A REPORT
on
COMPETITION SCENARIO IN VIETNAM
Table of Content
Introduction
1.1. Country brief profile
1.2. Recent Economic Performance, Structure and Other Characteristics
1.3. Economic Policies
1.3.1. Industrial policy
1.3.2. Trade policy
1.3.3. Investment policy
1.3.4. Privatisation policy
1.4. Importance of competition in the overall economic policy regime
Market structure and competition
2.1. The overall picture
2.2. Market structure and competition in some sectors
2.2.1. Manufacturing
2.2.1.1. Plastics
2.2.1.2. Automobiles
2.2.1.3. Motorcycles
2.2.1.4. Garment and textile
2.2.1.5. Cement
2.2.1.6. Fertilisers
2.2.1.7. Steel
2.2.1.8. Sugar
2.2.1.9. Soft drinks, beverages, wines, spirits and coffee
2.2.1.10. Cigarettes
2.2.1.11. Pharmaceuticals
2.2.2. Services and utilities
2.2.2.1. Electricity
2.2.2.2. Telecommunication
2.2.2.3. Transportation
2.2.2.4. Financial services
2.2.3. Restructuring trends
2.3. Barriers to competition
Sectoral policies
3.1. Electricity
3.2. Telecommunications
3.3. Financial services
3.3.1. Banking
3.3.2. Insurance
3.4. Pharmaceuticals
Consumer protection
4.1. Laws and institutions relevant to consumer protection in Vietnam
4.1.1. Ordinance on the Protection of Consumers’ Interests
4.1.2. Other relevant important legislations
4.2. The state of consumer welfare and prevalent consumer concerns
4.3. A hybrid approach between competition and consumer protection
Anticompetitive practices
5.1. Horizontal arrangements
5.1.1. Price fixing
5.1.2. Market allocating and customer sharing arrangements
5.1.3. Refusal to deal
5.1.4. Agreement to output restriction
5.1.5. Bid rigging (or Collusive tendering)
5.2. Vertical arrangements
5.2.1. Tied selling
5.2.2. Exclusive Dealing
5.2.3. Resale price maintenance
5.3. Abuse of dominance and other structural offences - competition-restricting mergers and acquisitions (M&As)
5.3.1. Price Discrimination
5.3.2. Predatory pricing
5.3.3. Competition-restricting mergers and acquisitions
Perspectives on Competition Policy
6.1. Backgrounds and Methodology
6.2. Survey Results
6.3. Main survey findings
6.3.1. Findings about the prevalence of anti-competitive practices in Vietnam
Prices
Tied Selling
Exclusive Dealings
Unfair Advertisement
Bidding Collusion
Collusive agreements in associations
Difficulties in Doing Business
6.3.2. Findings about the need for competition policy and law in Vietnam
Understanding of the Competition Law
Understanding of the other policies and legislations relevant to competition
The Competition Law of Vietnam
Conclusion
Introduction...... 3
1.1. Country brief profile...... 3
1.2. Recent Economic Performance, Structure and Other Characteristics...... 4
1.3. Economic Policies...... 9
1.3.1. Industrial policy...... 10
1.3.2. Trade policy...... 13
1.3.3. Investment policy...... 15
1.3.4. Privatisation policy...... 17
1.4. Importance of competition in the overall economic policy regime...... 23
Market structure and competition...... 26
2.1. The overall picture...... 26
2.2. Market structure and competition in some sectors...... 36
2.2.1. Manufacturing...... 36
2.2.1.1. Plastics...... 36
2.2.1.2. Automobiles...... 38
2.2.1.3. Motorcycles...... 39
2.2.1.4. Garment and textile...... 40
2.2.1.5. Cement...... 42
2.2.1.6. Fertilisers...... 44
2.2.1.7. Steel...... 45
2.2.1.8. Sugar...... 46
2.2.1.9. Soft drinks, beverages, wines, spirits and coffee...... 47
2.2.1.10. Cigarettes...... 49
2.2.1.11. Pharmaceuticals...... 49
2.2.2. Services and utilities...... 51
2.2.2.1. Electricity...... 51
2.2.2.2. Telecommunication...... 52
2.2.2.3. Transportation...... 54
2.2.2.4. Financial services...... 56
2.2.3. Restructuring trends...... 58
2.3. Barriers to competition...... 59
Sectoral policies...... 61
3.1. Electricity...... 62
3.2. Telecommunications...... 66
