On 01 July 2019, the Competition Law No. 23/2018/QH14 (the “New Competition Law” or “new Law”) came into effect, replacing íts 14-year-old predecessor and related guiding instruments. The new Law is expected to have a significant impact on how enterprises conduct their day-to-day business. In an attempt to ease the transition, this article will highlight the notable changes introduced by the new Law of which enterprises should be aware.
1. What are the key differences between the New Competition Law and the current one? What is the most significant change?
The New Competition Law will introduce changes in several areas such as scope of governance, anti-competitive conduct and economic concentration (e.g. M&A transaction) regulation, as well as introducing for the first time a leniency policy (all of which will be further addressed below).
The most drastic change is arguably the shift in the general regulatory approach towards an effect-based mindset. The key issue is no longer whether a given conduct falls within a statutorily prescribed list of prohibited conducts, but whether it has or may have a competition-restraining impact on the market, that is, whether it (potentially) has an impact which removes, reduces, distorts or otherwise hinders market competition. The effect-based approach will require the competition authority to take into account a range of factors other than, as under the current law, the combined market share of the relevant parties when assessing whether an anti-competitive conduct or an M&A transaction should be prohibited.
It is expected that given the new approach, enforcement of competition law will be more vigorous and all business individuals, organisations and any other relevant entities must adhere more strictly to the new Law.
WIDENED SCOPE OF GOVERNANCE
2. What conducts and transactions are covered?
The New Competition Law regulates and governs anti-competitive practices (i.e. cartels and abuse of market power) and economic concentrations (e.g. M&A transactions) which have or may have a competition-restraining impact on the Vietnam market, and unfair competitive practices.
3. Does the New Competition Law apply to conduct that takes place outside of Vietnam?
Yes. The New Competition Law adds to its list of applicable entities “[…] foreign agencies, organisations and individuals”. This means that the new Law will apply to foreign enterprise participants in offshore anti-competitive practices or M&A transactions which have or may have a competition-restraining impact on the domestic market. This will be so regardless of whether the foreign enterprise has a presence in Vietnam.
4. What kinds of anti-competitive agreements are caught?
An anti-competitive agreement or cartel is defined as an act of agreement between parties in any form which causes or may cause a competition-restraining impact. As the wording suggests, the law covers a broad range of agreements, from formal, written to informal, oral or implicit (gentlemen’s agreement) and even concerted practices.
Prohibited cartels under the new Law can be divided into two groups.
First, certain cartels are illegal per se with the assumption that they are inherently anti-competitive. Examples of these include price fixing, customer/market allocation, or quota fixing agreements between enterprises in the same relevant market. It should be stressed here that unlike the current Competition Law 2004, these agreements are now prohibited per se under the new Law regardless of whether the combined market share of the cartel participants is above 30%.
Second, certain cartels will be prohibited only if they cause or have the ability to cause a significant competition-restraining impact in the market. These include, for instance, R&D restriction, or refusal to trade agreements between any two or more enterprises, as well as price fixing, customer/market allocation agreements between enterprises operating at different stages of the supply chain i.e. vertical agreements. Here another notable change should be highlighted: vertical anti-competitive agreements will now be caught as well, albeit not illegal per se as their horizontal counterparts (i.e. agreements between enterprises in the same level of production or distribution).
These changes underscore the lawmakers’ attempt to align the New Competition Law with international practices.
5. Is there a way out for cartel participants? If yes, what conditions do they have to satisfy?
Yes. Under the new leniency programme which will be introduced for the first time under the New Competition Law, co-conspirators participating in a cartel may self-report and assist the competition authority in exchange for either full immunity from, or a reduction of, fines for breach of competition law which the competition authority would have otherwise imposed on them.
In order to receive lenient treatment, the whistle-blower must satisfy the following conditions:
i. Having partaken or is currently partaking in a cartel;
ii. Coming forward before an investigation is launched;
iii. Declaring honestly and providing all evidence of the infringement which is significantly valuable for dismantling the cartel;
iv. Cooperating fully with the competition authority during the investigation; AND
v. Not being ring-leader and/or coercer.
