Application of competition law to Vietnam's satate monopolies: a comparative perspective

THE APPLICATION OF COMPETITION LAW TO VIETNAM’S

STATE MONOPOLIES: A COMPARATIVE PERSPECTIVE

Submitted by

TRAN THANG LONG

LL.B, LL.M (Hochiminh City Law University)

A thesis submitted in total fulfilment

of the requirements for the degree of

Doctor of Philosophy

School of Law

Faculty of Law and Management

La Trobe University

Bundoora, Victoria 3086

Australia

May 2011

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TABLE OF CONTENTS

TABLE OF CONTENTS .................................................................................................. i

ABBREVIATIONS......................................................................................................... vii

ABSTRACT...................................................................................................................... ix

STATEMENT OF AUTHORSHIP................................................................................. x

ACKNOWLEDGEMENTS ............................................................................................ xi

Chapter 1: INTRODUCTION.......................................................................................... 1

1.1 Background ................................................................................................................1

1.2 Monopolistic market structure in Vietnam.................................................................2

1.3 Problems.....................................................................................................................4

1.4 Research question.......................................................................................................5

1.5 Methodology ..............................................................................................................7

1.6 Scope of the thesis......................................................................................................7

1.7 Thesis outline .............................................................................................................8

1.8 Significance..............................................................................................................12

Chapter 2: THE CONCEPT OF STATE MONOPOLY AND ITS FEATURES IN

THE CONTEXT OF COMPETITION LAW.............................................................. 13

2.1 Introduction ............................................................................................................13

2.1.1 Monopoly 14

2.1.2 The concept of ‟state monopoly‟ 17

2.1.3 A state monopoly must be a „state-owned enterprise‟ or „public undertaking‟ 18

2.1.4 A state monopoly must be under „state control‟ 25

2.1.5 A state monopoly is an entity that enjoys exclusive and special rights 29

2.1.6 A state monopoly must possess market power or the dominance of a substantial

part of the market 33

2.1.7 „State monopoly‟ compared to other relevant terms 38

2.2 The concept of ‘state monopoly’ in Vietnam .......................................................41

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2.2.1 The concept of „state monopoly‟ in Vietnam before and after the Doi Moi

(Renewal) 41

2.2.2 Definition and features of a state monopoly in Vietnam 43

Chapter 3: STATE MONOPOLY IN VIETNAM: THEORETICAL FOUNDATION,

DEVELOPMENT AND DEBATES.............................................................................. 55

3.1 Theoretical approach to the development of state monopolies..........................55

3.1.1 The concept of the „leading role‟ of the state economic sector 55

3.1.2 State sector reform 57

3.1.3 The demand for state monopolies in Vietnam 58

3.2 Historical development of state monopolies in Vietnam.....................................60

3.2.1 Union of state-run enterprises (Xi nghiep Quoc doanh) 60

3.2.2 State general corporations (GCs) – the second stage towards the formation of

state monopolies 64

3.2.3 The formation of state economic groups (EGs) – The third stage in forming

state monopolies 70

3.3 Debates and concerns.............................................................................................74

3.3.1 General corporations and concerns regarding their monopoly situation 74

3.3.2 Concerns regarding the formation of EGs and impacts on the monopoly

situation 77

3.4 The State monopoly situation in Vietnam – some selected examples................82

3.4.1 The case of Vietnam Electricity (EVN) 83

3.4.2 Monopoly in the telecommunication sector – cases involving Vietnam National

Posts and Telecommunication (VNPT) 88

3.4.3 State monopoly in the aviation sector – cases involving Vietnam Airlines and

its subsidiaries 94

3.4.4 Observations 101

Chapter 4: OVERVIEW OF ANTI-MONOPOLY PROVISIONS IN VIETNAM’S

COMPETITION LAW 2004.......................................................................................... 103

4.1 The development of the Competition Law 2004 in Vietnam............................103

4.1.1 Preconditions for the competition law 103

4.1.2 Competition legislation before the enactment of the Competition Law 2004 123

4.2 Objectives, coverage and structure of the Law .................................................127

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4.2.1 Objectives of the Law 127

