4.1 The development of competition law in Vietnam
4.1.1 Preconditions for the competition law
This part reviews the development of the competition law in Vietnam. It starts with a background to competition regulation after Doi Moi in 1986. It then discusses preconditions for the formulation of Vietnam‟s Competition Law, including the demand for such a law, as the country was moving towards a market economy and the occurrence of practices harmful to competition. It also explains why anti-monopoly restrictions could not be adopted when the Law was passed in 2004.
4.1.1.1 Background
In the central planning economy of Vietnam, such concepts as „competition‟,
„competition law‟, „monopoly‟, „anti-monopoly‟ and „anti-monopoly law‟ were relatively strange. This is understandable because these concepts were only introduced to Vietnam after the launch of Doi Moi in 1986. During the time of the central planning economy,
„competition‟ was understood as „emulation‟ (Thi dua in Vietnamese) and did not serve as a driving force for development. In fact, there was competition among state-run
104 enterprises, the only economic entities at that time. A market economy could not exist because the freedom of business was not recognised as a fundamental right and as a result competition did not exist and neither did the „competition‟ concept.1 Hence, there was no need for a competition law.
In the same vein, „monopoly‟ was regarded as the state‟s exclusive control of every aspect of the economy.2 Hence such concepts as „anti-monopoly‟ or „anti-monopoly law‟ could not be considered in law and economic scholarship, because this would have been contrary to the mainstream position of the state and political party. Although a monopoly situation existed, there were no underpinnings for an anti-monopoly law to be created.
However, certain dispersed regulations aimed at addressing some forms of unhealthy activity that hindered economic progress did exist in several legislations before Doi Moi and were in place until the Competition Law came into effect. These regulations were designed to ensure a healthy competition among state-run enterprises, but not to eliminate any anti-competitive behaviour by these entities. Therefore, before the adoption of the first competition law there were important preconditions for such a law in Vietnam, particularly a demand for a competition law, because of the occurrence of practices that were detrimental to a competitive environment.
4.1.1.2 The demand for a competition law in Vietnam
The demand for a competition law in Vietnam resulted from a number of significant factors that had been reflected in the proliferation of competition laws in the world.3 It was motivated by the wave of „neo-liberal economic reforms‟ introduced since the 1980s, particularly issues raised as a result of privatisation. It was a reflection of the
1 Nguyen Nhu Phat, „Bao cao Tong hop de tai “Xay dung The che Canh tranh Thi truong o Viet Nam”‟
[Overall Report of the Project “Building up a Market Competition Institution in Vietnam”] (2005) 1; Dang Vu Huan, Phap luat Ve Kiem soat Doc quyen va Chong Canh tranh Khong Lanh manh o Vietnam [Law concerning Monopoly Control and Anti-Unfair Competition in Vietnam] (PhD in Law Thesis, Hanoi Law University, 2002) 116-117; Hoang Tho Xuan, „Report on the Situation of Competition and Competition Legislation in Vietnam‟ (Paper presented at East Asia Competition Policy Forum, ASEAN Competition Project Series, 2001) <http://www.jftc.go.jp/eacpf/02/vietnam_r.pdf>; Nguyen Nhu Phat and Bui Nguyen Khanh, Tien toi Xay dung Phap luat Ve Canh tranh va Chong Doc quyen Trong Dieu kien Chuyen sang Nen Kinh te Thi truong [Toward Building up the Law on Unfair Competition and Anti-Monopoly in the Context of Transformation to a Market Economy] (People‟s Public Security Publisher, 2001).
2 This is discussed in Chapter 3 regarding state monopoly in Vietnam.
3 Alice Pham, „The Development of Competition Law in Vietnam in the Face of Economic Reforms and Global Integration‟ (2006) 26 Northwestern Journal of International Law and Business 549.
