With the effectiveness of the new Law on Competition (No. 23/2018/QH14) (LOC) on July 1, 2019, the recent period has witnessed many changes in this reformation wave of Vietnam with respect to its competition governance.  It is made clear in the LOC that the LOC applies to any acts, whether by Vietnamese or foreign individuals or entities, ‘which have or may have a competition restraining impact’ in the Vietnamese market.  Competition restraining impact is broadly defined as ‘an impact which excludes, reduces, distorts or hinders competition in the market’.  As such, parties engaging in transactions or arrangements in or outside Vietnam that could lessen competition in the Vietnamese market will need to consider the extraterritorial application of Vietnamese competition laws.

This legal insight will walk you through the competition law requirements under the LOC applied to offshore economic concentration activities.

Notification Obligation of Economic Concentration

Pursuant to Article 29.1 of the LOC, economic concentration comprises the following forms: (i) merger of enterprises; (ii) consolidation of enterprises; (iii) acquisition of enterprises; (iv) joint venture between/among enterprises; and (v) other categories of economic concentration stipulated by the law.  While economic concentration benefits aggregated enterprises, it also affects the relevant market and may distort competition.  More specifically, economic concentration can potentially create or further strengthen a dominant player in the market or may even lead to a monopoly.  Due to its competition restriction impact, economic concentration is deemed an anti-competitive practice and is therefore regulated by competition law.

In particular, as prescribed in Article 30 of the LOC, economic concentration shall be prohibited should it cause or probably cause substantial anti-competitive effects on the Vietnamese market.  The law, however, does not provide the specific criteria for an economic concentration to be deemed causing or probably causing substantial anti-competitive effects on the Vietnamese market; instead, the competent State agencies shall be responsible for determining the impact of the economic concentration.  Thus, in Vietnam, enterprises engaging in economic concentration are required to notify the National Competition Committee (NCC) before initiating economic concentration, provided that the notification threshold is met.  The NCC shall then assess the positive effects of the economic concentration and the substantial competition restriction impact caused or potentially caused by the economic concentration before declaring whether the economic concentration may be conducted.

Economic Concentration Outside of Vietnam

Article 2.1 of the LOC prescribes the subjects of application of competition law include, among others, ‘enterprises that produce and provide public-utility products and services, enterprises that operate in state-monopolized sectors/domains, public service units and foreign enterprises that operate in Vietnam.’  In other words, enterprises that operate in Vietnam, regardless of their nationalities, are subject to the LOC.

Thus, foreign enterprises operating in Vietnam are also required to notify the NCC of their intended economic concentration should they meet the notification threshold.  However, it is mandatory to understand whether this remains true for offshore economic concentrations.  The following cases may provide affirmative answers to this issue.

Case 1: China Baowu Steel Group Corporation Limited (Baowu) and Taiyuan Iron and Steel (Group) Co., Ltd (TISCO) are both foreign enterprises.  In addition, both enterprises produce and export steel to Vietnam.  In 2020, Baowu wished to purchase 51% of TISCO’s chartered capital; the transaction took place in China.  Though this transaction happened offshore, the enterprises were still required to notify the NCC of the transaction because both enterprises have their business operations in Vietnam.  Please see details about this economic concentration here.

Case 2: SCGP Solutions (Singapore) Pte. Ltd (SCGP) and SKL Holdings Limited (SKL) are both foreign enterprises conducting catering business.  SCGP has business operations in Vietnam.  SKL had a subsidiary named Go-Pak UK which conducted catering business outside of Vietnam.  Go-Pak UK in turn had two subsidiaries in Vietnam conducting the same business.  In 2020, SCGP wished to purchase all of Go-Pak UK’s shares from SKL.  According to NCC, though Go-Pak UK did not directly operate in Vietnam, it was still considered to have indirect operations in Vietnam via its two Vietnamese subsidiaries.  Thus, SCGP and SKL had to file a notification dossier to NCC for assessment.  Please see details about this economic concentration here.

The above cases show that economic concentrations that may impact the Vietnamese market, regardless of their place of occurrence, are required to be notified to the NCC for assessment (provided that the notification threshold is met).  In addition, the term ‘operate in Vietnam’ should be understood broadly, i.e., enterprises that operate via subsidiaries in Vietnam are also considered to have business operations in Vietnam.  Parent companies of Vietnamese subsidiaries should expect the potential obligation to notify the NCC when conducting economic concentration with other enterprises that operate in Vietnam.

Key Takeaways for Foreign Investors and Enterprises

Notification Obligation Determination

Given the wide coverage of the LOC, foreign enterprises may be confused with how the foreign enterprises that engage in economic concentrations outside of Vietnam are able to determine whether a notification obligation arises out of such concentration.  In general, the determination can be made as follows:

Firstly, enterprises must determine whether they operate in Vietnam.  As analyzed above, enterprises that operate in Vietnam, either directly or indirectly (i.e., via subsidiaries), are subject to Vietnamese competition law.

Secondly, enterprises must determine whether the other party/parties in the economic concentration operate(s) in Vietnam.  Similarly, indirect operations in Vietnam must also be taken into consideration.

Finally, in the event that both parties operate in Vietnam, enterprises should determine whether the notification threshold is met.  Not all economic concentration gives rise to notification obligation; only those that meet the notification threshold shall obligate the parties therein to notify the NCC.

Pursuant to Article 13 of Decree No. 35/2020/ND-CP, the economic concentration notification threshold for enterprises not being credit institutions, insurance, or securities companies is subject to one of the following criteria:

  • Total asset available in Vietnam market of an enterprise or a group of affiliated enterprises of which the enterprise is an affiliate must be worth VND3,000 billion (c. USD128,5 million) or more in the preceding financial year;
  • Total sales or purchase volume arising in Vietnam market of an enterprise or a group of affiliated enterprises of which the enterprise is an affiliate must be worth VND3,000 billion (c. USD128,5 million) or more in the preceding financial year;
  • Value of the economic concentration transactions must be worth at least VND1,000 billion (c. USD42,8 million); or
  • Joint market share of enterprises intending to participate in the economic concentration must account for at least 20% of the total share of the relevant market in the fiscal year preceding the planned year of economic concentration.

Regarding economic concentration outside of Vietnam, the threshold for notification shall be determined based on the criteria of total assets, total sales or sales purchased on the Vietnam market, and the combined market share of enterprises intending to participate in economic concentration in the relevant market as abovementioned.

Legal Implications

As we can see, the notification obligation is very crucial when the economic concentration meets the notification threshold.  Failure to carry out such procedural steps could bring several consequences and critical legal risks, such as an administrative fine of up to 5% of each party’s total revenue earned from the relevant market in the preceding financial year.  In the worst-case scenarios where the NCC deems the economic concentration to have a substantial competition restriction impact on the Vietnamese market, the authority shall declare that the economic concentration to be prohibited and the parties therein may be forced to undergo restructuring (e.g., the consolidated enterprise shall be forced to carry out partial/full division).

If you have any questions or concerns about the competition law requirements in Vietnam, our experienced corporate attorneys are always available at letran@corporatecounsels.vn