4.2.2 The coverage of the Law 135

4.2.3 The addressees of the Law 137

4.2.4 Structure of the Law 141

4.3 Anti-monopoly provisions in the Competition Law 2004...................................142

4.3.1 Overview 142

4.3.2 Basic concepts 144

4.3.3 Anti-competitive practices 146

4.3.4 The state competitive bodies in charge of anti-monopoly matters 153

Chapter 5: FUNDAMENTALS FOR THE APPLICATION OF COMPETITION

RULES TO STATE MONOPOLIES.......................................................................... 156

5.1 Theoretical underpinnings of anti-competitive behaviours .............................156

5.1.1 Anti-competitive behaviours from an economics approach 156

5.1.2 Anti-competitive behaviours by state monopolies 164

5.2 Fundamental principles applying to anti-competitive behaviours of state

monopolies...................................................................................................................170

5.2.1 Approaches of the application of competition rules to state monopolies 170

5.2.2 Principles of competition law applied to state monopolies 199

5.3 Implications for the application of competition law to state monopolies........206

5.3.1 Public choice relating to the application of competition law 206

5.3.2 Public interest and the application of competition rules to state monopolies 211

Chapter 6: THE APPLICATION OF COMPETITION RULES TO STATE

MONOPOLIES’ ANTI-COMPETITIVE AGREEMENTS.................................. 221

6.1 Anti-competitive agreements under the EU competition law ..........................222

6.1.1 Basic concepts 222

6.1.2 Specific forms of anti-competitive agreements – Horizontal and Vertical

Agreements 231

6.1.3 Principles for assessing an anti-competitive agreements 236

6.1.4 Exemptions under Article 101(3) TFEU 237

6.2 Anti-competitive agreements conducted by state monopolies..........................240

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6.2.1 Price fixing agreements 240

6.2.2 Market division agreements 245

6.2.3 Bid rigging 247

6.2.4 Refusal to deal agreement 248

6.3 The application of competition law to anti-competitive agreements of state

monopolies in Vietnam...............................................................................................250

6.3.1 Anti-competitive agreements of state monopolies in Vietnam: some background

250

6.3.2 The application of competition law to anti-competitive agreements conducted

by state monopolies in Vietnam 254

Chapter 7: THE APPLICATION OF COMPETITION RULES TO THE ABUSE

OF DOMINANT POSITIONS BY STATE MONOPOLIES ................................ 267

7.1 The abuse of dominant position under EU competition law............................267

7.1.1 The concept of market dominance 268

7.1.2 The concept of abuse of market dominance 270

7.1.3 Certain abusive conducts under Article 102 TFEU 272

7.2 The abuse of dominance by state monopoly firms ............................................284

7.2.1 Exploitative behaviours 284

7.2.2 Exclusive behaviours 290

7.3 The application of Vietnam’s competition law to state monopolies’ abusive

behaviours...................................................................................................................300

7.3.1 Concept of abuse of dominant and monopoly position 300

7.3.2 Abusive behaviours of market dominance 302

7.3.3 The application of competition rules to „state monopolies‟ abusive behaviours

308

Chapter 8: THE CONTROL OF ECONOMIC CONCENTRATION OF STATE

MONOPOLIES UNDER COMPETITION LAW..................................................... 319

8.1 Basic issues regarding economic concentration under competition law .........319

8.1.1 Pro-competitive effects of mergers 320

8.1.2 Adverse impacts of mergers and the need for merger control 322

8.2 Fundamental issues of merger control under EU competition law .................327

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8.2.1 A brief overview of the development of merger control regulation in the EU327

