities and professional associations based in Vietnam, concerning domestic and foreign agencies, organisations and individuals, are also subject to the application of the 2018 LOC. To put it differently, under the 2018 LOC, entities engaging in marketing, whether directly or indirectly, may be subject to competition regulations.
1.3 Competition Authority
By law, the competition authority in Vietnam is the National Competition Commission (‘NCC’). However, the NCC has not been formed since the 2018 LOC came into force. Thus, Vietnam still maintains the dual system consisting of the Vietnam Competition and Consumer Authority (‘VCCA’) and the Vietnam Competition Council (‘VCC’), which has been established under the 2004 LOC.
Established by and under the Ministry of Industrial and Trade, among other things, the VCCA is responsible for:
- Accepting and investigating cases related to restraint of competition acts (that is, restrictive agreements, abuse of dominance and monopolisation).
- Accepting, investigating and adjudicating cases on acts of unfair competition and other violations of competition law.
- Assessing the applications for exemption from restrictive agreements.
- Overseeing economic concentration.
Upon the initial investigation of the VCCA, the VCC will handle complaints and adjudicate cases on restraint of competition acts. Since the VCC is directly under the Ministry of Industry and Trade, there is some concern that the current competition apparatus may lack independence when performing its functions.
Additionally, the dual system has proven to be ineffective over time, which explains the introduction of the NCC under the 2018 LOC. Yet, for the time being, it is unclear when the NCC will be established to implement its regulatory functions.
2. Anti-Competitive Practices
2.1 Anti-Competitive Practices
By law, anti-competitive practices are the acts that exert or are likely to exert an anti-competitive effect, which eliminates, reduces, distorts, or deters competition on the market.
Anti-competitive practices include activities like price fixing, market division, predatory pricing and group boycott, which could be grouped into two types:
- agreements to restrict competition; and
- the act of abuse of dominance position and monopolisation.
2.2 Relevant Market and Market Shares
Defining the relevant market is crucial when looking at a restraint of anti-competitive practices case. The definition of ‘relevant market’ helps to identify and define products or groups of products subject to competition; it also navigates the geographic area in which the concerned parties have their competition behaviours. Relevant market also matters when it comes to the calculation of market shares known as a key indicator of market power.
With the grasp of relevant market, those competitors who have actual market power will be identified and prevented from practising against fair and effective market practices.
Vietnam adopts the generally accepted definition of ‘relevant market’: the intersection of a relevant product market and a relevant geographic market. A relevant product market is constituted by all those products and/or services that are interchangeable or substitutable to a certain degree, by reason of the products’ characteristics, their prices and their intended use. The relevant geographic market comprises the area in which the products and/or services involved in the supply and demand are interchangeable with similar competitive conditions and be distinguished from neighbouring areas.
It can be seen that the definition of ‘relevant market’ in Vietnam is not very different compared to the one in the US (‘1968 Merger Guidelines’) and the EU (‘European Commission’) and common trends in competition legislation. Yet, the application of the relevant market on determination of market shares and thresholds of market shares to be identified as in the position of market dominance, varies among jurisdictions.
Upon identification of relevant market, market shares of a certain product and/or service will be established accordingly. Identifying relevant market and market shares will help:
- Apply appropriate treatments if there is any form of restrictive agreements.
- Decide whether or not there is an abuse of dominance.
- Supervise economic concentration practices.
2.3 Restrictive Agreements
By law, any forms of agreement among parties that restrain or are likely to anti-competitive shall be deemed as restrictive agreements. The anti-competitive agreement prohibited by law shall fall into the following categories:
(1) Per se illegal restrictive agreements:
- agreements preventing, impeding, deterring market entry of other entities;
- agreements to kick the entities which are not parties to the agreement out of the market;
- collusion to let one or more parties win a bid for the supply of goods and/or service; and
- horizontal agreements involving price fixing, market sharing, output controlling.
(2) Prohibited agreements if causing a significant anti-competitive practices:
- vertical and horizontal agreements to:
- restrain technical or technological developments or to restrain investment;
- impose on other enterprises conditions for signing contracts for the purchase and sale of goods and services or to force other enterprises to accept obligations which are not related in a direct way to the subject matter of the contract;
- not transact with other entities that are not parties to the agreement;
- restrict consumer markets or the sources of supply of goods and services of other entities that are not parties to the agreement;
- vertical agreements involving price fixing, market sharing, output controlling; and
- other agreements which have or may have a competition restraining impact.
Example:
On 25 May 2011, 12 insurers, accounting for 99.81 per cent of the market share of the student insurance market in the Khanh Hoa province, had signed an agreement to fix the premiums for student insurance. In this case, the VCA determined that the product market was student insurance and the geographic market was Khanh Hoa province, and concluded that the combined market share of 12 insurers had exceeded the threshold of 30 per cent.