It is worth noting that only three whistle-blowers are eligible for leniency, with the first entitled to full immunity whilst the second and third shall receive a fine reduction of 60% and 40% respectively. Furthermore, the leniency programme is only applicable to administrative sanctions and does not extend to criminal punishments.
While the effectiveness of the implementation of this new policy remains to be seen, there is little doubt that such policy will incentivise more co-conspirators to come forward, thus increasing the number of cartels discovered and sanctioned.
6. What kinds of abusive conducts are caught?
Abuse of market power means any conduct by an enterprise holding either a dominant market position or a monopoly position which causes or potentially causes a competition-restraining impact.
An enterprise is regarded to be holding a dominant position if it has a market share of at least 30% in the relevant market or if it possesses significant market power, which is determined on the basis of some of the followings, among other factors:
i. Financial capacity;
ii. Barriers to enter or expand the market; AND/OR
iii. Special factors in the industry or sector in which the undertaking is conducting business.
Abusive conducts are strictly prohibited without exemption. Examples of prohibited conducts include:
i. Predatory pricing or undercutting practices (i.e. exclusionary practices);
ii. Retail price maintenance (i.e. exploitative practices);
iii. Applying different commercial conditions to the same transactions (i.e. discriminatory practices).
Similarly to the cartel prohibition regime, the effect-based approach is also applied to prohibition of abusive conducts: in assessing an abuse of market power, the competition authority will focus on its competition-restraining impact or the ability to cause such an impact such as excluding competitors, hindering other enterprises from entering or expanding the market, causing loss to customers, and so on.
7. Is there any exemption?
The New Competition Law provides no exemption for abusive conducts (see Question 6).
8. What forms of M&A transactions are caught? Are there any transactions prohibited?
Economic concentration (or M&A transaction) occurs when there is a merger, consolidation, acquisition, or joint venture.
Merger means the transfer by one or more enterprise(s) of all of its lawful assets, rights, obligations and interests to another enterprise and, at the same time, the termination of the business activities or the existence of the merging enterprise(s).
Consolidation is defined as the transfer by two or more enterprises of all of their lawful assets, rights, obligations and interests to form one new enterprise and, at the same time, the termination of the business activities or the existence of the consolidating enterprises.
Acquisition means the purchase by one enterprise of all or part of the capital contribution or assets of another enterprise sufficient to control or govern the acquired enterprise or any of its trades or business lines.
Joint venture occurs when two or more enterprises together contribute a portion of their lawful assets, rights, obligations and interests to form a new enterprise.
An economic concentration is prohibited under the new Law if it causes or potentially causes significant competition-restraining impact on the Vietnamese market. This is in stark contrast to the current law which prohibits economic concentrations where the combined market share of the participating parties exceeds 50%.
9. How is “control” in an acquisition defined?
The Draft Decree guiding the New Competition Law (version dated 31 January 2019) (“Draft Decree”) sheds light on the definition of control. Accordingly, an enterprise (A) is deemed to control or govern another enterprise (B) if A owns more than 50% of B’s charter capital or voting rights; or any other percentage which in accordance with the law or B’s charter or any other agreement is sufficient to confer on A any of the followings:
i. The right to directly or indirectly appoint or dismiss all or the majority of the members of the Board of Management, Chairman of the Members’ Council, Director or General Director of B; OR
ii. The right to alter B’s charter; OR
iii. The right to make important decisions with regard to B’s business activities; OR
iv. Ownership of or the right to use all or the majority of B’s assets in all or one of B’s business lines.
10. What are the notifying thresholds?
Unlike the current law, combined market share is no longer the sole applicable notification threshold under the new Law. Instead, the notification threshold is determined based on any one of the following criteria:
(*) Not applicable to offshore economic concentrations.
It is noteworthy that the thresholds are not fixed and subject to revision from time to time to reflect socio-economic conditions.
11. Is merger filing compulsory or voluntary? If compulsory, what are the deadlines for filing?
Filing is compulsory for economic concentrations that reach the notifying thresholds.
While the law does not provide for a specific deadline for submitting a filing to the competition authority, the proposed concentration must be notified prior to its implementation. Failure to notify constitutes a breach of the merger control regime and the violators will be subject to a monetary fine of up to 5% of their total turnover.
