As part of Vietnam’s efforts to innovate the competition control system, its National Assembly promulgated on 12 June 2018 the new Law on Competition No. 23/2018/QH14 (“LOC 2018”) which shall take effect from 1st July 2019 and replace the current Law on Competition No. 27/2004/QH11 dated 03 December 2004 (“LOC 2004”). One of the major amendments provided by LOC 2018 relates to the threshold to control economic concentration. 

Inadequacies of the current LOC 2004

Under LOC 2004, any acts of economic concentration (such as merger, consolidation, acquisition, joint venture) in which the participating parties have a combined share higher than 50% in the relevant market is prohibited unless the economic concentration results in a small or medium-sized enterprise (SME) or an exemption is granted by the competent authority. In addition, any economic concentration where the participating parties have a combined share in the relevant market from 30% to 50% must be notified to the competent authority, unless such economic concentration results in an SME. As such, the combined share in the relevant market plays the sole and decisive role in determining whether the economic concentration is subject to the notification obligation or is prohibited under the competition law.

In practice, such provisions are causing significant difficulties to enterprises which intend to perform economic concentration in accordance with the competition law. Firstly, it is difficult for an enterprise to self-determine its share or combined share in the relevant market as it may not have the capacity to collect all necessary information on such market or to access its competitor’s data. Secondly, the determination of what is the “relevant market” is ambiguous due to lack of specific guidance on the method for such determination. Although the guiding decree for LOC 2004 specifies the factors to be used to determine the characteristics of a product or service in the relevant product market, including physical characteristics, chemical characteristics, technical characteristics, side effects on users, and absorbability, these factors are only appropriate for goods and not services, thus, leading to the confusion or inability to determine the service’s relevant market and relevant combined share.

Furthermore, LOC 2004 considers all economic concentration resulting in a combined share from 30% in relevant market as activities which are or may be harmful to competition in the market. However, this threshold sometimes does not comprehensively reflect the characteristic and level of the relevant economic concentration’s influence with respect to the competition in the market. In practice, there are certain cases wherein the combined share in the relevant market does not reach 30% or 50%, nonetheless, it may negatively influence the competition in the market due to other factors such as strong relationships in the production, distribution or supply chain or rapid growth, both of which may result in the ability of enterprises after the economic concentration to remove or prevent other enterprises from entering the market, or expanding.

According to some experts, there is no absolute right way to determine the share of an enterprise in the relevant market, but even so, by using combined share in the relevant market as the sole and decisive criteria to determine whether the economic concentration is subject to control or prohibition, the current laws do not closely and comprehensively meet the objective of economic concentration control, which is prevention of all transactions being harmful to competition in the market.

New approach of the LOC 2018

By acquiring comments from relevant stakeholders and exerting efforts to reform the economic concentration control system, the new LOC 2018 eliminates all economic concentration control thresholds provided by LOC 2004. Under LOC 2018, the economic concentration shall be prohibited if it causes or probably causes substantial anti-competitive effects on the Vietnamese market, which is determined based on one of the following criteria:

(a) combined market share,
(b) degree of concentration,
(c) relationship of the parties to the economic concentration in the production, distribution or supply chain,
(d) competitive advantage brought about by the economic concentration in the relevant market,
(e) ability of an enterprise after economic concentration to significantly increase prices or rate of return on sales,
(f) ability of an enterprise after economic concentration to exclude or hinder other enterprises from market entry or expansion, or
(g) special factors in the relevant industry or sector.

As to economic concentration subject to the notification obligation, it shall be determined by the competent authority based on any of the following criteria: total assets of the involved enterprises, total turnover of involved enterprises, transaction value, or combined market share of involved enterprises. The Government is set to issue further guidelines on these criteria.

The competent authority under LOC 2018 which has the authority to assess the above criteria is the National Competition Authority, which shall replace the current Vietnam Competition and Consumer Authority and Vietnam Competition Council.

LOC 2018 has expanded the criteria to determine economic concentration subject to control and restriction. Although such regulations are still general and need to be further guided and clarified by the Government, it proves that efforts are being made to further develop a more appropriate and suitable economic concentration control system in Vietnam.

Taro Hirosawa and Nguyen Thi Ha Thu