3.3. Financial services...... 69
3.3.1. Banking...... 69
3.3.2. Insurance...... 71
3.4. Pharmaceuticals...... 73
Consumer protection...... 78
4.1. Laws and institutions relevant to consumer protection in Vietnam...... 79
4.1.1. Ordinance on the Protection of Consumers’ Interests...... 79
4.1.2. Other relevant important legislations...... 84
4.2. The state of consumer welfare and prevalent consumer concerns...... 86
4.3. A hybrid approach between competition and consumer protection...... 91
Anticompetitive practices...... 93
5.1. Horizontal arrangements...... 93
5.1.1. Price fixing...... 93
5.1.2. Allocation of market or customers...... 95
5.1.3. Refusal to deal...... 95
5.1.4. Agreement to output restriction...... 96
5.1.5. Bid rigging (or Collusive tendering)...... 97
5.2. Vertical arrangements...... 99
5.2.1. Tied selling...... 99
5.2.2. Exclusive Dealing...... 100
5.2.3. Resale price maintenance...... 101
5.3. Structural offences: abuse of dominance, and M&As that restrict competition in the market 102
5.3.1. Price Discrimination...... 102
5.3.2. Predatory pricing...... 102
5.3.3. M&As that restrict competition...... 103
Perspectives on Competition Policy...... 104
6.1. Backgrounds and Methodology...... 104
6.2. Field Survey Results...... 104
6.3. The main findings...... 105
6.3.1. The findings about the prevalence of anti-competitive practices...... 105
6.3.2. The findings about the need of the competition policy and competition law...... 105
The Competition Law of Vietnam...... 107
Conclusion...... 111
Chapter 1
Introduction
1.1. Country brief profile
The Socialist Republic of Vietnam occupies an area of 330,991 square kilometres on the Indochina peninsula, bordering China, Laos, Cambodia, the Gulf of Thailand, the Gulf of Tonkin, and the South China Sea. The topography consists of hills and densely forested mountains, with level land covering no more than 20 percent. The northern part of the country consists of highlands and the Red River Delta; the south is divided into coastal lowlands, Dai Truong Son (central mountains) with high plateaus, and the Mekong River Delta. The climate is tropical and monsoonal; humidity averages 84 percent throughout the year. Annual rainfall ranges from 120 to 300 centimetres, and annual temperatures vary between 5°C and 37°C.
Vietnam has a total 4,567 kilometres of land boundaries, inclusive of 1,150 kilometres bordering Cambodia, 1,350 kilometre with China, and 2,067 kilometres with Laos. The coastline is 3,260 kilometres long, exclusive of islands.
The population ranked fourteenth in the world with 82,689,518 people in the year 2004 (i.e. density is around 264/km2). Population growth rate is estimated at 1.04% in early 2005.
Age structure: 0-14 years: 27.9% (male 12,065,777/female 11,212,299)
15-64 years: 66.4% (male 27,406,456/female 28,024,250)
65 years and over: 5.8% (male 1,889,585/female 2,937,209)
More than 87% of the population speaks the Vietnamese language, the nation's official language. Various other languages are spoken by the several minority groups in Vietnam. The most common of these are Chinese and Khmer. French and Russian is spoken by some, mostly older Vietnamese, as a second-language. In recent decades, English has become a more popular language to learn and is increasingly used in business, among other things.
Literacy (age 15 and over can read and write): Total population – 90.3%
Male - 93.9%
Female - 86.9% (2002)
Vietnam is a one-party communist state, governed by the Communist Party of Vietnam (CPV), which has a paramount role in both the political and socio-economic policy-making process. All the most important political and socio-economic development strategies of Vietnam are outlined in the Resolutions adopted by the CPV in its Congress convened every four year.
