Interpreting Law on Competition changes

10:00 | 17/04/2020
Last month, the Vietnamese government passed Decree No.35/2020/ND-CP providing detailed regulations for implementation of a number of articles of the Law on Competition that take effect on May 15. Lawyer Nguyen Thanh Ha, chair of SB Law, shares the key changes of the decree.
1487p14 interpreting law on competition changes
Lawyer Nguyen Thanh Ha, chair of SB Law

As Vietnam’s Law on Competition switches from a rigid market-share-based to a more flexible and pragmatic approach in terms of determining what conducts might violate the law, Decree 35 provides detailed regulations about how the National Competition Commission (NCC) could enforce the law, with respect to, but not limited to the definition of relevant markets, the definition of substantial market power, the assessment of substantially lessening competition (SLC) effects, or the ability to cause such effects of an agreement to restraint competition, and economic concentration.

The relevant market definition is a crucial task practiced by the NCC to determine the scope of the market affected by certain potential anti-competitive conducts such as agreement to restrain competition and abuse of dominant market positions and monopolies. The definition of a relevant market creates a foundation to calculate market share which is a contributing factor to determine dominance, notification responsibility for economic concentration, and more.

Unlike in the Law on Competition 2004 and accompanying Decree No.116/2005/ND-CP, the prescriptive SSNIP test, a test about small but significant and non-transitory increase in price, which requires onerous information gathering, now is only the last resort for the competition agency to define relevant markets. Instead, Decree 35 utilises a holistic assessment considering many factors for the relevant market definition. Besides factors prescribed in the old Decree 116, the new decree also supplements a number of extra factors such as consumer habits, legal provisions affecting the ability to substitute the goods or services, and the ability to distinguish between buying and selling prices for different customer groups.

According to the Law on Competition 2018, the agreements to restrain competition and economic concentration are subject to SLC testing to determine the effect they have in the relevant market.

Additionally, besides the 30 per cent market share threshold, the Law on Competition looks towards the “substantial market power” of an enterprise to determine whether such it holds a market-dominant position.

A holistic approach, employing many relevant factors is specified in the Law on Competition to gauge the practical knowledge about substantial market power and how competition is lessened as a result of anti-competitive conduct or economic concentration.

Thus, the newly-promulgated Decree 35 provides guidance regarding how these factors are actually interpreted and used to substantiate the view of the NCC on the SLC effect of the potentially violated conducts.

Defining key concepts

Unlike other forms of economic concentration, acquisition “controlling and governing” needs to be established as a result of the transaction before any further legal steps are taken.

Decree 35 provides that controlling or governing an enterprise or a business line of another enterprise means one of the following cases: (i) the acquiring enterprise gains ownership of more than 50 per cent of the charter capital of, or above 50 per cent of the voting shares of the acquired enterprise; (ii) the acquiring enterprise gains ownership of or the right to use more than 50 per cent of the assets of the acquired enterprise during all or one business line of the acquired enterprise; (iii) the acquiring enterprise has rights to govern the acquired enterprises which is specified in Decree 35.

The decree also provides a safe harbour based on market share to tell what kinds of agreement to restraint competition are unable to cause or have the ability to cause SLC effects in the relevant market.

In detail, horizontal anti-competitive agreements are unlikely to cause SLC effects provided that the combined market share of the participating enterprises is below 5 per cent. Vertical anti-competitive agreements are still safe for competition if the market share of each participating enterprise is below 15 per cent.

Likewise, the safe harbour for economic concentration is also based on quantitative factors including market share and the Herfindahl Index. Additionally, a vertical economic concentration is unlikely to cause SLC effects in the relevant market if the market share of each engaging parties is less than 20 per cent in each relevant market.

Mandatory notifications

While the Law on Competition 2018 introduced more concrete thresholds to determine when an economic concentration will be subject to competition notification or approval, the law did not specify the amount which would trigger such thresholds. Decree 35 provides clarity on the specific threshold amount. In short, entities shall be subject to notification/approval when one of the following thresholds is met in the fiscal year immediately preceding the year of proposed implementation of economic concentration:

(i) Total assets in the market of Vietnam of the enterprise or group of affiliated enterprises of which such enterprise is a member was VND3 trillion ($130.4 million) or more; or (ii) total sales turnover or input purchase turnover in the market of Vietnam of the enterprise or group of affiliated enterprises of which the enterprise is a member was VND3 trillion ($130.4 million) or more; or (iii) the transaction value of the economic concentration is VND1 trillion ($43.47 million) or more; or the combined market share of the enterprises proposing to participate in the economic concentration was 20 per cent or more in the relevant market.

Where the economic concentration takes place outside the territory of Vietnam, the transaction value threshold will not be considered when determining whether such economic concentration will be subject to notification/approval requirements. Further, credit institutions, and insurance and securities firms engaging in an economic concentration will be subject to separate notification/approval thresholds.

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