2.2 The concept of ‘state monopoly’ in Vietnam
2.2.2 Definition and features of a state monopoly in Vietnam
Like in other countries, „monopoly‟ is always referred to by Vietnamese scholars as a market structure in which a single firm supplies a product without any substitute goods being available and where market access seems to be difficult or even impossible to
167 The process consists of the transformation of SOEs into joint-stock companies and the sale of part of the shares in the company to private investors. See Truong Dong Loc, Equitisation and Stock-Market
Development: the Case of Vietnam (PhD in Economics Thesis, University of Groningen, 2006).
168 Decisions No. 90/TTg and No. 91/TTg dated on 07/3/1994 on the establishment of some General corporations paved the way for SOEs to focus on key sectors in the economy.
169 The definition of „state owned enterprise‟ in the State Enterprise Law 1995 is limited to any enterprise that „…[i]s capitalized, set up, organized and managed by the State and carries out business or public utility operations…‟ See State Enterprises Law 1995 art 1. In the second State Enterprises Law 2003 and the unified Enterprises Law 2005, „state-owned enterprise‟ is broadly defined on the basis of state ownership or the percentage that the state invests in that enterprise.
170 Central Institute for Economic Management (CIEM), „Cai cach, Nang cao Hieu qua Suc Canh tranh Cua Doanh nghiep Nha nuoc Trong Qua trinh Hoi nhap Quoc te [Renewing and Enhancing of State-Owned Enterprises‟ Competitivenes in the International Economic Integration Process] (2006).
171 Enterprises Law 2005 art 4(22).
44 achieve.172 For example, Dang Vu Huan considers monopoly as an extreme case and the highest form of imperfect competition. It exists in a sector or in the market where there is only one producer or a group of producers, providing a certain product that has no substitute; or the producer(s) in question holds a dominant position, allowing it to influence and exclude most of its competitors. This position also enables it to control the price of its products, by means of increasing or decreasing product prices in order to make the highest of profits. A monopolist can be in the form of a sole seller or a sole buyer or both.173 This interpretation seems to be the most complete one for describing the characteristics of a monopoly, as it is often defined in economic theory and and is commonly cited in studies on competition law in Vietnam.
However, there is no explicit definition of „monopoly‟ in Vietnam‟s legislation. Hence, a comprehensive definition of „state monopoly‟ is difficult to obtain. Several terms linked with „monopoly‟ are commonly found, such as „monopoly enterprise‟, „monopoly in price‟, „monopolisation in distribution‟, „state monopoly fields‟, etc. Claims for the stringent regulation of state monopoly enterprises have become a hot topic in the media and and the need for a specific law dealing with state monopoly enterprises and their activities has been repeatedly discussed in daily life. In fact, „state monopoly‟ is a term that is commonly used in documents of the CPV and the Vietnamese government. It is also found in many of studies by local and foreign researchers when discussing SOE reform and the creation of a fair competitive environment in Vietnam.174 The term „state monopoly‟ also appears in studies of equitization of the SOE process and its impacts,
172 Nguyen Nhu Phat, „Bao cao Tong hop De tai “Xay dung The che Canh tranh Thi truong cua Vietnam”‟
[Overall Report of the Project “Building up a Market Competition Institution in Vietnam”] (2005).
173 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) 26.
174 For example, in the Strategy for Socio-economic Stabilisation and Development to the Year 2000 adopted by Vietnamese Communist Party in 1991, the concept of „state monopoly‟ was briefly mentioned in the statement as below:
…[t]o create environment and conditions for fair competition, equality and voluntary cooperation among entities of domestic and foreign economic sectors; to gradually abolish state monopoly and privileges in most sectors and industries of the economy‟.
See Communist Party of Vietnam, Strategy for Socio-Economic Stabilization and Development to the year 2000 (1991).
45 discussions on the rationales for state monopolies in Vietnam,175 and debates over the establishment of state general corporations and state economic groups, labelling the change from „state monopoly‟ to „enterprise monopoly‟.176
However, „state monopoly‟ is commonly regarded as a „monopoly firm‟ and can be defined as one of two kinds of „monopolist‟. The first is a „natural monopoly‟, referring to a monopolist that has arisen thanks to technological characteristics and demands for products provided by the firm(s) in the economy. It does not depend on historical factors or the impacts of state policies. The second, a „state monopoly‟, is a kind of monopoly created by the state by means of administrative decisions and legislation, in order to meet the demand for the socio-economic development of the country during a specific period of time.177 Another corresponding term, „monopoly business‟, is described as an entity that has been created by the administrative measures of the State and been granted monopoly status.178 The two definitions are quite broad and do not cover the features of the concept.