1.2. Recent Economic Performance, Structure and Other Characteristics
Vietnam is a densely populated, developing country that in the last 30 years has had to recover from the ravages of war, the loss of financial support from the old Soviet Bloc, and the rigidities of a centrally planned economy. Substantial progress was achieved since the turning point of 1986 when the Sixth CPV Congress first initiated the transition to a market economy in Vietnam by gradually liberalising a lot of economic activities, even though it was not until 1989 that a degree of macroeconomic stability was achieved. Land reform, the removal of inter-provincial trade barriers and the state monopoly in trade, the participation of private sector, and the relaxation of price control were the main cause behind a decade of high growth rates in 1990s.
Vietnam achieved around 8% annual GDP growth from 1990 to 1997. The growth rate started to slow down in 1996 and two subsequent years as a consequence of the Asian financial crisis; then peaked again at around 7%-8% from 2000 to 2004, making Vietnam the world's second-fastest growing economy (See Figure 1.2.1). Government control of the economy and a nonconvertible currency have protected Vietnam from what could have been a more severe impact resulting from the East Asian financial crisis. Nonetheless, the crisis, coupled with the loss of momentum as the first round of economic reforms ran its course, has exposed serious structural inefficiencies in Vietnam’s economy. Vietnam is still a very poor country with GDP of around US$38bn in 2004. This translates to merely US$549 per capita (See Figure 1.2.2), which remains low in comparison with other countries in the region (See Table 1.2.1).
The macroeconomic environment is relatively stable. In the beginning of the economic reform process, the inflation rate was very high due to the removal of price control over the majority of products. The inflation has been kept at a low rate since 1992 (See Figure 1.2.3) because the government has taken attempt not to print money for financing the budget deficit. However, the inflation rate in 2004 was equal to 9.5%, much higher than the targeted level of 5% approved by the National Assembly, due to an increase in the imported intermediate goods and the bird flu outburst in the country. Fiscal deficit stays at a level less than 5% of GDP. The external debt is controlled at a level of about 40% of GDP.
Figure 1.2.1 - Vietnam economy’s growth rate 1987-2003
Source: General Statistical Office of Vietnam
Figure 1.2.2 – Vietnam GDP per capita in current price (USD)
Source: General Statistical Office of Vietnam
Table 1.2.1 – GDP per capita in some selected countries
GDP per capita in current price in 2002 (USD) / GDP per capita in PPP in 2001(USD)Brunei / 12090 / 19210
Cambodia / 299 / 1860
Indonesia / 819.0 / 2940
Laos / 329 / 1620
Malaysia / 3914 / 8750
Myanmar / 104.0 / 1027
Philippines / 974.0 / 3840
Singapore / 20515 / 22680
Vietnam / 439 / 2070
Thailand / 2043 / 6400
China / 965.8 / 4020
Source: Human Development Index Report 2003, UNDP
Figure 1.2.3 - Inflation rate
Industry was the leading sector of the Vietnam economy during this period. From 1992 to 1997, growth of this sector was 4 to 5 percentage points higher than that of the total GDP. As a result, the GDP structure as changed remarkably with the expanding of the share of the secondary sector, at the expense of the primary sector (See Figure 1.2.4)[1]. Such a transitional transformation is a typical and nearly universal feature accompanying economic development, especially for agri-based economy at the initial stage of industrialisation.
Figure 1.2.4 – Structural changes in the Vietnamese economy 1986-2004
In terms of ownership structure, before Doi Moi, the economy was run by three types of firms: State-owned enterprises (SOEs) (national ownership), cooperatives (collective ownership) and household units of production or service. Cooperatives were seen mainly in agriculture, and at a lesser extent, in traditional handicrafts and services. With Doi Moi, other types of enterprises, i.e. private enterprises, foreign-invested enterprises (FIEs), have merged, but until 1990s, such firms have been small in number. FDI flows started in 1988, but a substantial amount of disbursement was recorded only since 1992. Table 1.2.2 records the share of each of five types of firms in the 1990s. This table shows that share of household companies is quite large and has been kept constant at about one-third of GDP. FIEs show an increasing share but the share of private firms has been unchanged at a low level.
