Vietnam – Impact Of Decree 35/2020 On The Law On Competition.

28 August 2020
 

On 24 March 2020, the Government promulgated Decree 35/2020/ND-CP (“Decree 35”), providing detailed guidance for the Law on Competition 2018 (“LOC”). The long-awaited decree is expected to shed some light on various provisions under the LOC. Three of the most notable changes set out in Decree 35 are:
 

Interchangeable goods or services
 

Decree 35 provides specific criteria for identifying interchangeable goods or services in regard of characteristic, which includes:

 

(i) characteristics of the goods or services;

 

(ii) composition of the goods or services;

 

(iii) physical or chemical properties of the goods;

 

(iv) technical features of the goods or services…etc.[1]
 

In addition, goods or services are deemed as interchangeable in terms of their use purpose if such goods or services have the same main use purpose.[2]
 

In terms of price, they are deemed as interchangeable when their price differs by 5% or less in similar transaction conditions.[3]
 

Controlling or governing an enterprise or a business line
 

For the purpose of clarification, Decree 35 defines the term “control or govern” mentioned under the LOC as follows:
 

• the acquiring enterprise gains ownership of more than 50% of the charter capital of, or above 50% of the voting shares of the acquired enterprise; or

• the acquiring enterprise gains ownership of or the right to use more than 50% of the assets of the acquired enterprise in all or one business line of the acquired enterprise; or

• the acquiring enterprise has one of the following rights regarding the acquired enterprise: (i) to directly or indirectly decide the appointment, removal or dismissal of a majority or all of the members of the board of management, chairman of the members’ council, director or general director; (ii) to decide the amendment of or addition to the charter; (iii) to decide important issues during business activities.[4]
   

The clarification set out under Decree 35 is quite unconventional since it assesses not only direct power through voting rights and shares of acquiring enterprise but also examines indirect power of such entities through the right to decide management positions, business operation and right to utilise acquired enterprises asset.
 

Threshold for economic concentration notification
 

As per Decree 35 provision, the notification requirement shall be carried out by enterprises (except for credit institution, insurance enterprise, and securities enterprise since these enterprises shall be regulated differently) if any of the following conditions are met:
 

• total sales turnover/input purchase turnover/asset in the market of Vietnam of the enterprise or group of affiliated enterprises of which the enterprise is a member was VND3 trillion or more in the financial year immediately preceding the year of the proposed implementation of economic concentration;

• the transaction value of the economic concentration is VND1 trillion or more;

• the combined market share of the enterprises proposing to participate in the economic concentration was 20% or more in the relevant market in the financial year immediately preceding the year of the proposed implementation of economic concentration.[5]
   

Compared to the revoked law (e.g. Law on Competition 2004), the threshold for economic concentration notification provided in Decree 35 is significantly broader. As a result, merger and acquisition transaction that are subject to notification requirement would increase.

 

 

[1] Article 4.2 of Decree 35/2020/ND-CP

[2] Article 4.3 of Decree 35/2020/ND-CP

[3] Article 4.4 of Decree 35/2020/ND-CP

[4] Article 2.1 of Decree 35/2020/ND-CP

[5] Article 13.1 of Decree 35/2020/ND-CP