In the competition law domain, the term „monopoly‟ is not explained in the Law and and the law does not have a specific chapter titled „anti-monopoly‟. Rather, the concept
„monopoly position‟ introduced in Article 12 defines it as a „firm holding a monopoly position‟.179 Hence, one can be deemed to be a monopoly firm - holding a monopoly position by this criterion - when no other firms are competing with that firm in a specific domain. „Monopoly position‟ is a particular case of the „dominant position‟, where no
175 See, for example, Pham Hoang Ha, Boi canh Kinh te cua Chinh sach va Phap luat Canh tranh (2005)
<www.cuts-international.org/7up2/2ndNRGvietnam2.ppt>; Huan, above n 173; Phan Thi Van Hong, Doc quyen va Phap luat ve Kiem soat Doc quyen o Vietnam Hien nay [Monopoly and Law Concerning Monopoly Control in Vietnam] (LLM Thesis, Hanoi Law University, 2005) 35; Le Hoang Tung,
„Competition and Monopoly in Vietnam‟ (Paper presented at International Workshop on Competition Policy in Seoul, July 30 - August 2, 2001).
176 See, for example, Vu Huy Tu et al, Co cau Lai Doanh nghiep Nha nuoc theo Luat Doanh nghiep Nam 2005 [Restructuring State Corporations according to the Enterprises Law 2005] (National Political Publishing House, 2007) 25; Hong, above n 173, 37.
177 Le Hoang Oanh, Binh luan Khoa hoc Luat Canh tranh [Critical Comments on the Law on Competition]
(National Political Publishing House, 2005) 64.
178 Le Phu Cuong, Monopoly Situation in Vietnam
<http://www.competitionlaw.cn/upload/05070113295626.pdf>.
179 The terms „monopoly‟ and „dominance‟ are used when regarding an enterprise in its relations to others in a competitive context. For example, the Law uses the terms monopoly firm or firm having a monopoly position and firm having a dominant position.
46 competitors exist.180 There can be one or a group of enterprises with a dominant position on the market if its total market share is over the threshold set forth in Article 11(2).181 From Vietnam‟s perspective, a monopoly is formed mostly on the basis of state owned enterprises (SOEs) which have formerly operated in monopolised domains. The term
„monopoly‟ in Vietnam is therefore often thought of as „state monopoly‟ and and enterprises holding monopoly positions are then regarded as state monopoly enterprises.
With the transformation of SOEs, the term „monopoly enterprise‟ is no longer regarded as applying to a 100 per cent state owned enterprise; rather, it includes those in which the state holds controlling shares i.e. joint stock enterprises. Additionally, since all natural monopoly industries are in the hands of the state, there are not many differences between a natural monopoly and a state monopoly.182 Hence, Vietnam‟s monopolies should not be fully regarded as „natural monopolies‟.183
Administrative monopoly
Competition/antitrust laws deal mostly with private monopolies, which have become the main target of competition authorities. In Vietnam, as previously discussed, the term
„state monopoly‟ refers to those monopolies that have been established by administrative decisions to attain a monopolistic position in the market. In this situation, administrative agencies in Vietnam can support various types of monopolistic activities and constitute a barrier to the formation of an orderly market.184 Moreover, while state ownership has been separated from state management, the indirect intervention of state management bodies in state enterprises is still common. Engaging in the market as independent
180 Oanh, above n 177, 64.
181 Article 11(1) stipulates that: „enterprises shall be considered to hold the dominant position on the market if they have market shares of 30 per cent or more on the relevant market or are capable of restricting competition considerably‟. Article 11(2) stipulates that „groups of enterprises shall be considered to hold the dominant position on the market if they take concerted action to restrict competition and fall into one of the following cases: (i) two enterprises having total market share of 50 per cent or more on the relevant market;
(ii) three enterprises having total market share of 65 per cent or more on the relevant market; and (iii) four enterprises having total market share of 75 per cent or more on the relevant market.
182 Cuong, Monopoly Situation, above n 178.
183 Bui Nguyen Anh Tuan, „Co Can Mot Dao luat Rieng ve Doc quyen Nha nuoc?‟ [Is There the Need for a Separate Law Regulating State Monopoly] (2009) Thoi bao Kinh te Sai Gon (Online)
<http://www.thesaigontimes.vn/Home/doanhnghiep/phapluat/21427/>.
184 Le Thuy Tran, Introduction to Regulation of Competition in South East Asia: A Comparativr Study of Antimonopoly Laws in Vietnam and Indonesia and Their Models (2007) <http://www.gsid.nagoya- u.ac.jp/bpub/research/public/forum/34/12.pdf>..
