The National Assembly on 12 June 2018 passed the Law on Competition No. 23/2018/QH14 (“Law on Competition 2018”). Effective from 1 July 2019, the new law replaced old Law on Competition No. 27/2004/QH11 (“Law on Competition 2004”).The new law has made progressive reforms from the previous law. Significantly, the Law on Competition 2018: (i) expands scope of application; (ii) creates and holds the new competition agency accountable for its duties; (iii) adds new types of prohibited anti-competitive agreements;(iv) reforms the concept of enterprise dominance); and (v) introduces the leniency policy to violators of the law.
Expansion scope of application: the new law shall govern activities by Vietnamese or foreign entity or individual which have or may have the “competition restraining impact” to Vietnam market. The competition authority of Vietnam has the authority to deal with offshore activities and transactions having impact on Vietnam market. In addition, the new law is applicable to apply to non-enterprises entities, which are public service units such as hospitals, or schools.
Accountability of the new competition agency: the Law on Competition 2018 has created a new governmental body namely National Competition Commission (“NCC”). NCC is a body of the Ministry of Industry and Trade, NCC replaces the dual agency system under the Law on Competition 2004 which it shall exercise discretion to investigate and adjust the cases involving restraint of competition and unfair competitive practice. However, as a body of MOIT, NCC’s independence and impartiality is controversial when there is an involvement of state-owned-enterprises. The NCC is accountable for its failure to adjust the case during the prescribed time by paying compensation where there is loss or damage suffered by the enterprise. Anti-competitive agreements: the Law on Competition 2018 has provided four new types of prohibited anti-competitive agreements namely: (i)agreements to share customers; (ii) agreements not to engage in transactions with enterprise which is not a party to the agreement; (iii) agreements to limit the product sale market or sources of supply goods and services of parties not participating in the agreements; and (iv) other agreements which have or may have significant competition restraining impact. The new law replaces the threshold of 30% combined market share when determining the anti-competitiveness of the agreements. The Law on Competition 2018 imposes the significant competition restraining impact assessment to determine whether the agreement is prohibited.
The assessment shall take into account the: (i) market share ratio of enterprises participating in the agreement;
(ii) the barriers to market access or expansion; (iii) restriction of research, development and renovation of technologies or restriction of technological capacity; (iv) reduction of the ability to access or possess essential infrastructure; (v) increase of costs and time of customers in purchase of goods or services from enterprises participating in the agreement or when changing to purchase other relevant goods or services; and (vi) hindering competition in the market via the control of special factors in industries and sectors relating to the enterprises to the agreement. The restraint of competition agreements are applied to horizontal agreements between parties in the same related market or vertical agreements between parties in the same supply chain. The agreement in restraint of competition might be exempted for up to five years.Reform of abuse of dominance: the Law on Competition 2018 upholds the market share presumption under the old law. However, the new law replaces the concept of “substantially restrain competition” test by “significant market power” test to identify enterprises dominance in the market.The identifying factors are:(i) market share between enterprises in the relevant market; (ii) financial strength and scale of enterprise; (iii) barriers to another enterprise to enter or expand the market; (iv) capability of holding, accessing and controlling the market for distribution and sale of goods or services or the supply of goods and services; (v) advantages of technologies, technical infrastructure; (vi) ownership and right to possess and access infrastructure; (vii) ownership and right to use objects of intellectual property rights; (viii)the ability to switch to sources of supply and demand of other relevant goods or services; and (ix) special factors in the industry or sector in which the enterprise is conducting business. In terms of group dominance, the new law additionally stipulates that five enterprises with total market share of 85% or more in the relevant market is a group of enterprises with dominant market position.
Enterprise with market share of less than 10% in the relevant market is not a member of the group dominance. Previously, the law prohibits an economics concentration transaction only (e.g., a merger, consolidation or buy-out) if the combined market share of enterprises is more than 50% of the relevant market. However, under the new law, this condition is replaced by factors as to whether an economic concentration has or may have significant competition restraining impact.
Leniency policy: the Law on Competition 2018 for the first time stipulates the lenient approach as to reduce or exempt penalties for enterprises which voluntarily report their violation of the law to the competition authority prior to the investigation. The leniency does not apply to enterprises forcing or organizing other parties to participate to the agreement. Three applicants to leniency shall be entitled to an exemption of up to 100%, 60% and 40% of penalty accordingly. It remains to be seen how this Leniency approach is handled in practice by the authorities but it is the first step in the right direction.
If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmannn under omassmann@duanemorris.com or any other lawyer listed in our office listing. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC. Thank you very much!