Transcript Enforcing the Global Competition Law Model in Vietnam

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Enforcing the Global Competition
Law Best Practices in Vietnam: Do
Epistemic and Power Structures
Matter?
By Vinh Thanh Le
Workshop on Convergence or Divergence
in Global Regulatory Models?
May 26th, 2011
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Outline
• Vietnam’s Competition Law 2004 – A product of
legal transfer;
• Interpretive perspective of legal transfers;
• Mapping out epistemic and power structures;
• Four case studies;
• Conclusion.
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Vietnam’s Competition Law 2004
• Adopted in December 2004 and took effect on 1st July
2005.
• With some modifications, the law largely followed the
globally promoted competition law models (UNCTAD
and OECD), particularly European competition law
model.
• It contains all basic prohibitions that are shared by
most competition legislations in the world:
Prohibitions against cartels, abuses of dominant
position, and anti-competitive M&A.
• It also prohibits state authorities from competition
restrictive and discriminatory interventions.
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Interpretive perspective
• Legal transfers can be investigated from various
perspectives.
• Interpretive perspective: How the law is adapted and
implemented ultimately rests on the interpretive
perspectives of key actors such as legislative drafters and
state officials responsible for implementing the law.
• How have these global competition rules been
interpreted and enforced in Vietnam?
• Systems theory and discourse analysis are adopted as the
project’s analytical framework.
• This project only considers the interpretation of
Vietnamese state actors.
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Mapping out epistemic and power
structures
• The socialist oriented market economy is a broad narrative
embracing various views and attitudes of different partystate groups in Vietnam: Accepting market (competition)
but retaining socialist objectives (socialist orientation).
Market competition is just an ‘instrument’ to achieve
socialism.
• The state economic management principles embedded in
the socialist central planning model still inform, even
dominate the thinking of many groups. This mindset
supports the ideas of tight management by the state’s
discretionary powers over the economy (market
competition) to meet the Party-state’s socio-political and
economic objectives.
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Mapping out epistemic and power
structures (cont.)
• The leading role of the state sector is another dominant idea
shaping the thinking of many groups. SOEs dominate and
control the commanding heights of the economy. SOEs are the
important tools for the state to macro-stabilize and manage the
economy towards the socialist orientation.
• Modernism and developmentalism is another dominant theme.
This supports activities of domestic enterprises (regardless of its
anti-competitive effects) that help modernize and develop the
country. Concerns of the failure of domestic industries with
competing with foreign corporations are also predominant
expressing this theme in a nationalistic language. This amplifies
the state economic management and state domination.
• (Neo-liberal) market competition ideas are gaining forces but not
yet dominate.
• Party leadership and democratic centralism are the main
narratives ordering the power relationships between groups.
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The epistemic and power position of the
enforcement authority
• The Vietnam Competition Administration Department
(VCAD) is the main enforcement authority of the
Competition Law 2004.
• Strong evidence shows that over time this authority has
emerged as an epistemic group that supports the global
competition rules.
• Close and sustained interactions with foreign donors and
counterparts have largely informed and influenced the
views and attitudes of the VCAD people.
• This group’s thinking is close to the neo-liberal views
supporting market competition as the main mechanism
of resource allocations.
• Yet, the VCAD is an agency under the Ministry of
Industry and Trade (MOIT) – a key industry regulator in
Vietnam.
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Introduction to the Case studies
• Four case studies are compiled to examine how the
global competition rules have been interpreted and
enforced.
• These case studies will illustrate how the above epistemic
and power structures have shaped the enforcement of
the global competition rules in Vietnam.
• The case studies examine both cases where the VCAD
failed and where this authority succeeded in its
enforcement endeavour.
• Focus on three competition matters: (i) competition
restrictive and discriminatory intervention of
government regulators (CS 1); (ii) hardcore cartels (CS
2&3); (iii) abuse of dominant position (CS4).
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Case study 1:
Home-made vehicle replacement aid
program
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Background
• In 2007, the PM decided to give financial aid to
households in Central highland and Northern
mountainous provinces to replace their homemade vehicles and old trucks.
• The program nominated TMT – an equitized
SOE as the only supplier of trucks under this
program.
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The VCAD’s interpretation
• Economic arguments:
- The nomination caused discrimination and competition
restriction between enterprises;
- The program lacked mechanisms to supervise the
production costs and prices of the TMT who could abuse
its position as the only supplier to set unreasonable
prices causing negative effects to the program and state
budget;
- Households eligible for aid would not be free to choose
the vehicles that suited them and for a competitive price;
- While recognizing the pilot characteristic of the
program, it believed that the long application of the
program (2007-2010) would give the nominated
enterprise a significant competitive advantage which
would negatively affect competition even when the pilot
was completed
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The VCAD’s interpretation (cont.)