47 entities, state enterprises remain connected with line ministries through implicit directions or the close relationships.
The concept of „administrative monopoly‟ refers to the intervention of government authorities by conducting administrative activities which may result in the creation of a monopoly or in strengthening the monopoly position of existing monopolies.185 This understanding corresponds to the UNTACD definition of regulatory barriers, which refers to acts performed by governmental executive agencies affecting the competitive environment.186 In this regard, „administrative monopoly‟ is one of the sources of „state monopoly‟ power.
The Chinese Anti-Monopoly Law (AML) sets out a separate chapter dealing with abuses of administrative power to eliminate or restrict competition in Chapter V. The mechanism dealing with this issue is particularly provided in Article 51 which stipulates that the superior authority is able to correct an illegal act caused by an administrative authority or an organisation authorised by laws or regulations. In addition, the Chinese AML provides that anti-monopoly enforcement authorities are able to offer suggestions to the relevant superior authority. In this regard, Vietnam‟s competition authority should be able to offer similar suggestions whenever it detects signs of abuse of administrative power to perform acts in violation of competition rules.
In sum, in the context of Vietnam, a state monopoly should firstly be an enterprise falling within the definition of „enterprise‟ in the Enterprises Law 2005.187 It has the status of a SOE, distinguishable from a state management body. It is characterised by a close link with the state due to state ownership and and is created by means of administrative orders.
185 In Vietnam, administrative monopoly is not referred to as state monopoly; rather it should be considered as the principal and the most common way to create a state monopoly. If „state monopoly‟ refers to a state firm which is created by the state and benefits from state support, „administrative monopoly‟ relates to activities of state organs that contribute to the formation of that state monopoly. See Tran Anh Tu, „Nhan dien Doc quyen Hanh chinh o Vietnam‟ [Identifying Administrative Monopoly in Vietnam] (2008) 24 Tap chi Khoa hoc Dai hoc Quoc gia Ha Noi [Hanoi National University Sciences Journal] 2-4.
186 According to the UNCTAD definition, regulatory barriers to entry result from acts issued or acts performed by governmental executive authorities, by local self-government bodies and by non- governmental or self-regulatory bodies to which Governments have delegated regulatory powers. They include administrative barriers to entry into a market, exclusive rights, certificates, licences and other permits for starting business operations. See UNCTAD, „Model Law: the Relationships between a Competition Authority and Regulatory Bodies, including Sectoral Regulators‟ (TD/B/COM.2/CLP/23, 2001) 3 <http://www.unctad.org/en/docs/c2clp23&c1.en.pdf>.
187 Article 4(1) of the Enterprises Law 2005 defines an enterprise as an economic institution that has its own name, assets, stable office and is duly constituted for the purpose of conducting business.
48 Finally, it is a „monopolist‟, meaning that it meets the criteria of a monopoly. In addition, state monopolies are focused on strategic and crucial domains.
Taking these factors into consideration, the next section gives more details about the features of the „state monopoly‟ concept.
2.2.2.1 A state monopoly should be a state-owned enterprise
Within the scope of the SOE definition, state monopolies include both those that are under absolute state ownership and those in which the state has dominant ownership (over 50 per cent of capital shares).188 A list of sectors that must be controlled by a state monopoly is stipulated and modified in various legislations.189
On the basis of those legislations, state enterprises have become monopolies in such sectors. Eight of the first pilot state economic groups that have been established recently have become state monopolies in those sectors.190 In addition to the state monopolies mentioned above, there are some SOEs operating in important sectors that have also become state monopolies. In other words, state monopolies include absolute monopoly enterprises, meaning those that are given a monopoly position to operate in their specific
188 Article 4(22) of the Enterprises Law 2005 defines „state owned enterprises‟ as enterprises of which 50 per cent of total capital is owned by the state. According to Decision No. 38/2007/QĐ-TTg on 20/03/2007, the State holds 100 per cent of registered capital of enterprises operating in the following domains and branches: production and supply of explosive materials; production and supply of toxic chemicals;
production and repair of weapons, ammunition and equipment exclusively used for national defence and security; equipment, facilities, technical documents and provision of information confidentiality services with cipher techniques; enterprises assigned to perform special defence and security tasks and enterprises based in important strategic, deep-lying and remote areas where economy and defence are combined under the Prime Minister's decisions; management and exploitation of national and urban railways, airports and big seaports etc. The State holds more than 50 per cent of the total shares of enterprises in producing and supplying public products and services such as the national railway system maintenance, map measuring;
enterprises having the role of guaranteeing the essential needs of production development and improving the material and mental life of mountain and remote people; those having the role of ensuring the major balance of the economy and market stabilisation. See
<http://www.business.gov.vn/WorkArea/showcontent.aspx?id=4650&LangType=1033>.
