Despite ongoing uncertainty surrounding this issue,
foreign businesses that do not have direct operations, physical, or
legal presence in Vietnam are more likely to fall within the scope
of the Competition Law on the basis of having local subsidiaries or
sales into Vietnam.
Several aspects of Vietnam's Law on Competition (No.
27/2004/QH11) (the "Law") have been difficult to
interpret due to a lack of formal clarification and guidance. One
of the most crucial issues is the scope of the Law and how it
applies to a foreign business's activities that occur outside
of the country. Article 2 of the Law states, in part, that the Law
applies to "Enterprises" which is defined to include
"overseas enterprises operating in Vietnam." This phrase
is not defined in the Law nor in the relevant implementing
regulations. As a result, this has created confusion in determining
what level of activity is necessary to satisfy this
threshold.
Below we describe a recent clarification of this threshold based on
the Vietnam Competition Authority's ("VCA") Annual
Report and subsequent consultations with VCA officials.
Nonetheless, this issue is still sufficiently problematic that
recently published drafts of proposed amendments to the Law have
incorporated language to ensure that the scope of the law includes
"foreign enterprises" without the "operating in
Vietnam" qualification.
Historically, this "operating in Vietnam" threshold has
often been tentatively interpreted as requiring some legal or
physical presence in Vietnam by the relevant overseas business in
order for it to be deemed an Enterprise under the Law. However,
this interpretation has generally been qualified to reflect that it
has never been set out officially. It has been recognized
that the risk exists that the threshold could be interpreted as
including other activities such as operation or ownership of a
Vietnamese subsidiary, or even mere sales into Vietnam.
This lack of clarity has significantly impacted the ability of
participants in foreign to foreign economic concentrations to
determine whether they are subject to the Law's merger control
regime. This has been particularly problematic where one or
more of the participants have a Vietnamese subsidiary or physical
operations which will not be directly involved in the proposed
transaction. For example, where a transaction occurs outside
of Vietnam and the Vietnamese subsidiaries of the relevant parties
are not legally participating in an economic concentration as
defined in the Law.
Previous informal consultations with VCA officials have provided
some comfort that the VCA had been applying a relatively narrow
interpretation of this threshold to require some form of physical
or legal presence in Vietnam and that the merger regime would not
apply where local subsidiaries were not participating directly in
an economic concentration undertaken by their foreign parent
companies.
This no longer appears to be the case. In its 2016 Annual
Report, the VCA stated that it had received a notification in
regard to the Sanofi/Boehringer transaction. It stated that
while the acquisition occurred outside of Vietnam, both relevant
entities participating in the economic concentration had business
activities in Vietnam on the basis of one owning a Vietnamese
subsidiary, and the other apparently only distributing into
Vietnam. This was considered sufficient for both foreign
participants to be deemed to be Enterprises, therefore rendering
the foreign to foreign transaction subject to the Law's merger
regime.
This more expansive interpretation has been confirmed through
subsequent consultations with a VCA official who stated that having
products distributed in Vietnam was sufficient to fall within the
scope of the Law. Previous Annual Reports had already
suggested that ownership of a local subsidiary might be sufficient
to satisfy the criteria of "operating in Vietnam";
although this was not explicit.
Consequently, we now advise all participants engaging in foreign
transactions to carefully consider potential implications of the
Law where the parties directly or indirectly own Vietnamese
subsidiaries or have products distributed in Vietnam (potentially
even through third parties). Regardless of which legal entities are
engaging in the economic concentration. In light of this
clarification as to the scope of the Law, we recommend that foreign
companies with Vietnamese subsidiaries or sales into Vietnam also
consider whether their activities may potentially come within the
scope of other provisions of the Law. This includes activities such
as abuse of dominant position, anti-competitive agreements, and
unfair trade practices regardless of which legal entities engage in
the potentially infringing behaviour.
While the situation remains unclear, we draw your attention to the
fact that the VCA has a history of welcoming informal and formal
consultations on issues where the application of the Law is
uncertain.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.