105 predominance of liberal democracies and market-oriented economics that became ideological models in the wake of the collapse of communism.4 Furthermore, it was impacted by the pace of greater economic integration and encouraged by the endorsement of the vital role of competition law and the adoption of competition laws in various developing countries.5
There had been growing awareness of the role of competition in the economy and the role of a competition law after Doi Moi6
Initially, competition used to be considered as a negative concept and an element of capitalism.7 Competition was seen as the cause of economic crisis and turmoil, bankruptcy, unemployment and social evils such as fraud and corruption.8 There was a common acceptance during the central planning economy that the state played the role of
4 Paul Cook, „Competition Policy, Market Power and Collusion in Developing Countries‟ in Paul Cook (et al, ed) Leading Issues in Competition, Regulation and Development (Edward Edgar Publishing, 2004) 39- 40.
5 Pham, above n 3, 549.
6 Ibid 547; Huan, above n 1, 138; Xuan, above n 1. These viewpoints had been reflected in a number of presentations, reports and working papers of Vietnam‟s academic scholars, senior officers and drafting member of the Competition Bill at conferences and workshops before the adoption of Competition Law 2004. See Nguyen Minh Chi, To Build Competition Law in the context of the Transition to Market Economy in Vietnam’ – Contribution of Vietnam to OECD Global Forum on Competition (2002) 11
<http://www.oecd.org/dataoecd/18/32/1832367.pdf>; Hoang Van Phuong, „Clear identification of
competition problems and transparent procedures to deal with competition claims – the keys to competition advocacy in the case of Vietnam‟ (Paper presented at the 2nd APEC Training Course on Competition Policy, Bangkok, 8-10 August, 2006)
<http://www.jftc.go.jp/eacpf/05/APECTrainingCourseAugust2006/Group2/Phuong_Vietnam_.pdf>; Le Hoang Oanh, „To Build Competition Law in the context of the Transition to Market Economy in Vietnam‟
(Paper presented at the 1st APEC Training Program on Competition Policy, Bangkok, 6-8 August, 2002)
<http://www.jftc.go.jp/eacpf/05/APECTrainingProgram2002/Vietnam1.pdf>; Pham Quynh Mai, „To Regulate and Promote Competition in State Enterprises in Vietnam‟ (Paper presented at the 2nd APEC Training Program on Competition Policy, 5-7 August, 2003, Hanoi, Vietnam)
<http://www.jftc.go.jp/eacpf/05/APECTrainingProgram2003/PhamQuynhMai.pdf>; Trinh Anh Tuan,
„Competition Environment and the Urgency of Competition Law in Vietnam‟ (Paper presented at the 3rd APEC Training Program on Competition Policy 1-3, March 2004, Kuala Lumpur, Malaysia)
<http://www.jftc.go.jp/eacpf/01/APEC_Policy_Vietnam.pdf>.
7 Throughout all the documents of Vietnam‟s Communist Party, „competition‟ (or „free competition‟ was referred as a means to accumulate capital to achieve capitalism and linked with negative effects in the economy, such as exploitation. See Communist Party of Vietnam, Complete Works of the CPV episode 40 (1979) (National Political Publishing House, 2005) 293; Communist Party of Vietnam, Complete Works of the CPV episode 40 (1983) (National Political Publishing House, 2006) 908. „Competition‟ was also used to characterise the difference between socialist and capitalist modes of doing business. See Communist Party of Vietnam, Complete Works of the CPV episode 46 (1985) (National Political Publishing House, 2006) 704–705.
8 Le Viet Thai, Vu Xuan Nguyet Hong, Tran Van Hoa, „Anti-trust Law and Competition Policy in Vietnam:
Macroeconomic Perspective‟ in Tran Van Hoa (Ed) Competition Policy and Global Competitiveness in Major Asian Economies (Edward Elgar Publishing, 2003) 139.
106 the only actor, holding both state and economic powers.
After Doi Moi, competition was gradually recognised as one of the fundamental principles and rules of a market economy.9 Competition was now viewed as „an objective phenomenon in the market economy and consisted of both positive and negative aspects‟.10 Monopoly would occur as inevitable consequences once if competition could not be ensured.11 Legal competition was considered as a momentum for economic development, effective improvement and social progress and as serving as an internal driver of the economy.12 The new thinking about the significance of competition was an important factor contributing to initiatives by Vietnam‟s government to build the groundwork for market development and set up market rules for investors and enterprises.13 This changing perception was reflected in a number of core documents of the CPV.14 More importantly, the negative impacts of monopoly on the business environment were also recognised, notably at the executive and administrative level of
9 Phat, „Bao cao Tong hop‟, above n 1, 2. The concept that competition is a necessary prerequite for a free market economy, despite different approaches to defining what competition actually entails and means is widely accepted among neo-classical economists. See Frederic M Scherer and David R Ross, Industrial Market Structure and Economic Performance (Houghton Mifflin, 3rd ed, 1990). See also, Lee McGowan, The Antitrust Revolution in Europe: Exploring the European Commission’s Cartel Policy (Edward Elgar Publishing, 2010).