On 1 September 2011, representatives of the 12 insurance companies signed meeting minutes to voluntarily annul the initial agreement and they agreed to take remedial measures to prevent future violations of the competition law. The insurance companies were not required to pay a penalty but bore a fee of VND100,000,000 as a case handling fee.
Example:
On 18 November 2008, 19 insurance companies had been investigated for an agreement directly fixing the price of insurance services in the automobile insurance market. The VCC determined that the act of signing an agreement by 19 enterprises was a prohibited restrictive agreement under the law on the ground that the combined market shares of the 19 insurance companies participating in the agreement accounted for 99.79 per cent.
Thus, the 19 businesses had eliminated competition on insurance premiums in almost the entire relevant market by signing the agreement. The parties to the illegal restrictive agreement were charged with a fine of VND1,807,000,000.
2.4 Abuse of Dominance and Monopolisation
To decide if an entity is in the position of market dominance, the 2018 LOC adopts a dual approach:
- share-based dominance presumption; and
- significant market power.
An entity shall be deemed to be in a dominant position when accounting for at least 30 per cent of the market share in the relevant market. For a group of companies, the threshold may vary from 50 per cent to 85 per cent, depending on the number of companies joining the group.
In other jurisdictions like the UK, Canada and the US, although market share is taken into consideration when defining market dominance, they do not see market share as a non-rebuttable presumption of dominance. Taking the 1998 Competition Act of the UK as an example, there are no market share thresholds for presuming dominance. However, in some cases, the dominance can be presumed in the absence of evidence to the contrary if an entity has a market share persistently above 50 per cent.
In Vietnam, some commentators argue that the threshold of 30 per cent is quite low, inflexible in many situations, and may catch many firms which do not have any significant market power.
Under the 2018 LOC, significant market power shall be reflected in various indicators:
- correlation of market share among enterprises in the relevant market;
- financial strength and size of the enterprise;
- entry barriers and market expansion to other enterprises;
- ability to hold, access and control the market for distribution and consumption of goods or services or the supply of goods and services;
- advantages in technology and technical infrastructure;
- the right to own, hold and access infrastructure;
- the right to own and use the object of intellectual property rights;
- the ability to switch to supply or demand for other related goods and services;
- specific factors in the industry or field in which the enterprise is operating.
In practice, the decision that an entity has significant market power requires a significant degree of judgment of the competition authorities. When it comes to the concept of market power, it is true that a sophisticated understanding of the economy plays a very key role in the finding of guilt or innocence in competition law. Similarly, a monopoly exists where an enterprise has no competitors in the relevant market.
Example:
Tan Hiep Phat Trading Service Company Limited (‘Tan Hiep Phat’) is a beer manufacturing and trading enterprise. Vietnam Brewery Joint Venture Company (‘VBL’) is a competitor of Tan Hiep Phat in the alcoholic beverage market. VBL signed contracts with exclusive agents in which the agents were requested not to advertise or sell other beer brands, including the one of Tan Hiep Phat. Tan Hiep Phat filed a complaint on possible abuse of dominance of VBL.
In this case, Tan Hiep Phat based its complaint on a narrower geographic market, while the VCCA considered that the relevant geographic market was national. The VCC determined that VBL’s market share in the relevant market was below the threshold of 30 per cent. Therefore, VBL did not have a dominant position in the relevant market. The VCC ruled that no violation was committed by VBL.
Example:
Jetstar Pacific Airlines Company Limited (‘PA’) and the Vietnam Air Petrol Company Limited (‘Vinapco’) signed a contract for the sale and purchase of aviation fuel JET A-1 No. 34/PA2008. Accordingly, the parties agreed on the fuel supply fee. Vinapco later requested to increase the price on the ground of global price fluctuations. PA agreed with the adjusted price on the condition that Vinapco had to apply the new price to other companies, including Vietnam Airlines (‘VA’), a competitor of PA. Vinapco refused to apply the same price to PA, which led to the rejection of PA.
On 1 April 2008, many flights of PA were cancelled as a result of Vinapco’s refusal to supply Jetstar with fuel. PA filed a complaint against Vinapco’s conducts to the VCC. The VCC concluded that Vinapco had abused a monopoly in the aviation fuel market under competition law and imposed a fine of VND3,378 billion for violations and VND100 million for handling the case to Vinapco.
3. Economic Concentration
Under Vietnam law, economic concentration applies to mergers, consolidations, acquisitions, joint ventures and other forms of concentration. The law prohibits economic concentration transactions that cause or are likely to cause a significant anti-competitive. Entities are under an obligation to inform the VCCA if the economic concentration transaction is caught by the regulatory thresholds. The thresholds imposed are based on the following indicators:
- total assets on the Vietnamese market of enterprises participating in the economic concentration;
- total revenue on the Vietnamese market of enterprises participating in the economic concentration;
- transaction value of the economic concentration; and
- combined market share in the relevant market of enterprises participating in the economic concentration.
