Abuse of market dominance by state monopolies in Vietnam.

• Author: Long, Tran Thang

1. INTRODUCTION II. STATE MONOPOLIES IN VIETNAM: AN OVERVIEW III. ABUSE OF MARKET DOMINANCE A. The concept of abuse of market dominance B. Abusive behaviour by market dominance IV. ABUSE OF MARKET DOMINANCE BY STATE MONOPOLIES: SELECTED CASES A. Case-study One: Interconnection dispute between VNPT and Viettel B. Case-study Two: Connection dispute between VNPT and EVN Telecom C. Case-study Three: Dispute regarding ground service provision by Vietnam Airlines D. Case-study Four: Aviation fuel supply dispute between VINAPCO and Pacific Airlines E. Observations on the case studies V. THE APPLICATION OF COMPETITION LAW TO STATE MONOPOLIES ABUSIVE BEHAVIOUR A. Criteria to determine dominant or monopoly position VI. ENFORCEMENT ISSUES IN ABUSE OF MARKET DOMINANCE A. Vietnam's competition authorities B. The enforcement of competition rules C. Enforcement by competition authorities VII. SUGGESTIONS FOR REMEDIES AND REFORM I. INTRODUCTION

   The term "state monopoly" refers to a market situation where there is exclusive control of the supply of certain goods and services by a few state firms. (1) A "state monopoly" can be widely defined as a "monopoly firm" or a "monopolist." In Vietnam, a "state monopoly" is an economic entity controlled or influenced by the state which is able to conduct monopolistic behaviour potentially subject to competition law. (2)

   Abuse of market dominance by state monopolies is more pernicious than similar conduct committed by private firms. State monopolies can make use of their dominance in the market to pursue exploitative and exclusive abuses. In Vietnam, the abuse of dominance by state monopolies typically involves access to essential facilities because these sectors are in the hands of newly formed or restructured state firms, known as state economic groups. Activities aimed at preventing the market entry of competing firms by state monopolies are of special concern because of their adverse influence on the legislative process, such as lobbying for the imposition of market barriers. There are obvious implications for international firms seeking to enter the Vietnamese market in areas such as telecommunications and aviation where such monopolies dominate. (3)

   There is a history of sub-optimal application of antimonopoly provisions in Vietnamese law with respect to state monopolies. The enforcement of competition law as regards state monopolies is further complicated due to the characteristics of Vietnam's state monopolies. Vietnam's state monopolies are complicit in the implementation of the economic policies of the state and reciprocal relationships exist between the state and sectoral regulators. Part II of this article presents an overview of state monopolies in Vietnam. Part III analyses the abuse of market dominance by reference to the concept of "abuse" and abusive behaviour stipulated under the Competition Law 2004 (hereafter "Competition Law" or "Law"). Part IV provides case studies of abuse of market dominance by state monopolies in the telecommunications and aviation industries. Part V discusses how the Law applies to the abusive behaviour of state monopolies. Part VI is concerned with how the Law is implemented, focusing on the competition authority and enforcement mechanisms. Part VII prescribes remedies to address these problems.

2. STATE MONOPOLIES IN VIETNAM: AN OVERVIEW

   In the centrally planned economy before Doi Moi (Renewal) commenced in the mid-1980s, the state was a monopoly. (4) Thus, the term "state monopoly" initially referred to a situation where there was absolute control by the state over the entire economy as implemented through state-owned enterprises. "State monopolies" as firms or monopolists did not exist because there was only one "monopoly"--the state.

   The rationale for the existence of current state monopolies is the "leading role" of the state sector laid down in the Constitution 1992 and other key documents of the Communist Party of Vietnam (CPV). (5) The subsequent development of state monopolies in Vietnam is closely linked with the course of state owned enterprise reform in Vietnam. This process was marked by a series of key events. The first was the equitisation process, which began in 1993. (6) The second was the establishment of General Corporations under Decrees No.90 and No.91,7 and the third was the formation of so-called "state economic groups." (8) Changes in the definition of "state-owned enterprise" (SOE) throughout the development of the regulatory framework concerning SOEs are an important factor in understanding the "state monopoly" concept in Vietnam. (9) SOEs now exist in many forms, including sole investment limited liability companies, limited liability companies with two or more members, and shareholding companies, (10) in which the state owns over fifty percent of the registered capital. (11)

