The problems of joint ventures under Vietnamese competition law
The 2018 competition law defines a joint venture between companies (JV) as a transaction where “two or more companies bring together part of their assets, rights, obligations and legal interests to form a New business“(Definition of joint venture). The 2018 Competition Law requires that a joint venture that meets certain notification thresholds be notified to the competition authority for review. However, the application of the concept of JV under the 2018 Competition Act is problematic because:
First, the definition of joint venture does not take into account the element of “joint control”; and
Second, the definition of JV does not accurately reflect the sequence of actions in forming a JV company under Company Law 2020.
Regarding the first problem, compared to the definition of the joint venture in the EC Merger Regulation (ECMR), the definition of joint venture does not include the element of joint control. Under the ECMR, the parent companies of a JV must jointly control the JV with the ability to exercise decisive influence (see more here (Sections BI3 and B.IV)). The potential anti-competitive effects of joint ventures arise from the fact that the parents of the joint venture could act together through the joint venture vehicle instead of competing with each other. Therefore, a joint venture without being jointly controlled by the parent companies of the joint venture is simply an extension of the controlling parent and has no anti-competitive effect.
For example: a JV has two competing parent companies, one owns 99% of the JV (99% Parent company) and the other holds 1% (1% Parent Company), assuming there is no special arrangement. In the example, only the 99% parent company can control the business behavior of the JV and there is no possibility for the 1% parent company to jointly control the business behavior of the JV. Therefore, in this case, there is no possibility of joint activity between the parent companies of the JV, therefore the JV, as controlled by the parent company at 99%, is still the competitor of the parent company to 1%.
Regarding the second problem, the definition of the JV includes two actions:
the first action is the contribution of assets, rights, obligations and legitimate interests; and
the second action is the formation of a new business.
In the JV definition, the second action comes after the first action. However, under the company law, a new company must always be incorporated first, then the founding members / shareholders of this new company will contribute capital. Given the wrong sequence of actions in the definition of joint venture, technically one could argue that a joint venture as provided for in the definition of joint venture could never arise and therefore no merger filing is triggered. by such a joint venture.