8.2.2 The concept of concentration 328

8.2.3 The Community Dimension: The thresholds for the control of concentration333

8.2.4 The merger control procedure under the ECMR 336

8.3 Control of concentration regarding state monopolies in Vietnam ..................338

8.3.1 Concentration involving state firms 338

8.3.3 Concentration to which state monopolies are parties 342

8.4 Control of concentration under Vietnam’s Competition Law...........................344

8.4.1 The concept of „control of concentration‟ in Vietnam 344

8.4.2 Key elements in Vietnam‟s competition law with regard to concentration

control 350

Chapter 9: THE ENFORCEMENT OF COMPETITION LAW WITH REGARD

TO STATE MONOPOLIES ........................................................................................ 363

9.1 An overview of competition law enforcement mechanisms..............................363

9.1.1 Competition authority 363

9.1.2 Investigation and competition proceedings 369

9.1.3 Competition sanctions (penalties) 374

9.2 The enforcement of competition law for state monopolies...............................379

9.2.1 The existence of a close relationship between state monopolies and their

sectoral regulators 379

9.2.2 The independence of acompetition authority 384

9.3 Competition law enforcement mechanism in Vietnam.....................................386

9.3.1 Competition law enforcement authorities 387

9.3.2 The enforcement of the competition law mechanism 393

9.3.3 Procedures for handling anti-competitive cases 399

Chapter 10: CONCLUSION......................................................................................... 407

10.1 Addressed issues and final significant findings of the thesis..........................407

10.1.1 „State monopoly‟ concept and surrounding issues 407

10.1.2 The application of competition law to anti-competitive behaviours of state

monopolies 410

10.2 A summary of directions for future reform and research..............................418

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10.2.1 Vietnam Competition Authorities should be reformed to become more

independent and accountable 419

10.2.2 There should be a number of critical modifications and complementation with

regard to current anti-monopoly provisions 421

10.2.3 Non „law matter‟ directions for state monopoly reform 424

APPENDIX.................................................................................................................... 426

BIBLIOGRAPHY......................................................................................................... 430

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ABBREVIATIONS

ACCC Australian Competition and Consumer Commission

ADB Asian Development Bank

CCA Competition and Consumer Act 2010 (Cth) of Australia

CIEM Central Institute for Economic Management of Vietnam

CPA Competition Principles Agreement of the Commonwealth of Australia

CPV Communist Party of Vietnam

CUTS Consumer Unity & Trust Society

CUTS-CIER CUTS Centre for Competition, Investment and Economic Regulation

DOJ Department of Justice of the United States of America

EC European Community

ECJ European Court of Justice

ECMR EC Merger Control

EG Economic Group

EU European Union

EVN Electricity of Vietnam

FTC Federal Trade Commission of the United States of America

GBEs Government Business Enterprises

GC General Corporation

ICN International Competition Network

IMF International Monetary Fund

JPA Jetstar Pacific Airlines

M&As Mergers and Acquisitions

MOIT Ministry of Industry and Trade of Vietnam

NCP National Competition Policy

OECD Organisation for Economic Co-operation and Development

PA Pacific Airlines

PE Public Enterprise

SCP Structure – Conduct – Performance

SIDA Swedish International Development Cooperation Agency

SOEs State-Owned Enterprises

SPT Saigon Postel Corporation

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TEC Treaty Establising the European Community

TFEU Treaty on the Functioning of the European Union

TNC Transnational Corporations

TPA Trade Practices Act 1974 of the Commonwealth of Australia

UN United Nations

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Programme

US United States

USAID United States Agency for International Development

USPS United States Postal Service

USVTC US-Vietnam Trade Council

VCAD Vietnam Competiton Administration Department

VCC Vietnam Competition Council

VINAPCO Vietnam Aviation Petrol Company

VINASHIN Vietnam Shipbuilding Industry Group

VNA Vietnam Airlines

VNPT Vietnam Post and Telecommunications Group

WB World Bank

WTO World Trade Organisation

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ABSTRACT

Unlike other countries, monopolistic entities in Vietnam - mostly state firms - were

established by administrative decisions. They are criticised for having detrimental effects

on competition and undermining a healthy environment for doing business. Although it is

stipulated that all anti-competitive behaviour must be fairly regulated, the application of

competition rules to state monopolies is problematic. This is reflected in the poor

enforcement of competition law and the limited intervention of the competition authority

in cases involving state monopolies.

The thesis asks how competition law can be applied to anti-competitive behaviour

committed by state monopolies. It offers suggestions as to what should be done in terms

of law and enforcement mechanisms, so that the competition law can effectively address

anti-competitive behaviour of state monopolies in Vietnam.