However, the mentioned thresholds are not employed to decide if an economic concentration transaction is prohibited or not. Simply put, there is no per se prohibition for economic concentration under the 2018 LOC, instead economic concentration shall be assessed depending on whether it cause or may cause significant restriction of competition on Vietnam’s market.
Example:
In 2014, the Vietnam National Financial Switching Joint Stock Company and Smartlink Card Services Joint Stock Company, which were companies active in the field of intermediary banks for payment, approached the VCCA with the proposal to merge the companies’ operations. Since they were the only platforms which provided such a service, the merger would have certainly created a monopoly. Given the fact that the transaction would have been prohibited under the 50 per cent Market Share, the VCCA considered the parties’ request for an exemption and submitted its report to the Prime Minister for consideration.
An exemption with a period of five years was eventually granted. The exemption would be automatically renewed every five years on the condition that the post-merger entity fulfilled various conditions, including the requirement not to discriminate among customers and to comply with the State Bank of Vietnam’s instructions and regulations when adjusting service fees.
Example:
On 25 March 2018, Uber Corporation and Grab Inc. signed a Purchase Agreement. Accordingly, Uber sold its business operations in eight markets in Southeast Asia, including Vietnam, to Grab Inc. In Vietnam, on 25 March 2018, GrabTaxi Co Ltd (‘GrabTaxi’) and Uber Vietnam Co Ltd also signed a contract of sale, transfer and acceptance of obligations for Uber Vietnam to sell assets, Uber’s business operations and other benefits in Vietnam for GrabTaxi. From 23:59 on 8 April 2018 (Vietnam time), Uber’s application in Vietnam was officially inactive.
On 16 April 2018, the VCCA conducted a preliminary investigation of the case of economic concentration. After examining relevant factors, such as market shares and relevant markets, the VCCA concluded that the transactions between the companies were not a prohibited economic concentration transaction.
4. Unfair Competitive Practices
To promote the efficiency of the market and secure the participants and customers, besides provisions to anti-competitive and economic concentration, the participants of the market need to keep their business in line with legitimate competition practices.
Under the 2018 LOC, unfair competitive practices means ‘practices by an enterprise which are contrary to the principles of goodwill, honesty, commercial practice and other standards in business and which cause or may cause loss and damage to the legitimate rights and interests of other enterprises’.
Unlike the case of anti-competitive practices, all kinds of unfair competitive practices are per se prohibited regardless of market share. The prohibited unfair competitive practices include:
- Infringement of business secrets:
- accessing or collecting business secrets by hacking security measures; and
- disclosing or using business secrets without permission from the owner.
- Coercion in business: coercing customers or business partners to transact or cease a transaction.
- Defamation: defaming another enterprise by providing false information, which adversely impacts the enterprise’s reputation, financial position or business activities.
- Causing disruption: causing disruptions that hinder or interrupt the lawful business activities of another enterprise.
Example:
In July 2020, Hiep Thanh Co Ltd had a complaint on Bayer Vietnam’s discriminatory behaviour when implementing different discount policies for agents (agents in An Giang province enjoyed larger discounts compared to other agents). Hiep Thanh Co Ltd is a distributor and trading agent of plant protection drugs in Ben Tre province, provided by Bayer Vietnam Co Ltd. At the time of the complaint, Bayer Vietnam Company had a separate discount program with greater incentives for agents in An Giang province (more than 20 per cent) compared to other agents in the South.
This had created an environment of unfair competition, resulting in damage to the agents. Hiep Thanh Co Ltd, representing a group of pesticide distribution agents in the southern provinces, asked Bayer Vietnam to respond and create a healthy competitive environment. Through inspection and assessment, the VCCA concluded that there was an unfair competition practice. Bayer Vietnam Company was requested to cancel the above preferential policy.
5. Conclusion
Although having a more recent development of a market economy, Vietnam has successfully built a legal framework on anti-competitive practices which basically covers the fundamental matters. However, the M&A wave in Asia and in Vietnam in the fields of real estate, technology and finance in recent years created many novel issues related to competition, which requires legislative action to catch up with the new trends.
In addition, to effectively monitor and handle the competitive environment, there is a strong urge to establish the National Competition Commission to take over the work of the VCCA and VCC, as provided in the 2018 LOC. To accomplish this task, proactive action from relevant ministries and the Government are required.
Note: Office of Fair Trading, Abuse of Dominance Position: Understanding Competition Law, Section 4.17; available at [here] (accessed on 6 February 2022).
Click [here] to read more about this topic (pg. 45 – 50).