10 Huan, above n 1, 19-20; Phat, „Bao cao Tong hop‟, above n 1, 1.
11 Phat, „Bao cao Tong hop‟, above n 1, 11.
12 OECD, „Bringing Competition into Regulated Sectors in Vietnam‟ (Competition Policy Roundtable on Bringing Competition into Regulated Sectors, DAF/COMP/GF/WD (2005)7, 2005)
<www.oecd.org/dataoecd/49/29/34285298.pdf>.
13 Pham, above n 3, 547; Central Institute for Economic Management (CIEM) and Swedish International Development Agency (SIDA), Tiep tuc Xay dung va Hoan thien The che Kinh te thi truong Dinh huong XHCN o Vietnam [Continuous Building and Perfecting Institutional Framework for Market Economy with Socialist Orientation in Vietnam] (Science and Technology Publishing House, 2006) 25.
14 For example, the need to develop a regulatory environment conducive to healthy competition and to establish institutions to resolve commercial disputes in line with the principles of a market economy was mentioned as a part of the comprehensive reform of enterprise initiatives. See Resolution of the Fourth Plenum of the 8th CPV Party Congress (December 1997). It was stated in the Strategy for Socio-economic Stabilisation and Development to the year 2000 of the CPV that the state should create an environment and facilitate the conditions for legal competition among the economic entities of various sectors and gradually eliminate state monopoly and the privileges of state enterprises in many areas and industries of the
economy. See Strategy for the Socio-economic Stabilisation and Development to the year 2000 of the CPV;
It was asserted in the Report to the 8th CPV Congress Party that the creation of a fair and healthy competitive environment was a requirement of a market economy. See Vietnamese Communist Party, Documents of the 8th Party Congress (National Political Publishing House, 1996); In the Central Party Committee Resolution 05-NQ-TW (24/9/01), there was a call for the enactment of a competition law aimed at „protecting and encouraging enterprises from all economic sectors to compete and cooperate on an equal footing within the common framework of the law‟. See Central Party Committee, Resolution of the Third Plenum of the Ninth Central Party Committee (Resolution No. 05-NQ-TW (24/9/01) on Continuing to Restructure, Reform, Develop and Improve the Efficiency of State Enterprises.
107 governance.15
There was, subsequently, a recognition of the vital role of competition law in the market.
The concept that an effective competition law is „a concomitant requirement for market based reforms‟ came to be well-understood.16 Competition law was believed to be one of the effective tools for the state to regulate wrongful behaviour in the market and as significant for creating a fair and healthy environment for business activities.17 The enactment of competition law was seen as a common trend among countries with a market economy.18 Besides, a competition law was seen as important to ensure the legitimate right to do business and an effective implementation of competition law as important to improve the competitive environment.19
A competition law was seen as important to create a healthy investment environment and necessary to further the ongoing reform towards a market economy.20
It was accepted that a market economy needs competition as a necessary driving force for economic development. It boosts the economic development through the effective allocation of resources, ensuring that resources of capital, land and people are best used.21 The creation and maintenance of a healthy competitive environment is one of the functions of the state in a market economy. It was also seen that in the market economy the use of administrative regulations, guidelines and orders of the state to interfere in
15 Thai, Hong and Hoa, above n 8, 140-141. For example, it was stated by the Prime Minister that „if a monopoly exits, business talents cannot be mobilised. Monopoly should be eliminated/regulated to improve business performance, increase the competitiveness of goods and services‟. Speech of the Prime Minister Phan Van Khai at the Conference on Assessment of Organisation and Operational Models of 90 and 91 – General Corporations in Hanoi, 1-2 March, 1999.