This thesis concludes that state monopolies exist as an inevitable trend to support the

political determination of Vietnam‟s Communist Party. This, however, facilitates the

ability of state monopolies to engage in monopolistic behaviour and creates obstacles for

the application of competition law in Vietnam. There are shortcomings in the Law and the

law should be modified as outlined in this thesis.

Finally, this thesis outlines directions for future reform regarding the application of

competition law to state monopolies. In particular, Vietnam‟s competition authorities

should be reformed to become more independent and accountable. There should be a

number of modifications with regard to current anti-monopoly provisions. Finally,

consideration of „non law-matter‟ issues will be another factor contributing to the

effective application of competition law to state monopolies.1

1 This thesis has been prepared in conformity with the La Trobe University Handbook for Candidates and

Supervisors for Masters Degrees by Reseach and Doctoral Degrees (Schedule B). Referencing and

footnotes are in accordance with the legal citation style recommended in the Australian Guide to Legal

Citation (Melbourne University Law Review Association Inc., 3rd ed, 2010).

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STATEMENT OF AUTHORSHIP

Except where reference is made in the text of the thesis, this thesis contains no material

published elsewhere or extracted in whole or in part from a thesis or any other degree or

diploma.

No other person's work has been used without due acknowledgment in the main text of

the thesis.

This thesis has not been submitted for the award of any degree or diploma in any other

tertiary institution.

Date Signature

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ACKNOWLEDGEMENTS

I am in debt to many people who have consistently supported me to complete this thesis.

I owe thanks to my family, wife and sons, for their sacrifices and devotion to my study. I

am grateful to my parents who always beside me in spirit during my time in Australia.

I would like to express my special thanks to my supervisors for their whole-hearted

dedication to my thesis. For Prof. Chen Jianfu, I am much indebted to you for your long

time supervision, motivation and support given to me at difficult periods of my

candidature. I am very thankful to David Wishart, a friendly supervisor who started

working with the second stage of my thesis. Your hard working contribution and brilliant

guidance keep me on track. I am grateful to Prof. Gordon Walker for your comments and

valuable advice. For all of you, everything you have done for me is much more than

supervisor‟s responsibilities. My special thanks goes to Gabi Duigu, for her enthusiastic

struggle with my language and writing styles.

I would like to thank my home university, Hochiminh City University of Law and

particularly Vietnam‟s Ministry of Education (MOET) for their facilitation and funding

which gave me the opportunity to study in Australia. My particular thanks goes to La

Trobe Law School and staff, for their support with facilities. A special appreciation also

goes to my colleagues and friends at La Trobe University, who shared with me difficulties

and experiences while working on the thesis.

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Chapter 1

INTRODUCTION

1.1 Background

Monopolistic market structures and monopolistic behaviour resulting from the

participation of state monopolies in the market are unexceptional in both developing and

transitional countries. The concept of „state monopoly‟, however, varies depending on

how governments view their role in the economy. In general, countries regard state

monopolies existing in the market as a normal phenomenon and as a positive factor

contributing to the successful implementation of state policies. Many reasons can be

given for preserving state monopolies as business entities and for the need to support

them in many forms.

However, it appears that a market with state monopoly participation faces problematic

issues, for example, the distortion of market forces. The market is vulnerable to anti￾competitive behaviour of state monopolies which is easy to commit and whose adverse

effects on a competitive environment are difficult to remove completely. A competition

law in particular and competition policy in general, are the most powerful and effective

instruments. At present, in many countries a competition law has been adopted,2

covering

the market behaviour of state monopolies under their regulation. However, such

regulation is always exposed to a number of difficulties, because the intertwining

relationship between the monopolies and state policy remains an important characteristic.

In Vietnam, such concepts as competition, competition law and the regulation of market

activities by means of competition law have been concerns in Vietnam since the country

launched the Doi Moi (Renewal) program in 1986. However, monopoly and anti￾monopoly law were new concepts. It was not until 2004 that the anti-monopoly issue and

the necessity to control monopolistic behaviour received much attention. Whether

monopolistic behaviour of state monopolies should be subject to competition rules was a

2 As highlighted in the UNCTAD Model Law on Competition in 2007, there were 113 countries and

regional groupings that had adopted or were in the process of adopting competition legislation at the time.

