Vietnam competition law: what changes in July 2019

Vietnam competition law enters a new phase on 1 July 2019, when Law No. 23/2018/QH14 takes effect. The National Assembly passed it on 12 June 2018. It replaces the Competition Law No. 27/2004/QH11, which stops being effective on the same day. Firms that sell, buy or merge in Vietnam have about three months to get ready.

The new law covers three areas: anti-competitive agreements, abuse of a dominant position, and economic concentration, which means mergers and deals of that kind. It also covers unfair competition. This note explains each part in plain words.

Source: Law No. 23/2018/QH14 on Competition, Articles 1, 117 and 118 (National Assembly of Vietnam, 12 June 2018).

Which firms does the law cover?

The law applies to businesses and individuals who do business in Vietnam. That includes state-monopolized sectors, public-utility firms and public sector entities. It also includes foreign firms that operate in Vietnam. A foreign buyer of a Vietnamese company should therefore read the rules on mergers with care.

The law sets up a National Competition Commission. It is a body under the Ministry of Industry and Trade. A Competition Investigation Agency supports it.

Source: Law No. 23/2018/QH14, Articles 2 and 46 (National Assembly of Vietnam, 12 June 2018).

What does the law change on mergers?

Article 29 lists the kinds of economic concentration: a merger, a consolidation, an acquisition, and a joint venture. A deal is banned if it causes, or probably causes, substantial anti-competitive effects on the Vietnamese market.

The Commission looks at several factors. These include the combined market share of the parties, how concentrated the market is before and after the deal, and whether the parties can raise prices or keep rivals out. It can also weigh positive effects, such as gains for small and medium-sized firms or stronger Vietnamese firms abroad.

The key duty is to notify. Firms must file a dossier with the Commission before they start a deal, if they reach the notification threshold. The law names four ways to set that threshold: total assets in Vietnam, total turnover in Vietnam, the value of the deal, or the combined market share. The law leaves the actual numbers to Government guidelines, so firms should watch for those before they plan a deal.

Failing to follow the merger rules can lead to a fine of up to 5% of the violating firms' turnover on the relevant market in the year before the violation.

Source: Law No. 23/2018/QH14, Articles 29 to 33 and 111 (National Assembly of Vietnam, 12 June 2018).

Which agreements are banned?

Article 11 lists anti-competitive agreements. Some are banned outright between rivals in the same market: agreeing on prices, dividing customers or supply sources, and limiting output. Bid rigging is also banned outright, as are deals to block rivals from the market or push them out of it.

Other agreements are banned only if they cause, or may cause, substantial anti-competitive effects. Examples are limits on technology and investment, forcing a buyer to accept unrelated terms, and refusing to trade with outsiders. The Commission checks market share and other factors to decide.

The fine for these violations can reach 10% of the firm's turnover on the relevant market in the year before the violation. A firm that tells the Commission about a cartel may benefit from a leniency policy in Article 112.

Source: Law No. 23/2018/QH14, Articles 11, 12, 111 and 112 (National Assembly of Vietnam, 12 June 2018).

When is a firm dominant?

A firm holds a dominant position if it has substantial market power or a market share of 30% or more. Groups of firms can also be dominant if they act together. The law sets these combined shares: two firms with 50% or more, three with 65% or more, four with 75% or more, and five or more with 85% or more. A firm with under 10% is left out of the group count.

Being dominant is not illegal. Abusing the position is. A firm that has no competitor in a market holds a monopoly position, and the same kind of abuse is banned there as well.

Source: Law No. 23/2018/QH14, Articles 24 to 27 (National Assembly of Vietnam, 12 June 2018).

What counts as unfair competition?

Article 45 lists banned practices. They include stealing or leaking trade secrets, threatening a rival's customers so they stop buying, and spreading untrue claims that harm a rival's name. Disrupting a rival's business is also banned. So is misleading customers about products or promotions, comparing your goods with a rival's without proof, and selling below cost in a way that drives rivals out.

The maximum fine for unfair competition is VND 2 billion. Smaller fines of up to VND 200 million apply to other violations. An individual faces half the fine of an organization.

Source: Law No. 23/2018/QH14, Articles 45 and 111 (National Assembly of Vietnam, 12 June 2018).

What should firms do before 1 July?

Start with a simple review. Check supplier, distributor and competitor contracts for price or territory clauses. Make sure sales staff do not make claims they cannot prove. If you plan a deal, ask a lawyer whether it may need a filing, and watch for the Government's guidelines.

The law also has a transition rule. Cases that began under the 2004 law are reviewed against the new one after 1 July. An investigation stops if the conduct does not break the new law.

Source: Law No. 23/2018/QH14, Article 118 (National Assembly of Vietnam, 12 June 2018).

Sources

Law No. 23/2018/QH14 on Competition, National Assembly of Vietnam, passed 12 June 2018, in force 1 July 2019.