Table 1.2.2 - GDP structure in current price by type of ownership (In Percentage)
1995 / 1996 / 1997 / 1998 / 1999 / 2000 / 2001 / 2002 / Prel.2003
Total / 100 / 100 / 100 / 100 / 100 / 100 / 100 / 100 / 100
By ownership
State / 40.2 / 39.9 / 40.5 / 40.0 / 38.7 / 38.5 / 38.4 / 38.4 / 39.1
Collective / 10.1 / 10.0 / 8.9 / 8.9 / 8.8 / 8.6 / 8.1 / 8.0 / 7.5
Private / 7.4 / 7.4 / 7.2 / 7.2 / 7.3 / 7.3 / 7.9 / 8.3 / 8.2
Household / 36.0 / 35.3 / 34.3 / 33.8 / 32.9 / 32.3 / 31.8 / 31.6 / 30.7
Foreign investment sector / 6.3 / 7.4 / 9.1 / 10.0 / 12.2 / 13.3 / 13.8 / 13.8 / 14.5
Source: Statistical Yearbook 2004, General Statistical Office
Another important feature of Vietnam’s economic reform process has been the increasing significance of international trade. Throughout the 1990s, exports expanded significantly, growing by as much as 20-30 in some years. In 1999, exports accounted for 40 of GDP, an impressive performance in a recovering Asia. Vietnam’s export growth was led by impressive growth in light manufactured exports (like footwear, textile and garment), which was supported by the significant influx of foreign direct investment (FDI) in those industries due to the relaxed trade and taxation regimes. Also remarkable is the strong rise in the value of agricultural exports, mainly reflecting the spectacular take-off in rice and coffee production and exports. In only a few years, Vietnam turned from being a net rice importer into the world’s second largest exporter, after only Thailand.
Efforts to control Vietnam’s import growth have also been fairly successful. In the last 4 years, import levels have remained fairly stable. For the second consecutive year, Vietnam had a balance-of-payments surplus in 1999. The country's balance-of-payments surplus has been due not only to robust trade performance but also to official development assistance and remittances from overseas Vietnamese. The participation of Vietnam into ASEAN, AFTA, ASEM, APEC and the Vietnam–US Bilateral Trade Agreement were important landmark of the country’s active integration process into the regional and world economy. The country is currently negotiating its accession into the World Trade Organisation and expects to become a member by end of 2005.
Figure 1.2.5 – Annual growth rate of exports and imports
Source: General Statistical Office of Vietnam
The Vietnam economy as a whole still ranks low in the ladder of international competitiveness. In 2003, Vietnam was ranked at 60th among 102 countries in terms of growth competitiveness index; 45th in terms of macroeconomic environment; 61st in terms of public institution index; and 73rd in term of technology index[2]. Vietnam was ranked at 50/101 in term of business competitiveness index; 51/101 in term of company operation and strategy ranking; 48/101 in term of quality of national business environment ranking.
1.3. Economic Policies
Vietnam was reunified in 1975. After reunification, an ambitious industrialisation plan was launched throughout the country, which had many features of a typical centrally planned economic development model. A capital-intensive industrial base was built up with external support, mainly from the Soviet Union. Private entrepreneurial activities only happened to a limited extent, mostly in the tertiary sector. Capital, production inputs and labour allocated to enterprises were administratively decided. All key prices, including wages and interest rate on capital were also decided by the government, which meant they were maintained at very low level or even negative in real terms, having little influence on production decisions. The goals of enterprises were set in terms of quantitative production targets. SOEs did not have to be accountable for any inefficiency or unprofitability as long as the quantitative targets had been achieved. Foreign trade was State monopoly.
