What do the Stern Hu and Jetstar Pacific cases have in common? Both are not only important cautionary tales for Australian investors in socialist Asia, they also point to fundamental differences in the way law functions in this region.
In 2007 Qantas bought a minority stake in Vietnam's Pacific Airline. Their business strategy seemed sound: rebadge the company as Jetstar Pacific, inject urgently needed capital and expertise, and then compete with Air Vietnam, the state-owned national carrier, for market share. But Air Vietnam and its powerful state allies reacted in highly unexpected ways to the aggressive market competition.
The first sign of trouble surfaced in the stream of articles in the state-controlled press, enthusiastically reporting Jetstar's flight delays and other problems while remaining silent about Air Vietnam. Then the Civil Aviation Administration warned Jetstar Pacific not to use the Jetstar logo because it might convey an unfair market advantage. In April 2008 Vinapco, a monopoly supplier and subsidiary of Vietnam Air, increased the service fee for aviation fuel by 40 per cent. When Jetstar refused to pay the increase, Vinapco suspended supplies. Jetstar was forced to cancel fights until the Vietnamese CAA ordered Vinapco to resume supply.
Jetstar lodged a formal complaint with Vietnam's Competition Authority. In January 2009 the authority found that Vinapco had abused its monopoly position by ''imposing disadvantageous terms on a customer''. The Competition Council ordered Vinapco to pay a fine and separate from Vietnam Airlines.
It seemed that the legal ruling had settled the matter, until late last year, when the economic police prevented the Jetstar executives Luong Hoai Nam, Tristan Freeman and Daniela Marsilli from leaving Vietnam. Luong Hoai Nam was subsequently arrested for ''irresponsibly causing serious losses''. The charge relates to $31 million in losses incurred by Jetstar for fuel hedging transactions. Under the Penal Code, anyone who has direct management of socialist property and is ''neglectful of their responsibilities'' can face three to 12 years' imprisonment. (The state had retained a 70 per cent shareholding in Jetstar Pacific.)
State officials in socialist legal systems can use the system to effectively criminalise market competition. In the Rio Tinto case, the company has argued that its executives merely bypassed state negotiators to deal directly with Chinese steelworks operators, and Jetstar Pacific has apparently incurred official sanctions for winning market share from a state carrier.
Are the Jetstar and Rio Tinto cases merely aberrations in fast-changing economies or do they suggest qualitative differences between the Chinese and Vietnamese legal systems, and Western models? In fact, a distinctive type of legal development is emerging in this region. Although the Chinese model is difficult to pin down precisely, it is non-democratic, export-oriented, open, and yet not dependent on legal rights and public accountability for state officials.
As China's economic rise becomes clearer, its legal development model seems to attract more admirers in Asia and beyond.
Australia will need to know much more about the region's legal models and not to assume convergence with the Western rule of law.
John Gillespie is professor in law and director Asia Pacific business regulation group, Monash University, and the author (with Albert Chen) of Legal Reforms in China and Vietnam: A Comparison of Asian Communist Regimes (Routledge, 2010)