Competition issues left open as cartel law fails

Swiss consumers spend over CHF10 billion on shopping sprees across the border in neighbouring Germany, France, Italy and Austria Keystone

Presented by some as a cure-all  for Switzerland’s high consumer prices, the proposed revision to the country’s cartel law sparked resistance from many quarters and has ultimately been rejected by parliament.

High consumer prices, an undeniable reality that sends droves of shoppers across the borders for better bargains, costs the economy an estimated CHF10 billion ($10.7 billion) per year. But the proposed reform of the Swiss cartel law that was meant to tackle the issue has been thrown out by the House of Representatives earlier this week. The proposal was in the pipeline for six years and took up countless hours of parliamentary debate. 

Opponents of the reform, with a horror of over-regulation, defended the status quo, arguing that this was a situation where no action was the best action. The editorial in Thursday’s traditionally business-friendly Neue Zürcher Zeitung (NZZ) newspaper revealed the fears of the sector. 

“The revision would have raised the ghosts of hectic intervention on a broad front, which would have placed a burden and restrictions on companies as well as patronised consumers.” 

The current law, for all its faults, is a better option, the NZZ wrote. 

Losers

One of the key backers of the revision has been Prisca Birrer-Heimo, parliamentarian for the centre-left Social Democrats and president of one of the country’s consumer bodies, the Consumer Protection Foundation.

Birrer-Heimo told swissinfo.ch that consumers and small and medium-sized businesses were the losers following Wednesday’s decisive vote in the House of Representatives. It would be a long time before consumers get another chance for prices to be tackled, she said.

“But we mustn’t take the pressure off. Efforts must be stepped up to keep the problem on the agenda. Consumers and businesses shouldn’t have to accept this.”

The NZZ claims that the reform plans started to go wrong three years ago, when politicians lost sight of the aim to create reliable competition rules and fixated instead on the increasing difference in prices between Switzerland and Euro countries.

“From then on the cartel law debate was no longer about introducing reliable competition regulations that would provide long-term rules of play, giving citizens and companies as much freedom as possible, but primarily about publicity-motivated actions to push down consumer prices.”

False alarms

The long road taken by this legal reform, initiated in 2008, is not unusual in Swiss politics but the vying factions usually iron out their differences along the way. In the case of the cartel law, Birrer-Heimo said that false alarms about the supposed negative consequences of the reform had been raised which boosted resistance to the law among policymakers.

“For instance, the idea got out that it would be impossible to set up ad-hoc consortiums under the new law. Once these red herrings had been seized upon, it was impossible to dispel people’s concerns.”

One of the problems the revised law was meant to target was the practice of blocking parallel imports. Swiss manufacturers have been found  applying deals that make it impossible for foreign distributors to resell Swiss products back to Swiss retailers at lower prices.

“The small and medium-sized businesses still can’t do anything much against high prices of imported products or against a refusal by an importer to provide a certain product. It is virtually impossible to ensure that a company does not abuse its dominant position or to allow parallel imports,” Birrer-Heimo noted.

However, the Association of Small and Medium Enterprises declared itself “very happy” with parliament’s decision and claimed the bill was poorly drafted. “It’s good news for consumers and for the economy,” the association said in a statement.

“The current law is effective enough and the Competition Commission and courts have been tightening their policy. The reform would have undermined that progress, led to more administrative costs and ultimately to higher costs for consumers,” it added.

Toothpaste test

A long-running case about the sale of a popular brand of toothpaste is testing the strength of the existing law, which dates from 2003. In February, the Federal Administrative Court upheld a CHF4.8 million fine imposed on Gaba, the manufacturers of Elmex toothaste, by the Competition Commission. Gaba appealed the decision.

Gaba had imposed an import ban on its Austrian distributor, a situation that went unchecked until the retail chain Denner complained to the Competition Commission in 2005.

“If the Federal Court upholds the judgment of the lower court, part of the revised cartel law will come into force after all,” Peter Hettich, professor of public law at the University of St Gallen told the Swiss News Agency.

The substance of this case is about parallel imports and so-called vertical agreements in relation to territory. These deals provide for co-operation between two or more competing businesses operating at different levels of production or distribution chain.

But what about the high prices Swiss consumers are still forced to pay? Hettich doubts that the failure of the cartel law alone would have an impact on prices in Switzerland. “The cartel law is the wrong law to use to tackle the high price island.”

However there are other challenges which remain after the failure of the cartel law. Hettich points to the relatively lax regulations for mergers and acquisitions.

“So far in Switzerland, only one merger has been blocked, that of Orange and Sunrise [mobile phone operators]. Migros’ takeover of Denner [both supermarket retail chains] and Carrefour’s takeover of Coop [supermarket chains] would have been more difficult to achieve in the United States or the European Union,” he said.