This irrational and administratively forced industrialisation policy only caused lower industrial growth and led to an inefficiently structured economy. By the late 1970s, Viet Nam was facing a major economic crisis, with acute shortages of food, basic consumer goods, and inputs to agriculture and industry, and a growing external debt. Economic stagnation led to pressures for change. At the beginning of 1979, socio-economic targets were revised downwards and agreement was reached on the need to decentralise some decision-making authority and to provide improved incentives for increased production.
In January 1981, a contract system was introduced in the agricultural sector[3], and the government issued a decision providing limited autonomy to SOEs[4]. The number of mandatory targets that enterprises had to meet was reduced, and a 'three-part plan' system, which gave enterprises rights to operate outside the plan, but only after centrally planned targets had been met, was introduced.
Other reforms included moves to shift official prices closer to market rates in October 1981, and decentralisation of trade to local enterprises. These reforms were followed by decisions taken at the Fifth Party Congress in 1982 to reorient previous policies that focused on heavy industries and an inward-oriented economy to give greater attention to agriculture, light manufacturing industries and export-oriented production.
While the partial reforms introduced in the period 1979-1982 had an important impact in improving production incentives, the reforms did not adequately address key issues of pricing, financial discipline and reform of the bureaucratic administrative structures. Public sector and trade deficits increased alarmingly.
Inflation accelerated rapidly and growth began to slow from 1985. Government attempts to reduce these imbalances through currency, price and wage reforms were poorly coordinated, and fiscal imbalances and inflation became acute. The instability in 1986 led to social pressures for reforms to promote macroeconomic stability. The ‘Doi Moi’ process, thus, was initiated, which gradually gives way to new economic policy thinking and policy-making. Major policies of the post-1986 period now carry the new ideas of liberalisation, modernisation and integration.
1.3.1. Industrial policy
Vietnam’s economic performance since the start of the Doi Moi process, though impressive enough for a country coming out of the centrally planning system with acute economic crisis, has not been uniformly distributed across all sectors of the economy. It was observed that some industries and activities have made the transition stage much more successfully than others, while some industries or sectors have become sluggish despite the various protection measures or incentives by the State. Vietnam’s industrial policy, in general, need a shake-up in lights of the rapid changes that have been occurring all through this region, and of the many distortions that needed to be eliminated as Vietnam began to re-orient its economy towards the international markets.
It is widely commented that even after nearly two decades of reforms, many of the interventionist policies of the old command system have not yet totally been eradicated in the country. Vietnam’s industrial policymakers remain stuck to a significant degree in strategies based on import substitution and continued state dominance of all but the peripheral small firms and those controlled or managed by foreign investors[5]. Vietnam’s Socio-Economic Development Strategy for the period 2001-2010[6] has set the target for Vietnam to “become an industrialised and modern country by 2020". Toward such target, some specific measures were spelt out; amongst which state sector reform and development of import-substituting industries continue to be prominent focuses. The document reads, “The leading role of the State economic sector is to be enhanced, governing key domains of the economy; State enterprises are to be renewed and developed, ensuring production and business efficiency”. It also put a clear emphasis on the “rapid development of industries which can make the best use of [Vietnam’s] competitive advantages, control the domestic markets and push up exports”, as well as “selective construction of some heavy-industry manufacturing units”.
A long-time industrial policy objective in Vietnam has been to build up conglomerates of international competitiveness to be the flag-carriers of the Vietnam’s economy[7]. In 1994, the Prime Minister issued Decision 90/TTg and Decision 91/TTg, to group about half of the SOEs under a number of large-size umbrella companies known as General Corporations (GC). Decision 90 (issued on March 7, 1994) created 76 GCs, usually called GC90, each with at least 5 voluntary members and minimum legal capital of VND100bn, and Decision 91 called for much larger corporations with at least 7 SOEs members and a minimum capital of VND1000bn, resulted in only 17 GCs, which are called GC91. All 17 GC91 and 76 GC90 combined have a total members of 1,392 SOEs, accounting for 24 of all SOEs in terms of number and 66 and 55 interms of capital and employees, respectively[8].