This article was first posted on International Financial Law Review (Sep 2018)
Vietnam’s National Assembly has recently passed a new Law on Competition (the LOC 2018) to replace the current Law on Competition 2004 (the LOC 2004). The LOC 2018 will take effect from 1 July 2019. The provisions on agreements in restraint of competition (cartel agreements) in the LOC 2004 were amended to be more consistent with global standards. Below are the highlights of these provisions in the LOC 2018.
1. More types of agreements in restraint of competition
The LOC 2004 and the LOC 2018 define agreements in restraint of competition broadly to cover all forms of agreements which may eliminate, reduce, distort or hinder competition in the market (altogether defined as “competition-restraining impact” in the LOC 2018). However, while the LOC 2004 governs only eight specific types of agreements in restraint of competition, the provisions of the LOC 2018 would apply to any agreement of any nature and in any form which have or may have a competition-restraining impact on the market.
2. Bid rigging, preventing market participation and excluding other enterprises from the market strictly prohibited
Similarly to the LOC 2004, the LOC 2018 strictly prohibits all agreements on (i) bid rigging, (ii) preventing, impeding or not allowing other parties to participate in the market or to develop a business, or (iii) excluding from the market other enterprises which are not parties to the agreement.
3. Different treatment between horizontal and vertical agreements in restraint of competition
An important development from the LOC 2004 is that the LOC 2018 distinguishes between vertical agreements and horizontal agreements in restraint of competition. Except for the outright prohibitions (as mentioned above), other agreements in restraint of competition are forbidden under the LOC 2004 only if the combined market share of the concerned parties accounts for at least 30% of the relevant market.
In contrast, the LOC 2018 prohibits all horizontal agreements, regardless of the combined market share, on (i) price fixing, (ii) allocating customers, suppliers and territories, or (iii) restricting outputs. Other horizontal agreements are banned if they cause or may cause a significant competition-restraining impact on the market.
4. Less strict regulations on vertical agreements in restraint of competition
In comparison with horizontal agreements, vertical agreements are subject to more relaxed regulations in the LOC 2018. All agreements in restraint of competition on a vertical level, including price fixing, allocating customers, suppliers and territories and restricting outputs, are not forbidden, unless they cause or may cause a significant competition-restraining impact on the market.
5. ‘Combined market share’ test replaced by ‘significance’ test
Under the LOC 2018, the ‘combined market share’ test is no longer applied to violations of prohibited agreements in restraint of competition. Instead, these agreements are subject to a more general test to determine whether they have or may have a significant competition-restraining impact on the market. This ‘significance’ test will be assessed by the National Competition Committee (the “NCC”) based on various criteria (for example, market share, barriers to market access or expansion, restrictions on research and technology development, limits on access to essential infrastructure, and damages caused to customers). As the draft decree guiding the LOC 2018 does not provide more detailed guidance, the NCC may retain a level of discretion in interpreting and making decisions on this ‘significance’ test.
6. Fewer exemptions from prohibited agreements in restraint of competition
While more types of agreements in restraint of competition are prohibited under it, the LOC 2018 provides for fewer exemptions from these prohibitions. Agreements in restraint of competition in order to improve business models, to enhance business efficiency, or to boost competitiveness of small and medium enterprises are no longer legitimate grounds for exemption.
Parties involved in an agreement in restraint of competition must obtain an approval for exemption before performing such agreement. An exemption may be valid for up to five years and renewable for another five-year period.
7. Extraterritorial application
The LOC 2018 applies to both Vietnamese and foreign organisations and individuals whose activities or transactions cause or may cause a competition-restraining impact on Vietnam’s market. This means that two offshore entities entering into an agreement outside Vietnam are still subject to the scrutiny and sanction of the Vietnamese authority if their agreement may eliminate, reduce or distort competition in Vietnam.
8. Criminal and civil sanctions for violations of prohibited agreements in restraint of competition
Both civil and criminal penalties are applicable to individuals and enterprises which violate prohibited agreements in restraint of competition. Under the LOC 2018, an enterprise in breach may be subject to a fine of up to 10% of its total turnover in the preceding financial year. Depending on the seriousness of the violation, it may be held liable in accordance with the Criminal Code.
9. Leniency policy implemented for the first time
For the first time, Vietnam promotes a leniency policy to grant exemption or reduction of penalty to enterprises in breach which voluntarily declare their violation of prohibited agreements in restraint of competition. Under the LOC 2018, such declaration must be made before the authority issues a decision to investigate the suspected violation. The first declaring enterprise could be entirely exempted from fines while the second and the third declaring enterprises may enjoy an exemption of 60% and 40% from fines, respectively. The leniency policy is, however, not available to enterprises which have forced or organised other enterprises to participate in such an agreement.
10. Public disclosure of decisions on violations of agreements in restraint of competition
The NCC will publish its decision on violations of prohibited agreements in restraint of competition on its website for a period of 90 days from the effective date of such decision. Nevertheless, State secrets and business secrets are excluded from this public disclosure requirement.
Truong Huu Ngu and Cao Bao Tran