   In Vietnam, monopolies were formed from SOEs which formerly operated in monopolised sectors. (12) The term "monopoly" in Vietnam is usually glossed as "state monopoly" and enterprises holding monopoly positions are regarded as state monopoly enterprises. With the transformation of SOEs, the term "monopoly enterprise" is no longer regarded as applying to a 100 percent state owned enterprise; rather, it includes those enterprises in which the state holds controlling shares such as joint stock enterprises. (13) Since all natural monopoly industries are in the hands of the state, there are few differences between a natural monopoly and a state monopoly. (14)

   The 2004 Competition Law does not explain the term "monopoly" nor does it have a specific chapter titled "antimonopoly." Rather, Article 12 of the Law introduces the term "firm holding a monopoly position." (15) 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. A "monopoly position" is a particular case of "dominant position," where no competitors exist. (16) There can be one or a group of enterprises with a dominant position on the market if the total market share is over the threshold set forth in Article 11(2). (17)

   A "state monopoly" is an enterprise falling within the definition of "enterprise" in the Enterprises Law 2005. (18) Such an entity has the status of a SOE and is distinguishable from a state management body. It is characterised by a close link with the state due to state ownership and is created by means of administrative orders. (19) It is a "monopolist," meaning that it meets the criteria of a monopoly. In addition, state monopolies exist in strategic domains and possess large amounts of capital and assets, operating businesses in key sectors of the economy. (20) These state monopolies have the characteristics of "natural monopoly" and "profit-seeking" enterprises. (21)

3. ABUSE OF MARKET DOMINANCE (22)

   1. The concept of abuse of market dominance

      Generally, abuse of dominant position is the "abusive or improper exploitation" practice of a dominant firm (23) aimed at gaining or enlarging a position in the market and restricting competition. (24) The Law stipulates two types of abusive behaviour: the abuse of dominant position and abuse of a monopoly position in the market. (25) It does not give any definition of these different concepts; rather, it provides criteria to define a firm or a group of firms that are considered to be holding such a position. (26)

      Because of definitional uncertainty, the concept of abuse of dominant or monopoly position in Vietnam can be viewed either from the purpose of or from the consequence of behaviour. From the "purpose" viewpoint, Dang Vu Huan regards "abusive" behaviour as behaviour by which a dominant firm attempts to maintain or enhance its current position in the market. (27) From the "consequence" viewpoint, the consequence of the abuse to competition is the key feature and such behaviour is prohibited by the Law. For example, Nguyen Ngoc Son defines the abuse of dominant and monopoly positions as "behaviour stipulated in the Competition Law conducted by a firm or a group of firms with dominant or monopoly positions in the relevant market, which reduces, deviates and obstructs competition on the market." (28)

      The definition of abuse of dominant/monopoly positions inferred from Article 3(3) of the Law appears more abstract than the UNCTAD Model Law, thus making it difficult to determine whether there is such abuse. (29) It is not easy to determine what is meant by such concepts as deviating, reducing or obstructing competition. As competition is a concept reflecting a rival relationship in the market, there are no objective measures to determine accurately the level of a competitive relationship. By contrast, determining the capability of a firm in maintaining and reinforcing its position is simpler. It is possible to achieve a fairly accurate conclusion based on economic and technical parameters in the related market, such as the number of firms, market share and the gap in the market share among firms. (30)

   2. Abusive behaviour by market dominance

      The Law does not classify abusive behaviour, but rather supplies a list of prohibited behaviour. (31) This includes both unilateral and collective groups of abusive behaviour, i.e. (i) taking advantage of a position to exploit customers to maximize profits and, (ii) abuse of a dominant/monopoly position to reinforce and maintain the current position through activities aimed at obstructing and eliminating competitors. (32) In both cases, the final goal of the firm conducting the abuse is to take advantage of its market power to maximize profits. The prevention and elimination of competitors is mainly designed to reinforce market power which enables the exploitation of consumers.

      While the list of prohibited behaviour in Article 13 appears similar to that contained in Article 82 in the EC Treaty, (33) there is no provision in the Law stating whether this list is exhaustive or...