Nguyen Thanh Ha
SB LAW Firm
On March 24, the Government passed Decree 35/2020/ND-CP (Decree 35) guiding the implementation of a number of articles of the 2018 Competition Law (the 2018 Law) with several noteworthy contents.
As the 2018 Law switches from a rigid market-share-based approach to a more flexible and pragmatic approach in terms of determining what conducts might violate the law, Decree 35, which will come into force on May 15, provides detailed regulations about how the National Competition Commission (NCC) could enforce the Law as respects, but not limited to definition of relevant market, definition of substantial market power, assessment of substantially lessening competition (SLC) effect or ability to cause such effect of an agreement to restraint competition, and economic concentration.
Change in the practice of relevant market definition
Relevant market definition is a crucial task practiced by NCC to determine the scope of the market affected by certain potential anti-competitive conducts (i.e., agreement to restrain competition, abuse of dominant market position and monopoly position). The definition of relevant market creates a foundation to calculate market share which is a contributing factor to determine presume dominance position, notification responsibility for economic concentration, etc.
Unlike in the 2004 Competition Law and its guiding text, Decree 116 of 2005, the prescriptive small but significant non-transitory increase in price (SSNIP) test, which requires onerous information gathering, now is only the last resort for the competition agency to define relevant market. Instead, Decree 35 utilizes a holistic assessment considering many relevant factors for relevant market definition. Besides factors prescribed in the old Decree 116, the new Decree 35 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.
|A corner of Big C Thang Long supermarket in Hanoi__Photo: Vu Sinh/VNA
Specifying a pragmatic approach to assess substantial market power, SLC effect or ability to cause such effect of agreement to restrain competition and economic concentration
According to the 2018 Law, agreement to restrain competition (except hard-core, per se illegal agreement) and economic concentration are subject to SLC test to determine the SLC effect they have or are likely to have in the relevant market. Additionally, besides the 30 percent market share threshold, the 2018 Law looks toward the “substantial market power” of an enterprise to determine whether such enterprise holds a market-dominant position within the market. A holistic approach, employing many relevant factors, is specified in the 2018 Law to gauge the practical knowledge about substantial market power and how competition is lessened as a result of an anti-competitive conducts or economic concentration. Thus, 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 “controlling and governing”
Unlike other forms of economic concentration, for acquisition, “controlling and governing” relation 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 (the acquired enterprise) means one of the following cases: (i) the acquiring enterprise gains ownership of more than 50 percent of the charter capital of, or above 50 percent of the voting shares of the acquired enterprise; (ii) the acquiring enterprise gains ownership of or the right to use more than 50 percent of the assets of the acquired enterprise during all or one business line of the acquired enterprise; or (iii) the acquiring enterprise has rights to govern the acquired enterprise which is specified in Decree 35.
Safe harbor for agreement to restrain competition and economic concentration
Decree 35 also provides “safe harbors” based on market share to tell what kinds of agreement to restraint competition are unable to cause or have ability to cause SLC effect in the relevant market. In detail, horizontal anti-competitive agreements are unlikely to cause SLC effect provided that the combined market share of the participating enterprises is below 5 percent. For a vertical anti-competitive agreement, it is still safe for competition in case the market share of each participating enterprise is below 15 percent.
Likewise, the safe harbor for economic concentration is also based on quantitative factors including market share and Herfindahl-Hirschman Index (HHI). For horizontal economic concentration, the transaction is deemed to be safe to competition in case the combined market share of the participated enterprises is less than 20 percent in the relevant market, or the combined market share is more than 20 percent and HHI after the transaction is less than 1,800, or the combined market share is more than 20 percent and HHI after the transaction is more than 1,800 but the increase in the HHI before and after the economic concentration is less than 100. Additionally, a vertical economic concentration is unlikely to cause SLC effect in the relevant market if the market share of each engaging party is less than 20 percent in each relevant market.
Mandatory notification threshold for economic concentration
While the 2018 Law had introduced more concrete thresholds to determine when an economic concentration (i.e., mergers, consolidations, acquisitions, and joint ventures) will be subject to competition notification/approval, it did not specify the amount which would trigger such thresholds. Decree 35 provides clarity on the specific threshold amount. In short, entities (with exceptions to credit institutions, insurance companies, and securities companies) will be subject to notification/approval when one of the following thresholds is met:
(i) Total assets in the market of Vietnam of the enterprise or group of affiliated enterprises of which such enterprise is a member was VND 3 (three) trillion or more in the fiscal year immediately preceding the year of proposed implementation of economic concentration;
(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 VND 3 (three) trillion or more in the fiscal year immediately preceding the year of proposed implementation of economic concentration;
(iii) The transaction value of the economic concentration is VND 1 (one) trillion or more; or,
(iv) The combined market share of the enterprises expected to participate in the economic concentration was 20 percent or more in the relevant market in the fiscal year immediately preceding the year of proposed implementation of economic concentration.
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. Furthermore, as mentioned, credit institutions, insurance companies, and securities companies participating in an economic concentration will be subject to separate notification/approval thresholds.-