3.3.2.1 Nature and targets of EGs
It is commonly agreed that state monopolies are necessary but that they should only focus on strategic areas and that the state should be sensitive to the role of EGs.120 Central among the concerns is the nature of EGs. Like in the case of the GC model, it is believed that Vietnam‟s EGs were inspired by Asian models.121 However, despite having some similarities, there are important differences.122 Vietnamese economic groups were in fact built on an import substitution model characterised by protection from foreign imports
118 Tu et al, above n 45, 26.
119 Duong Ngoc Bich, Xay dung Cac Co so Phap ly Bao dam Quyen Tu do Canh Tranh Cua Cac Doanh nghiep Trong Nen Kinh te Thi truong Tai Viet Nam [Building Legal Bases to Guarantee the Right to Competition of Enterprises in Vietnam's Market Economy] (LLM Thesis, Hochiminh City Law University) 44-45.
120 Nguyen Trung is one who urges the state to be careful in its treatment of the role of EGs. This is because of their historically valuable role during development period of the economy. He demonstrates that state monopolies are created and maintained to ensure the development of the entire economy in specific historical circumstances. However, state monopolies, if developed at a certain time, will become an obtacle to later development. The state ownership nature of state monopolies will be hard to overcome. Finally, the lesson learnt from developed country experiences is that state monopolies should only be maintained in those areas providing products that the private sector cannot provide effectively. See Nguyen Trung, „Mo hinh Tap doan Nha nuoc va Noi lo Vuot Tam Kiem soat‟ [Model of State Economic Groups and Concerns for Exceeding The State Control] (2008) Tuan Viet Nam
<http://www.tuanvietnam.net//vn/sukiennonghomnay/4756/index.aspx>.
According to Nguyen Thi Loan, it is not necessary for the state to only rely on the state sector to regulate the economy. Monetary policies, loans and exchange rates can be applied by the state to regulate prices and reduce inflation without administrative intervention. See Doanh nhan 360, „Kinh te Nha nuoc Phinh to Thanh The Doc quyen [State Economy Inflates to Monopoly]
<http://www.doanhnhan360.com/Desktop.aspx/Thi-truong-360/Thi- truong/Kinh_te_nha_nuoc_thanh_the_doc_quyen/>.
121 It is argued that Vietnam‟s state economic groups were inspired by the Japanese keiretsu (Mitsubishi, Mitsui, etc.) and the South Korean chaebols (Samsung, Daewoo, Kumho, etc.). See Harward Vietnam, Choosing Success, above n 67.
122Harward Vietnam, Choosing Success, above n 67.
78 and state subsidies on a continuing basis.123
The nature of EGs has created serious concerns regarding their impact on competition.124 It is argued that no actual changes were made regarding their nature,125 so that state economic groups have become just another form of state general corporations.126 Since Vietnam‟s EGs were created by administrated measures,127 this has given rise to many theoretical problems. According to Tran Kim Hao, EGs are not built on the basis of the demands of their own development. This problem is likely to have negative effects on the efficiency and sustainability of the newly-established groups.128 Besides, the close link with line ministries129 is a matter of concern. The EGs themselves, their member companies and their relationships among themselves were closely connected in ways other than by law.130 Like GCs, they usually tend to seek support from management
123 Perkins and Vu Thanh Tu Anh seem to be among experts who seriously criticise the models of state general corporations and state economic groups (called state conglomerates by them). They believe there is a misleading interpretation of the Japanese and Korean models and the creation of state conglomerates is not an ideal strategy to create large internationally competitive enterprises. Few examples are found around the world to show the success of a state conglomerate model which was created on the basis of previous state owned enterprises. The only success is that of Singapore, but Vietnam seems not likely to be able to follow the Singapore model. Moreover, as the result of an import substitution protection policy, such a creation is probably the strategy to preserve a favoured environment for the state sector. The emergence of state conglomerates only furthers the close ties between politicians and business, bringing about the threat of corruption and the influence of enterprises in the decision making process. See Perkins and Tu Anh, above n 67.
124 See, eg, Dwight H.Perkins and Vu Thanh Tu Anh, Tran Kim Hao, Le Dang Doanh, Dang Vu Huan,
125 It is pointed out by Perkins and Vu Thanh Tu Anh that COEs (general managers and boards of directors) of state economic groups were positioned by the government. Line ministries have had their representatives to act in supervisory roles over newly formed economic groups. See Perkins and Anh, above n 67.
126 David Dapice assumes that in the current structure of these conglomerates nothing has changed from the previous GCs. The reason for the concern is that state corporations were not able to improve their
performance during the past several years and there was a misreading of experience with state groups elsewhere. The model of state conglomerates did not bring success to the countries that had pursued this model when these decisions were not made by the private corporations themselves and handled according to laws. See Harward Vietnam, Choosing Success, above n 67.