16 Pham, above n 3, 548; CIEM and SIDA, above n 13; Le Danh Vinh, „Building Competition Law in Vietnam to Meet the Need of Regulating Market Economy and in the light of Trade Liberalization and International Economic Integration‟ (Paper presented at ASEAN Conference on Fair Competition Law and Policy in the ASEAN Free Trade Area (AFTA) Bali, March 5-7, 2003)
<http://www.jftc.go.jp/eacpf/04/vietnam_p.pdf>.
17 Phat, „Bao cao Tong hop‟, above n 1, 9-12; Huan, above n 1, 34.
18 Xuan, above n 1; CIEM and SIDA, above n 13, 28; Phat, „Bao cao Tong hop‟, above n 1, 13.
19 CIEM and SIDA, above n 13, 186.
20 Oanh, above n 6; Tuan, above n 6; Vu Thanh Tu Anh, Competition and Privatization in Vietnam:
Substitutes or Complements? (2006) 2
<http://www.grips.ac.jp/vietnam/VDFTokyo/Doc/2ndConf15Jul06/2EcoSession2VTTAnh.pdf>; CUTS, Competition Scenario in Vietnam (2005) <http://www.cuts-ccier.org/7Up2/pdf/7Up2_Vietnam.pdf>.
21 Xuan, above n 1, 4.
108 business activities of economic sectors is inappropriate,22 because economic activities, including competition, should be regulated by market principles. That requires the state to build up a competition policy, together with an effective mechanism regulated by a legal framework to control and deal with competition practices. Competition law is a constituent of that legal framework and such a competitive environment would be in line with the viewpoint of Vietnam‟s government and the VCP.23
By 2004, great achievements in terms of economic reform had been made since Doi Moi, including the enactment of hundreds of important laws and regulations concerning economic development and the facilitation of the freedom of business.24 However, during the preparation of a competition law, many flaws in the regulatory infrastructure system for commercial activities were found.25 Hence, the adoption of a competition law in Vietnam became necessary to rectify these flaws, in order to create a healthy environment for investment and doing business.26 There were, in particular, two main problems. First, there was an inadequate establishment of a level playing field by which to ensure equality in business for all economic sectors. Specifically, there remained discrimination between public and private firms and between state and foreign invested sectors. Secondly, there was a prevalence of abuse of economic and administrative power by SOEs.27 As a result, the necessary conditions for a healthy competitive environment were not fully satisfied and practices harmful to that environment were not regulated. Despite significant efforts by the government to improve the investment environment, investment policy in Vietnam had clearly exposed the discrimination between the domestic and foreign investors. There was a dual law: one on foreign direct investment and one on the promotion of domestic
22 Truong Quang Hoai Nam, „Competition Policy and Liberalization of Trade and Investment‟ (2006)
<www.jftc.go.jp/eacpf/06/6_01_03.pdf >.
23 Huan, above n 1, 34-38.
24 CIEM and SIDA, above n 13, 79.
25 This was mentioned in a number of works concerning market reform and the creation of a mechanism for a market economy in Vietnam, which were written before and during the preparation of competition law.
For example, there were CIEM and SIDA, above n 13; Brian Van Arkadie and Raymond Mallon, Vietnam – A Transition Tiger?(Asia Pacific Press, 2003); Thai, Hong and Hoa, above n 8, 141-145; Huan, above n 1,19-20; Phat, „Bao cao Tong hop‟, above n 1.
26 Huan, above n 1; Phat, „Bao cao Tong hop‟, above n 1.
27 Central Institute for Economic Management (CIEM), „Some Legal and Institutional Issues regarding Competition Policy and Control of Economic Monopolies‟ (2002) (Report produced within the framework of the UNDO-supported Project VIE/97/016) cited in Pham, above n 3, 550.
