1. Broader Scope of Application

One of the most significant changes introduced by Vietnam's new Competition Law in 2018 is its wider reach. Unlike the previous version, the new law casts a broader net, encompassing any activity that can potentially restrict competition in the Vietnamese market, regardless of the location where the activity takes place. This broader scope of application is particularly important for foreign companies, as it ensures a more level playing field and eliminates loopholes that previously existed.

Here's a closer look at how this expanded scope impacts foreign businesses:

Closing the Geographic Loophole: In the past, companies could potentially conduct mergers and acquisitions outside Vietnam that still had a negative impact on competition within the Vietnamese market. These activities often fell outside the purview of the old law. The new law addresses this by asserting jurisdiction over any activity, domestic or foreign, that can restrict competition in Vietnam.

Imagine a scenario where a foreign company acquires a major Vietnamese competitor in a neighboring country. This acquisition, though happening outside Vietnam, could significantly reduce competition within the Vietnamese market. Under the new law, such an activity would be subject to scrutiny by the Vietnamese authorities.

Focus on Impact, not Location: The new law emphasizes the potential impact on competition in Vietnam, rather than simply focusing on the physical location of the activity. This shift ensures that foreign companies cannot exploit loopholes based on technicalities.

For example, a foreign company might establish a subsidiary in a neighboring country specifically to engage in anti-competitive practices that target the Vietnamese market. The new law empowers Vietnamese authorities to take action against such activities, even if they occur outside Vietnam's borders.

Greater Transparency and Certainty: The broader scope of application brings greater transparency and predictability for foreign businesses. Companies now have a clearer understanding of the competition law's reach, allowing them to structure their activities in compliance with Vietnamese regulations. This reduces the risk of inadvertently falling foul of the law and facing potential penalties.

Overall, the broader scope of application in Vietnam's new Competition Law levels the playing field for foreign companies and fosters a fairer competitive environment. By understanding this key aspect of the law, foreign businesses can operate with greater confidence and contribute to a more vibrant and competitive Vietnamese market.

2. Focus on Anti-Competitive Agreements

Vietnam's revised Competition Law in 2018 places a strong emphasis on preventing agreements that hinder healthy competition in the market. This focus on anti-competitive agreements is crucial for foreign companies, as it safeguards a fair and level playing field for all businesses operating in Vietnam. Let's delve deeper into the specific types of agreements that are prohibited under the new law:

Curbing Cartels and Price Fixing: Agreements between competitors to directly or indirectly fix prices, share customers or markets, or limit production are strictly prohibited. This ensures that foreign companies cannot exploit their market power or engage in collusion to manipulate prices and harm consumers.

Imagine a scenario where two foreign beverage companies operating in Vietnam agree to maintain artificially high prices. This would be a clear violation of the law, protecting Vietnamese consumers from unfair pricing practices.

Hindering Innovation and Development: The law also prohibits agreements that restrict investments, technical advancements, or technological capabilities. This fosters a more dynamic market where foreign companies are encouraged to invest in research and development, ultimately benefiting consumers through innovative products and services.

For instance, a foreign technology company might try to enter an agreement with a Vietnamese competitor, restricting both parties from investing in developing new mobile phone features. This would stifle innovation and be considered an anti-competitive agreement.

Protecting Business Freedom: Agreements that force companies to enter contracts with specific terms unrelated to the core business are also prohibited. This protects Vietnamese businesses from undue pressure from foreign companies and ensures they have the freedom to negotiate fair contracts in their own best interests.

Imagine a foreign car manufacturer forcing Vietnamese dealerships to purchase spare parts at inflated prices as a condition of selling their cars. This practice would be deemed an anti-competitive agreement under the new law.

The Leniency Program: An Incentive for Cooperation

The new law introduces a significant incentive for companies to come forward and report their involvement in anti-competitive agreements. The leniency program allows companies that voluntarily disclose such agreements before an official investigation to receive significant reductions in penalties. This program encourages self-policing within the business community and facilitates the detection and elimination of anti-competitive practices.