127 Le Dang Doanh, Cac Tap doan Kinh te Lung doan Nen Kinh te Viet Nam [State Economic Groups Are Cornering Vietnam‟s Economy] (2008) <http://www.rfi.fr/actuvi/articles/104/article_753.asp>.
128 Tran Kim Hao, Development of Enterprises with Diversified Ownership Formulations and Reforms of State’s Economic Management in Vietnam
<http://www.vnep.org.vn/Modules/CMS/Upload/2/Development%20of%20enterprises%20with%20diversif ied%20ownership%20formulations%20and%20reforms%20of%20State.pdf>.
129 As observed through the cases of VNPT, EVN or Vietnam Airlines.
130 Another concern raised is the close ties of state economic groups with state owned banks. Like the case of the Japanese keiretsu and their associated banks, it is believed that state economic groups are able to get more favourable treatments, as the task to help state economic groups seems to be clear to the banks. State economic groups, for that reason, are able to enforce their monopoly positions. See Perkins and Anh, above n 67.
79 bodies to enjoy benefits from policies and laws, to consolidate their existing position, enhance their monopoly advantage and prevent rivals from participating in the monopoly areas. It is illustrated by the Korean chaebols.131
3.3.2.2 The business scope of EGs
It is a fact that some EGs have recently been investing in other than their major areas.132 This is far from the desire of the Vietnam‟s Communist Party that the conglomerates should focus on strategic sectors only.133 EGs argue that, as enterprises, they can invest in whatever areas that can return them a profit.134 Their investment in these areas, it is argued, could secure them from collapse.135
Scholars, however, do not accept these justifications. Le Dang Doanh argues that there is a strong need to supervise the business activities of the EGs. The state, as the owner and investor, must supervise the use of state capital and resources which EGs are using.
Besides, the establishment of EGs was designed to create large and powerful enterprises, having sufficient competitive capacity and technology in strategic areas to compete with foreign ones; therefore, EGs must firstly invest in their major areas.136 According to Pham Chi Lan, by their nature EGs must act as SOEs and operate in their assigned tasks and within the framework of the law, but their role is also distinguished from that of other sectors. It is difficult for the state to manage if these EGs expand their business scope.
Finally, EGs have been given a monopolistic position and exclusive rights in order to
131 At the beginning, Chaebols colluded and had close ties with the state management bodies. When Chaebols had developed in a degree that exceeded the control of state management bodies, they turned around to influence and compel these bodies to follow their wishes, thus distorted fair competition and entailed harmfulness to normal activities of enterprises and the economy. See Huan, above n 18, 33–34.
132 For example, the Electricity Corporation is developing their business to provide mobile services with the introduction of its mobile services in 2006, offered by its subsidiary EVN Telecom, or PetroVietnam is investing in stock markets, real estate through its subsidiary PetroVietnam Finance Corporation, starting since 2000.
133 State conglomerates are expanding rapidly into a wide range of sectors, including real estate, financial services, tourism and even mobile phone distribution. See Harward Vietnam, Choosing Success, above n 67.
134 On the grounds that efficiency in doing business is the foremost concern, EGs argue that if the
investment in their major areas is not efficient it should be possible for them to invest in other areas, as long as they are not prohibited by law. Besides, they argue that the state management bodies should focus on their functions as the owners, rather than intervening so strongly in the business activities of EGs. See Viet Nam Net, „Tap Doan Kinh te Phan doi Siet Dac quyen‟ [Economic Groups Object to Tightening Their Exclusive Rights] <http://vietnamnet.vn/chinhtri/2008/08/798487/>.
135 Pincus and Anh, above n 67.
136 Doanh, Cac Tap doan Kinh te, above n 127.
80 pursue their major goals. Hence, they should not expand their business scope beyond their major areas.137
3.3.2.3 The abuse of the monopoly position
There are concerns about the abuse of their dominant position by the EGs. One of the reasons is that some EGs have attained a high degree of organisation, establishing a closed system of members to allocate and perform all phases of their productive process.138 Their dominance in certain areas has originated from their previous status, when all of them were state firms operating in strategic and monopolistic areas.139 The wide-ranging coverage of these state groups causes difficulties for other enterprises which wish to compete with them in specific areas.140 It is reasonable to be concerned about the fact that some areas which the state monopolies (EGs) are assigned to manage and operate, related to infrastructure (state assets), are necessary for other companies to use in order to operate their business. Moreover, EGs are not taking advantage of Vietnam‟s WTO membership to become internationally competitive in their core businesses or to compete effectively on foreign markets.141 It is also a problem when EGs attempt to form domestic monopolies and act as a barrier to foreign competition.