See UNCTAD, Model Law on Competition (TD/RBP/CONF.5/7/Rev.3, United Nations, 2007)

<http://www.unctad.org/en/docs/tdrbpconf5d7rev3_en.pdf>.

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topical debate during the drafting process of the first competition law. While the

significance of a competition law in Vietnam was strongly advocated, the question of

whether it should extend its coverage to state monopolies and to what extent competition

rules were applicable to them, was met with hesitation from the ministries and state firms.

It was also claimed that a market economy and its features had just been introduced into

Vietnam and the priority of the Vietnamese government in the first period was to set up

the necessary legal framework for a newly adopted market economy. In this context, the

adoption of the Competition Law in 2004 was seen as a milestone, showing the

determination of Vietnam‟s government to create a fair and healthy competitive

environment. At the same time, it set the foundation for a long-term discussion regarding

how competition law applies to state monopolies.

1.2 Monopolistic market structure in Vietnam

The long lasting reform of state-owned enterprises (SOEs) launched after Doi Moi

brought remarkable changes and introduced new concepts and guidelines for the revision

of this sector. In parallel with a reduction in their number, many SOEs were restructured

into a series of state corporations and later state economic groups, each of which

consisted of a significant number of state firms in a particular industrial sector. Benefiting

from that reform, they took advantage of new business opportunities to expand into new

areas and were able to turn into various forms of monopoly or oligopoly.

Unlike the practice in other countries, monopolistic firms in Vietnam were not developed

in a traditional way. In general, a firm‟s monopoly position in the market is attained by its

enlargement of economies of scale and scope, which are the results of the concentration

and accumulation of capital or of success in competition.3 Monopolistic entities in

Vietnam, in fact, were mostly state firms established by administrative decisions. This

situation was also contributed to by the limited accumulated large-scale capital and assets

of the private firms and the strict control of foreign investment in the early years after Doi

Moi. Consequently, the monopolistic market structure in Vietnam is mostly a matter of

state monopolies, because there were no differences between the two concepts „state

monopoly‟ and „natural monopoly‟ and all natural monopoly industries were previously

3

For example, according to the US Supreme Court in Verizon v Trinko, a monopoly position of a firm may

be achieved through „growth or development as a consequence of a superior product, business acumen, or

historic accident‟. See Verizon Communications Inc v Law Offices of Curtis V Trinko, 540 US 398, 407

(2004).

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in the hands of the state.

The administrative characteristics of Vietnam‟s state monopolies can be illustrated by

their original development. In fact they were SOEs which were previously under the

authorities of the relevant ministries. State monopolies could be found in all core

industries, because each industry had its own general corporation, that later served as the

core of a state monopoly in its industry.

This situation and the problems of state monopolies in Vietnam could be justified for both

theoretical and practical reasons. From the theoretical side, it was said that state

monopolies should exist as an inevitable trend and to be in conformity with the state‟s

socialist orientation. A state monopoly presence could also be advocated as a necessity to

guarantee a sufficient supply of public goods. Moreover, they were believed to be useful

tools for the state to intervene in the economy when needed. Finally, the existence of

large and powerful state firms was crucial to support the pace of Vietnam‟s international

economic integration.

From the practical side, the close link between Vietnam‟s state monopolies and state

management bodies was seen as an important factor of which both sides could make use

to pursue their own interests. On the one hand, state monopolies found it beneficial to

maintain a close relationship with their former state management bodies. This allowed

them to receive direct and indirect support, legislative protection and administrative

barriers to market entry, while it enabled them to gain advantages from lobbying in the

decision and legislative making process. The performance of state monopolies remains

connected to the direction and guidelines of state management bodies via chief personnel

assigned from state officers. On the other hand, Vietnam‟s policy makers, government

and local authorities and the industries themselves, found it necessary to support state

monopolies in exchange for their support. They exchanged their role from that of an

„authority‟ to that of a „sponsor‟ of state monopolies operating under their auspices.

Hence, state management agencies could serve as „representatives‟ for state monopolies,

while they in turn played an active role as „interest groups‟.