12. Will the new merger filing regime be applied retroactively to ongoing transactions? For instance, if a transaction has been signed prior to 01 July 2019 but not been closed by this date, must this transaction be reported to the competition authority if the new notifying threshold is met?
There is no transition provision that deals with this issue in the New Competition Law. In principle, any proposed concentration or transaction that reaches the notifying threshold must be filed and greenlit prior to its implementation (see Question 11).
13. How does the competition authority assess the impact of a transaction?
The significant competition-restraining impact or the ability to cause such impact is assessed on the basis of, inter alia, one or more of the following factors:
i. Combined market share of all economic concentration participants;
ii. Competitive advantages brought by the concentration; AND/OR
iii. Ability of an enterprise after concentration to determine prices and/or limit the competitiveness of other enterprises.
Therefore, when assessing the impact of a concentration under the new Law, the competition authority will take into account not only potential adverse effects of the concentration but also any possible benefits it may bring about.
14. What should be noted about unfair competitive practices?
Unfair competitive practices are defined as acts by an enterprise which contradict the principles of goodwill, honesty, commercial practice and other standards in business which cause or potentially cause loss and damage to the legitimate rights and interest of other enterprises.
Under the New Competition Law, the scope of activities that constitute ‘unfair competitive practices’ remains broad and is not always apparent.
One notable prohibited practice is predatory pricing, which is also listed as an abusive conduct. It is understood that this might be an oversight on the part of the lawmakers and, as a result, predatory pricing may be prosecuted under either regime. In practice, however, the competition authority may prefer prosecuting under the unfair competition provision given the relatively lighter burden of proof under this regime (e.g. the authority does not need to assess market power).
15. What are the legal consequences for breaching regulations on competition? Can the violators be criminally prosecuted?
As from the effective date of the Penal Code 2015 i.e. 01 January 2018, certain anti-competitive conducts are criminally prosecutable. In particular, entities which have combined market share of at least 30% and engage in an agreement either on, (i) price fixing, (ii) market allocation, or (iii) quota restriction, (iv) R&D restriction, or (v) imposing unrelated conditions, will be prosecuted. In addition, parties to an agreement on business restriction or excluding non-members from the market shall too be held criminally liable irrespective of their combined market share.
In the worst-case scenario, corporates will be subject to a maximum fine of up to VND 5 billion (approx. USD 215,000), or a suspension of business up to 02 years, whilst individuals will be fined up to VND 3 billion (approx. USD 130,000) or imprisoned for up to 05 years.
In respect of administrative sanctions, penalties applicable shall vary, depending on the type and the severity of the breach. In particular:
In addition to the aforementioned administrative sanctions, other supplementary penalties may apply depending on the nature and severity of the breach. They include, inter alia, confiscation of illegal gains and withdrawal of enterprise registration certificate.
16. Does the competition authority publish its decisions? If so, which decision does it publish?
The National Competition Committee (“NCC”) does publicly announce most of its decisions, which include those on, inter alia, exemption for restrictive agreements, economic concentration, and dealing with competition cases, except for any content relating to State or trade secrets.
Such decisions and the annual reports on operational results shall be published on NCC website.
17. Is the NCC subject to any confidentiality obligation?
Yes. The NCC must keep confidential information relating to competition cases, trade secrets, identity of entities providing information and/or evidence during competition legal proceedings, as well as evaluation of economic concentrations.
The new Law is notably silent on the confidentiality obligation in respect of leniency procedure. It is understood that the NCC shall nevertheless keep confidential the information, evidence and identity of whistle-blowers.
18. Is there any international co-operation mechanism in place?
Yes. Given the widened scope of governance (see Questions 2 and 3), the NCC is expected to reinforce co-operation on, inter alia, consultation and information exchange with its overseas counterparts to crack down any potential cross-border infringements.
This briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.
Anti-Bribery and Corruption Policy: LNT & Partners has issued and maintained the policy in complying with all applicable laws and regulations on bribery and corruption in Vietnam and worldwide.