3. Regulation of Dominant Market Positions

Vietnam's 2018 Competition Law strengthens its grip on companies wielding significant market power. This focus on regulating dominant market positions is essential to ensure fair competition and protect consumers from potential exploitation. Here's a breakdown of how the new law tackles this issue:

Defining Dominance: The law establishes a two-pronged test for determining a dominant market position. A company is considered dominant if it holds a market share of 30% or more and possesses "significant market power." This additional factor takes into account the company's overall influence in the market, considering aspects like:
- Financial Strength: A company with substantial financial resources can potentially influence market dynamics through aggressive pricing or strategic acquisitions.
- Technological Advantages: Possession of superior technology or intellectual property rights can give a company a significant edge over competitors.
- Infrastructure and Access: Control over critical infrastructure or exclusive access to resources can grant a company a dominant position.
- Market Share Concentration: Even companies with a market share below 30% might be considered dominant if they operate in a market with very few players.
Preventing Abuse: Companies classified as dominant market positions are prohibited from engaging in activities that could harm competitors or consumers. This includes:
- Predatory Pricing: Selling products or services below cost to drive competitors out of the market.
- Exclusive Dealing Arrangements: Forcing distributors or retailers to only carry their products, excluding competitors' offerings.
- Tying Arrangements: Requiring customers to purchase additional products or services as a condition of buying the desired product.
Protecting Innovation and Consumer Choice: The law aims to prevent dominant companies from stifling innovation or limiting consumer choices. By prohibiting anti-competitive practices, the law encourages a more vibrant market environment where new players can emerge and consumers benefit from a wider range of products and services at competitive prices.

4. Economic Concentration and Mergers & Acquisitions

Vietnam's revised Competition Law in 2018 introduces a new approach towards economic concentration, encompassing mergers, acquisitions, and joint ventures. Unlike the previous law's rigid focus on market share thresholds, the new law emphasizes the potential impact of such activities on competition within the Vietnamese market. Here's a breakdown of this crucial shift and its implications for foreign companies:

Moving Beyond Market Share Thresholds: Previously, economic concentration activities were automatically prohibited if the combined market share of the involved entities exceeded 50%. This one-size-fits-all approach lacked nuance and potentially blocked beneficial mergers that wouldn't significantly restrict competition. The new law removes this rigid threshold.

Imagine a scenario where a foreign company wants to acquire a smaller Vietnamese competitor. Under the old law, this acquisition might have been prohibited solely due to exceeding the 50% market share threshold, even if the remaining competitors were still strong. The new law allows for a more nuanced assessment.

Focus on Competition Impact: The new law evaluates economic concentration based on whether it can "significantly restrict competition in the Vietnamese market." The National Competition Commission (NCC) considers various factors in its assessment, including:
- Combined Market Share: While no longer the sole determinant, market share remains a significant factor.
- Level of Concentration: The overall market landscape before and after the merger is considered.
- Nature of the Businesses: The relationship between the entities (competitors, complementary businesses, etc.) plays a role.
- Competitive Advantages: The potential for the merged entity to gain an unfair advantage is assessed.
- Price Hikes: The likelihood of the merged entity raising prices significantly is evaluated.
- Barriers to Entry: The ease for new competitors to enter the market post-merger is considered.
Notification Requirements: Companies planning mergers, acquisitions, or joint ventures exceeding specific thresholds based on assets, turnover, and combined market share must notify the NCC. This allows the NCC to assess the potential competition impact.
Pre-Merger Consultations (Optional): While not mandatory, pre-merger consultations with the NCC are recommended. These consultations offer foreign companies valuable insights into potential competition concerns and can help ensure a smoother approval process.

5. Reporting Requirements for Mergers & Acquisitions

Vietnam's 2018 Competition Law mandates reporting requirements for mergers and acquisitions (M&As) that meet specific thresholds. This focus on transparency safeguards competition and offers foreign companies a clear understanding of their notification obligations. Here's a closer look at the reporting requirements and their significance for foreign businesses:

Triggering Thresholds: Companies planning M&As are required to notify the National Competition Commission (NCC) if their transaction meets any of the following thresholds:
- Total Assets and Turnover: The combined total assets and turnover of the merging entities in the Vietnamese market exceed specific levels set by the NCC. These thresholds are regularly updated and publicly available.
- Transaction Value: The value of the transaction itself surpasses a certain threshold established by the NCC. This threshold also applies to acquisitions of Vietnamese companies by foreign entities.
- Combined Market Share: The combined market share of the merging entities in a particular market segment reaches a specific level, as determined by the NCC.