189 The list of sectors under state monopoly was first stipulated in Decision 58/2002/QD-TTg on 26/04/2002 and modified later by Decision No. 155/2004/QĐ-TTg on 24/08/2004. Finally, Decision No. 38/2007/QĐ- TTg on 20/03/2007 in replacement of Decision No. 155/2004/QĐ-TTg defined 19 sectors in which the State holds 100 per cent of capital and 27 other sectors in which the State hold over 50 per cent of the total number of shares.
190 The first eight Economic Groups were: Vietnam Post and Telecommunications (VNPT), Vietnam Coal and Mining Industries Group (Vinacomin), Vietnam National Oil and Gas Group (PetroVietnam), Vietnam Shipbuilding Industry (Vinashin), Vietnam Textile and Garment (Vinatex), Vietnam Rubber Group (VRG), Electricity of Vietnam (EVN) and Finance – Insurance Group (Bao Viet).
<http://english.vietnamnet.vn/biz/2008/04/776189/>.
49 sectors and and oligopolies, meaning a group of state owned enterprises.191
Not only have such bench-marking steps proved the comprehensive development of SOE reform towards a market economy, they have contributed to a change in the state monopoly concept. To be considered as a „state monopoly‟, one must be a „state owned enterprise‟ according to the Enterprises Law 2005.
2.2.2.2 Monopoly enterprises are created and controlled by the state
In this sense, SOEs have become monopolies in the areas assigned to them by means of administrative orders. The first state economic groups which have recently been established and and the state general corporations currently operating in strategic sectors, are formed mostly by decisions of the government,192 and not on the basis of their actual accumulation of capital and assets.193
„State control‟ significantly contributes to the state monopoly concept, but this criterion itself is not sufficient to conclude that a state firm is a state monopoly. Hence, „state monopoly‟ is sometimes mistakenly confused with the concept of „monopoly‟ by which any firm that has exclusive rights in a particular service or product is considered as monopoly.194
According to the forms of firms stipulated in the new Enterprises Law 2005,195 Vietnam‟s state monopolies can be developed from the following sources:196
- Sole investment limited liability companies in which the state is the only owner;
- Limited liability companies with two or more members in which the representative of the state holds more than 50 per cent of the registered capital;
191 Cuong, Monopoly Situation, above n 178.
192 For example, a number of current state corporations, excluding those that have been upgraded to state economic groups, were originally established according to Decisions No.90 and No.91/TTg on 07/03/1994 by the Prime Minister.
193 Cuong, Monopoly Situation, above n 178.
194 For example, in Vietnam there have recently been debates over K+ Company, a state firm, regarding the provision of live sports programs. K+ has been accused of abuse of its monopoly position. The question arose as to whether this firm is a state monopoly and whether it has abused its market dominance.
195 The Enterprises Law 2005 applies to all kinds of enterprises operating in Vietnam regardless of ownership, including state-owned enterprises. See Enterprises Law 2005 art 2(1).
196 CIEM, above n 170.
50 - Shareholding companies in which shareholders are the state or state companies or the representative of the state, holding more than 50 per cent of the registered capital;
- State General Corporations which are organized in the form of parent-subsidiary companies in which the parent company holds more than 50 per cent of the registered capital;
- State Corporations in which parent companies must be state companies (companies in which the state holds more than 50 per cent of the registered capital).
2.2.2.3 State monopoly benefits from exclusive rights and preferential treatment
SOEs in Vietnam had enjoyed exclusive rights and preferential treatment for a long time before the SOE reform took place. Since Doi Moi, such advantages have continued to be an important factor in the domination of the state sector in the economy.197 Vietnam‟s SOEs continue to operate in an uncompetitive environment, created by different kinds of protection and privileges given to them.198 While the number of SOEs has been considerably reduced, the remaining ones can utilise previous advantages to achieve dominant or monopoly positions. Exclusive rights and preferential treatment given to the state sector are often criticised in academic works as hindrances to the development of the private sector and the creation of a fair playing field for enterprises of all sectors. The weak development of the private sector in Vietnam is another important factor contributing to the monopoly of state owned enterprises.
197 Exclusive and preferential treatments can be seen in the form of easier access to land and capital, license granting, the monopoly scope of business, etc.
198 Vu Quoc Ngu, A Model of the Behaviour of Vietnamese SOEs during the Reform Period (2004)
<http://dspace.anu.edu.au/handle/1885/40342>.