• Legal argument:
Article 6 of the CL 2004 which stipulates that:
State management agencies are prohibited from
performing the following acts to prevent competition on
the market:
1. To force enterprises, organizations or individuals to
buy, sell goods, provide services to enterprises which are
designated by these agencies, except for goods and
services in the State-monopolized domains or in
emergency cases prescribed by law;
2. To discriminate between enterprises; …..
It concluded that this program was ‘not in conformity
with the spirit of the competition law’.
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The PM’s Response
• Simply said: the PM decided to pilot the program with a
subsequent evaluation survey.
• Question: Did the PM really thought it was just a pilot
program and therefore no need of revising the program
or did the PM ignore the VCAD’s competition supportive
ideas which was not in conformity with his political and
economic preferences?
• Since the competition concerns existed regardless of the
pilot characteristic of the program, the latter seemed to
be the case. SOE preference, political and economic
interests were at place informing the PM’s decision.
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Case study 1: Conclusion
• Given the power asymmetry between the Government’s
senior leaders and the VCAD, this authority could not do
anything further to enforce Article 6 of the CL 2004 to
protect competition.
• While the SOE preference and other political objectives
dominated the Government’s thinking, market
competition ideas are gaining forces. In April 2009 when
this pilot program did not yet end, the PM approved
another similar program which no longer nominated a
sole supplier.
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Case study 2:
Vietnamese banks agreed to fix the
deposit interest rates.
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Background
• Under the umbrella of the Vietnam Banks Association
(VNBA), Vietnamese banks often agree to fix their deposit
interest rates but no official enforcement of the Competition
Law was initiated.
• Vietnam’s banking sector is largely governed by the state
economic management mentality. The Party-state controls
tightly the industry via the State Bank (SBV) – an agency of
the Government, the VNBA and the domination of State
owned commercial banks. This group is well connected via
both political and economic bonds.
• The SBV and the Government explicitly support the interest
rate fixing agreements of the VNBA to lower interest rates for
economic development; they even use administrative powers
to back such agreements.
• The interest rate fixings themselves are hard to enforce
because small private banks become less attractive to
depositors if interest rates are fixed.
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Competing narratives about the
enforcement of the Competition Law
• Support an enforcement
because it constitutes a price
fixing prohibited by the law
(legal argument);
• Interest rate fixings limit the
competition among banks
affecting the interest of
depositors;
• Such practices distort the
market operation in the
economy (support neo-liberal
market ideas).
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Support the interest rate fixings
for their three benefits:
(i) if the competition continued,
high interest rates would
increase inflation;
(ii) high deposit interest rates
would increase loan interest
rates which decrease
investment and economic
growth; and
(iii) constraining interest rate rising
would reduce the risk attached
to bank loans because only
risky projects are profitably at
high interest rates
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The VCAD’s interpretation
• In 2008: It supports an enforcement but quickly
dropped its attempts after interacting with the
VNBA.
• The VNBA argues that their agreements are in line
with the Government’s efforts of macro-economic
stabilization. The Competition Law should not be
applied if that would deter the economic
development.
• The VCAD gradually changed their views to
subordinate the competition ideas to short-term
macro-economic stabilization objectives.
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Case study 2: Conclusion
• Power relations clearly constrained the initial
attempts by the VCAD.
• Over time, the VCAD’s thinking co-evolves with
the thinking of other groups. It seems that this
authority begins softening their close-to-neoliberal views of competition.
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Case study 3:
Steel producers agreed to fix prices
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Vietnam’s steel industry
• After 50 years, the industry is still under-developed and
foreign-dependent (import as much as 30% of materials
needed for domestic production and 40% of complete
steel products needed for domestic consumption).
• The assumption here is that Vietnam should be a steel
producer even though other countries are more efficient.
• Until the mid 2000s, SOE domination and protection
were two main features of the industry development
policy.
• Under the international economic integration
commitments, Vietnam has significantly liberalized its
trade barriers and this means domestic steel makers
have to face increasingly fierce competition from foreign
enterprises (via both imports and foreign investment).
• There have been consistent concerns among state and
industry officials about the viability of domestic
companies.
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The steel industry regulator
• Steel industry is another commanding height of the economy
that is tightly regulated by the state economic management
principles.
• The MOIT is the Government’s body charged with state
management over the steel industry.
• The MOIT has worked very closely with domestic steel makers
and their association (VSA) in development policies for the
industry and both sides agree about the need for protection
measures (e.g., tariffs and license) that may save the industry
from failures.
• Vietnam steel Corporation (VSC) and the VSA often receive
directives from the Government and MOIT to advance their
socio-economic and political objectives. But in turn the VSC
and VSA often request the Government to protect their
domestic production.
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The steel price fixing agreement
• The steel prices underwent great fluctuations in
2008.
• In mid 2008, the steel prices entered into a
downward spiral.
• To avoid loss, Vietnamese steel producers agreed
to fix the prices at 13.5-14 million VND per ton.
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VCAD’s reaction
• Stated publicly that ‘if the VSA could not prove
that its agreement was not a violation of the law,
then the VCAD will take appropriate measures to
ensure that the enterprises’ price fixing would
not harm the steel market and consumers.’