It's crucial for foreign companies to stay updated on the current notification thresholds to ensure compliance with the law. Consulting with Vietnamese legal counsel can provide valuable guidance in navigating these requirements.

Notification Process: Once a transaction meets any of the aforementioned thresholds, the involved companies must submit a notification to the NCC. This notification should contain detailed information about the transaction, including the parties involved, the nature of the business activities, and relevant market share data.
Review Process: The NCC conducts a preliminary review of the notification to assess the potential impact on competition. This review typically takes 30 days, with the possibility of extensions for complex cases.

During this review period, the NCC might request additional information from the companies. It's important for foreign companies to cooperate fully with the NCC's inquiries to ensure a smooth and efficient review process.

Pre-Merger Consultations (Optional): While not mandatory, foreign companies are encouraged to engage in pre-merger consultations with the NCC before submitting the official notification. These consultations provide a valuable opportunity to discuss potential competition concerns and receive guidance on ensuring a compliant transaction.

6. Penalties for Violations

Vietnam's Competition Law in 2018 outlines a range of penalties to deter violations and ensure compliance. Understanding these potential consequences is crucial for foreign companies operating in Vietnam. Here's a breakdown of the key points:

Types of Penalties: The law prescribes various penalties for different types of violations, including:
- Administrative Fines: Fines are the most common penalty for competition law violations. The maximum fine can reach up to 10% of the violating company's total turnover in the preceding financial year.
- Warnings: For minor offenses or first-time offenders, the NCC might issue a warning instead of a fine. However, repeated offenses can still lead to significant fines.
- Divestiture Orders: In severe cases, the NCC may order companies to divest assets or unwind mergers and acquisitions that have significantly restricted competition.
Reduced Penalties for Cooperation: The law offers a significant incentive for companies to cooperate with investigations. The leniency program allows the first three companies to voluntarily disclose their involvement in anti-competitive agreements to receive substantial reductions in penalties.
Focus on Deterrence: The penalties aim to deter companies from engaging in practices that harm competition. This fosters a fairer market environment where all businesses, foreign and domestic, can compete on a level playing field.

Changes Under the New Law: It's important to note that the new Competition Law introduced some changes regarding penalties:

Reduced Fine for Economic Concentration: The maximum fine for violations related to economic concentration has been reduced from 10% to 5% of the violating company's total turnover. This reflects a shift towards a more nuanced approach that considers the specific circumstances of each case.

7. Overall Impact

Vietnam's revised Competition Law in 2018 marks a significant step towards creating a fairer and more competitive market environment. This shift in regulations carries several positive implications for foreign businesses operating in Vietnam:

Level Playing Field: The broader scope of application and focus on anti-competitive agreements ensure that foreign companies compete on a level playing field. Restrictive practices and collusive behavior are discouraged, creating a fairer market environment for all businesses.
Greater Transparency and Certainty: The new law offers more clarity and predictability for foreign companies. The focus on the actual impact of mergers and acquisitions on competition replaces rigid market share thresholds, allowing for a more nuanced assessment. Additionally, clear reporting requirements for M&As ensure transparency and facilitate a smoother process for foreign companies.
Incentive for Innovation: The regulations promote innovation by prohibiting agreements that restrict investments or technological advancements. This fosters a dynamic market environment where foreign companies can contribute to Vietnam's economic growth through cutting-edge products and services.
Protection for Consumers: The law ultimately benefits consumers by safeguarding against anti-competitive practices that could lead to higher prices, limited choices, and stifled innovation. Foreign companies operating within the framework of the law contribute to a market environment that offers consumers greater value and selection.
Enhanced Business Confidence: By understanding the competition regulations and adhering to them, foreign companies can operate with greater confidence in Vietnam. This fosters a more attractive business environment for foreign investment.

Conclusion:

Vietnam's revised Competition Law presents both challenges and opportunities for foreign businesses. By familiarizing themselves with the new regulations and adopting compliant practices, foreign companies can navigate the market effectively. Ultimately, the law's focus on fostering a fair and competitive market environment benefits both foreign businesses and Vietnamese consumers.

If you need further explanation on this subject, please don't hesitate to contact us through email at lienhe@luatminhkhue.vn or phone at: +84986 386 648. Lawyer To Thi Phuong Dzung.