These concerns have given rise to the demand for a specific law governing the operation
137 Pham Chi Lan, „Tap doan Kinh te: Da Dac quyen Khong the Doi hoi Them Quyen‟ [Economic Groups Cannot Ask for More than Their Current Privileges] (2008) <http://tuanvietnam.vietnamnet.vn/tap-doan- kinh-te-da-dac-quyen-khong-the-doi-them-quyen>.
138 In the case of Vietnam Electricity (EVN), there is close coordination among member companies in carrying out the three stages: production (implemented by power plants), transmission (by the National Transmission Company), distribution (by local power companies). Similarly, Vietnam National Post and Telecommunication (VNPT) has attained a close link with its subsidiaries with regard to the operation of back-bone lines, information technology, communications, surveying, consultation and the installation and provision of telecom equipment. See Huyen, above n 31, 155.
139 For example, VNPT (Vietnam National Posts and Telecommunication) have a stronger position than others operating in the area of post and telecommunications, such as Viettel (the Military Telecom Corporation) and Saigon Postel SPT (Saigon Post and Telecommunications Services Corporation).
140 Huyen, above n 31, 170.
141 State conglomerates are seeking investment for quick returns in real estate and the financial sector, rather getting them ready for international economic integration. A recent survey of Vietnam‟s 200 largest firms by the United Nations Development Program demonstrates this worrying trend. See Harvard Vietnam, Choosing Success, above n 67.
81 of EGs.142 EGs can use their influence to lobby in the policy and decision making process in order to obtain more advantages and privileges. This is a matter of concern, given that Vietnam still does not have a „lobby law‟.143 Besides, the effectiveness of the Vietnamese competition authorities144 is another concern. The Vietnam Competition Council, as well as other relevant bodies, has not been active in undertaking investigations and the settling of monopolistic practices.145 This means that the operation of competition bodies does not fulfil the expected requirements.146
In conclusion, the formation of state monopolies in Vietnam has been a long-term process which has gone hand in hand with SOE reform. During that process, SOEs have been re- organised to bring about a considerable reduction in their number, a substantial limitation to their business scope and improvement in competitive capacity. Nevertheless, a number of powerful state enterprises, including state economic groups and numerous state corporations, have emerged, strongly confirming the leading position of the state sector. It should be noted that Vietnam‟s state monopolies may be both EGs and CGs because when the first EGs were formed, this did not mean the GC model would come to an end.
Hence, both EGs and GCs have been coexisted while some GCs are being considered to be upgraded into new EGs. As remnants of the previous economic mechanism have not been completely removed, a monopoly situation has become a growing question. The transfer from „state monopoly‟ to „enterprise monopoly‟ has enabled state general
142 There is currently no mechanism to supervise their operation and to ensure their compliance with other specific laws such as the Competition Law 2004, Law on Natural Resources and Minerals 2005 or Law on the Protection of Environment 2005. See Doanh, Cac Tap doan Kinh te , above n 127. At the time of writing, a draft of the Decree on Establishment, Organisation, Operation and Supervision of Economic Groups is being drawn up. However, there has been no proper definition of „economic group‟ or what the criteria are to define an „economic group‟. Besides, there have been concerns about the development of private groups; the legal groundwork for the establishment and operation of economic groups created by the private sector; the competition between state monopolies and private groups in relation to the abuse of dominant positions; and the state management of economic groups in Vietnam.
143 Doanh, Cac Tap doan Kinh te , above n 127.
144 Vietnam competition authorities include Vietnam Competition Administration Department – VCAD and Vietnam Competition Council – VCC.
145 Huyen, above n 31, 178.
146 Formed in 2005, but no monopoly cases had been tried by this body until April 2009. The first anti- monopoly case handled by VCC was about the dispute (described at 3.4.3 below) between VINAPCO, a subsidiary company of Vietnam Airlines providing aviation oil and Jetstar Pacific Airlines, a joint-venture airliner. See Vietnam Competition Council Website <http://www.hoidongcanhtranh.vn/Tin-Tuc-Chi- Tiet&action=viewNews&id=967>.
82 corporations and economic groups to turn into state monopolies.147 Besides, there has been a misunderstanding of the concept „leading role‟ of the state sector; hence the idea of the state enterprises holding a „leading role‟ in the economy has been regarded as their right to maintain a monopoly position.148 For that reason they have been able to easily maintain their dominant positions in key areas and limit competition. They are being criticised for abusing their monopoly position and conducting restrictive competition practices.