• Informed by the consumer welfare promotion
idea underlying the imported competition law.
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VSA’s argument
• Described the agreement as a necessary cooperative
measure of domestic steel makers to avoid loss.
• The agreement was reached ‘to save enterprises from
being closed, overcome the difficult situation so that they
can regain their capital and continue their production’.
• The retail price was already about 5-6 million VND lower
than the production cost and if enterprises kept
competing by lowering the prices then they would harm
each other and many enterprises would go into
bankruptcy. This would ‘significantly impact on the
existence of the steel industry’. This agreement was
therefore necessary to save the steel industry.
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VCAD’s Decision to Drop the Enforcement
Action
• In reaching this decision, VCAD no longer considered the
agreement from the consumer welfare protection perspective
as it announced earlier.
• Some VCAD officials explained the view that not every anticompetitive agreement was bad and in this case they
acknowledged the fact that 4 steel mills were already closed
and many others had to suspend their production.
• This newly constituted argument appeared to be very similar
to the position advocated by many European countries before
the World War II and Japan (crisis cartel) during the 1950s
and 1960s.
• But the VCAD may have known that such a tolerant attitude to
cartels (particularly hardcore cartels like price fixing) is no
longer dominant in these jurisdictions and any exemption
must be subject to very strict considerations of the competition
authorities.
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• The fact that the VCAD made its decision so
quickly (and somehow secretly) without any
comprehensive assessment of the case suggests
that forces were at work constraining its
thinking.
• Some may also argue that the VCAD may have
been already aware of the difficulties of the
industry at the time it announced its enforcement
intention in October 2008.
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The influence of the MOIT’s economic
nationalism on the VCAD’s decision
• The ‘subordinate’ structure of the VCAD under
the MOIT, perhaps compounded by the
democratic centralism principle would clearly
sensitize members of the VCAD to the views of
senior MOIT officials.
• The VCAD would have been at least aware of the
protectionist and nationalistic mindset of the
MOIT when making the decision to abandon
prosecuting such a flagrant violation of the law.
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Insurance premium fixing case: Similar facts
but opposite approach
• In 2008, similar arguments (i.e., to avoid loss)
was deployed to justify for the price fixing
agreement among 19 insurance companies.
• The insurance industry regulator is the Ministry
of Finance who also shares much of the MOIT’s
state economic management thinking.
• But the VCAD successfully prosecuted these
companies.
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Case study 3: Conclusion
• Power relations constrained the VCAD from
acting on its belief.
• The VCAD may succeed even when the other
groups have not yet shifted their thinking.
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Case study 4:
VINAPCO abused its monopoly position
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Background
• On 1st April 2008, VINAPCO – the state-owned
monopoly aviation fuel supplier in Vietnam
suspended its fuel supply to Pacific Airline (PA)
on the ground that this airline did not accept its
new service fee proposal.
• PA did not accept the new service fee proposal
on the ground that VINAPCO applied lower fee
to Vietnam Airlines (VNA) – the holding
company of VINAPCO and the competitor of PA.
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The VCAD and VCC’s interpretation
• VINAPCO had violated two provisions of the
Competition Law 2004 that prohibit monopolies from
imposing disadvantageous conditions on customer(s)
and from unilaterally modifying or canceling contract(s)
already signed without plausible reasons (Arts 14(2) and
(3)).
• The fuel supply suspension of VINAPCO would eliminate
competition in the market of air passenger transport
because at that time there were only two competitors
(i.e., VNA and PA) operating in this market.
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Factors contributed to the success of the
VCAD
• General public resentment about the abuse of the state
monopoly firms. The fuel suspension caused delays and
cancellations of 30 flights affecting about 5000 passengers
trigging a simmering resentment.
• Such negative impacts triggered immediate responses of
other state regulators and Government leaders. They
expressly did not support such suspension and accordingly
ordered VINAPCO to resume its fuel supply.
• But such response did not mean a cognitive shift towards
the imported competition ideas. The swift response of
these regulators was consistent with the long standing
state economic management principles which shaped the
command and control mindset of many senior party-state
officials. The Party-state’s senior leaders still think of
national champions as a key policy objective for Vietnam’s
aviation industry.
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Case study 4: Conclusion
• The success of the VCAD and VCC is attributable
to the clear contravention of the law and the
extensive negative impacts of the fuel supply
suspension that triggered a wave of resentment
within the society.
• Like the insurance case, this case study shows
that the competition ideas co-exist with other
ideas and may gain dominance in certain
circumstances.
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Conclusion
• The epistemic and power relations profoundly
shaped the enforcement of the global
competition rules in Vietnam.
• Different groups hold different views and
attitudes about these rules and such structures
promise fragmented implementation.
• Competition ideas co-exist with other ideas but
not yet become dominant. For a meaningful
implementation of this law, it needs a real
shifting in the thinking of other groups.
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• Thank you very much for your attention!
• Questions and comments?
• Email: [email protected]