109 investment.28 These two laws governing investment activities created unequal treatment in the investment regimes between local and foreign investors. Besides, discrimination could be observed through the dual price system, in land-use rights and taxation and in access to credit.29
Secondly, until the adoption of the Competition Law 2004, an equal environment for investment was not fully created as expected. Barriers to competition, principally institutional barriers, had become a blockage to the enhancement of a competitive environment. They included barriers to entry and exit of firms in the market;30 barriers to international trade; barriers to investment, employment and land; barriers to research and development (entrepreneurship and innovation and barriers to the efficient use of this knowledge); barriers to price adjustment, etc.31 Notably, such barriers were created through a large number of government regulations and decisions, together with the business licensing and registration system brought about by the Enterprise Law 1999.32 The imbalance between SOEs and private firms in the market structure resulted from the high capital accumulation of SOEs in some industries, especially general corporations created under Decrees No. 90 and No. 91 and the protection and priorities given to SOEs.33 This allowed SOEs to gain advantages and enabled them to turn into
28 The Foreign Direct Investment Law was promulgated for the first time in 1987 and continuously amended several times in 1990, 1992, 1996 and 2000. The Law on Promotion of Domestic Investment was passed in 1994 and was later amended and replaced by the Law on Promotion of Domestic Investment of 1998.
29 CUTS, Competition Scenario, above n 20, 5. „Dual price system‟ in this section refers to the difference between the prices apply to domestic firms and those to foreign firms, in which foreign firms paid a higher price than that for Vietnamese firms. This system has been considerably removed in Vietnam after the adoption of the unified Investment Law in 2005 and the Enterprises Law 2005.
30 In particular, barriers to market entry were not removed while market exit conditions were not fully created. In particular, there remained administrative obstacles in business establishment and registration, despite the fact that the objective of the Enterprise Law 1999 was to lift almost all administrative barriers and create a new atmosphere for the business community. These obstacles were due to the delay of issuing necessary legal documents guiding the implementation, as well as the delay of implementing the Law; the maintenance of the licensing system and old procedures of business registration. In terms of market exit, the Bankruptcy Law of 1993 was not implemented effectively due to complicated and unclear administrative procedures. See Thai, Hong and Hoa, above n 8, 141-145; CIEM, above n 27.
31 CUTS, Competition Scenario, above n 20, 7.
32 Ibid 7-8. Enterprises had to meet business conditions issued by government agencies by fulfilling a number of licensing, certification, approval and decision procedures and a prolonged and complicated registration procedure. After the Enterprise Law 1999 came into effect, about 200 types of business licences were abolished, but the same number of new business licences was created.
33 Huan, above n 1, 95-97.
110 monopolists, thus making it possible for them to abuse their monopoly positions.34
In the move towards a market economy, the need to regulate market behaviour of state-owned enterprises (SOEs) had become necessary.
As discussed in the previous chapter, until the early 2000s Vietnam‟s SOEs controlled most of the capital of the whole country35 and held dominance in most of the strategic sectors. As discussed earlier, in the process of SOE reform, to pursue the desire for large and powerful state corporations, some SOEs had transformed quickly into state monopolies in various key areas of the economy. This raised competition concerns among the business community and required control over the SOEs‟ activities because the abuse of their monopoly positions had become common,36 such as the imposition of high charges in water, electricity and telecommunications companies. The regulation of SOEs/state monopolies was also important to encourage the participation of private firms in the areas which were previously in the state sector. The opening to these basic facilities controlled by state monopolies was a good example. If the market behaviour of SOEs could be regulated properly, it would facilitate the development of the private sector and thus an actual competitive environment would be achieved.37
In the mid-1990s a legal framework for the establishment of large state corporations was created,38 but there was a lack of provisions regulating their market behaviour and a lack of official institutions to supervise their activities.39 Hence anti-competitive behaviour conducted by SOEs which impeded competition was not properly addressed. For example, there was a lack of provisions to prevent collusion among state firms to divide the market and set high prices, or to address local authorities from supporting their own
34 This has been demonstrated in the previous chapter with the case studies of state monopolies in Vietnam.
35 This is demonstrated by Table 4.3 in CUTS, Competition Scenario, above n 20.
36 Oanh, above n 6.
37 CIEM and SIDA, above n 13.
38 Among them were the State Enterprises Law on 20/04/1995 and the Decree 39/CP dated 27/6/1995, Decisions No. 90 and 91/TTg on 07/03/1994.
39 Thai, Hong and Hoa, above n 8, 155.