Competition Switzerland - Q 2 2011

Author:Mr Silvio Venturi and Pascal Favre
Profession:Tavernier Tschanz

Annual Report

Competition commission publishes its 2010 annual report and takes a stand on the increasing strength of the Swiss franc against the Euro and the Dollar

The Competition commission has published its 2010 annual report.1

According to the Competition commission, 2009 was a year for activities calculated to combat significant distortions of competition. In the case of horizontal agreements, special attention has been paid to the issue of bid rigging in the construction industry. As far as vertical agreements are concerned, the focus was (and still remains) on the foreclosure of the Swiss market by preventing parallel and direct imports. In a decision dated June 28 2010, the Competition commission modified its notice on the competition law treatment of vertical agreements to bring it in line with the most recent case law and developments in the EU. As a result, it has ensured that the same rules continue to be applied in Switzerland in relation to vertical agreements as apply in the EU and that the foreclosure of the Swiss markets can be prevented. The Competition commission is also endeavouring to raise awareness and thus encourage the use of the bonus programme, i.e. the opportunity to report a cartel voluntarily in return for relief from sanctions.

As regards merger control, the Competition commission has focused on concentrations that may be detrimental to competition in the Swiss market specifically. 2010 has been marked by the Sunrise/Orange case, in which the planned concentration between Sunrise (Tele Denmark Communications A/S) and Orange (France Télécom Group), two Swiss mobile network operators, was prohibited by the Competition commission. The Competition commission argued that the proposed concentration would have created a situation of collective dominance of the merged entity and the only other remaining operator, Swisscom, the incumbent telecommunications provider in Switzerland, in the retail market for mobile telecommunications services and in the wholesale market for access to mobile networks. This is only the second time that the Competition commission has prohibited a merger. The first prohibition (Berner Zeitung/20 Minuten case) was overturned by the appellate courts.

Among the main topics discussed in the 2010 annual report is the growth in international cartels that has resulted from increasing globalisation and which represents an important issue of concern for the Competition commission. The latter would like to facilitate their prosecution in Switzerland, notably through a closer cooperation between the Swiss competition authorities and their EU counterparts. In view of this, the Competition commission very much welcomed the decision of the Swiss government in August 2010 to approve a mandate to negotiate an agreement with the EU. The Competition commission is convinced that such a cooperation agreement will enable Switzerland to make a more important contribution to the prosecution of international cartels and that it would also be further evidence of Switzerland's credibility as a reliable partner in the prosecution of cartels, which has considerably increased in recent years.

In its 2010 annual report, the Competition commission also deals with an issue that gave rise in 2009 to a large number of enquiries to its Secretariat and a major public debate, namely the increasing strength of the Swiss franc against the Euro and the Dollar. The report presents a number of arguments, based on theory or practical observations, which might explain the incomplete (or not immediate) pass-through of changes in the exchange rate in Switzerland. For example, the cost reducing effect of a stronger Swiss franc is felt in many sectors only after a certain time and only where there are lasting exchange rate benefits, because the import of goods is first of all often based on long-term contractual arrangements that take account not of the current exchange rate but of a rate that was fixed in the past. Also, certain companies take hedging measures against foreign exchange risks. In these cases, change in exchanges rates has no immediate effects on procurement costs. In view of these circumstances, the report notes that the potential that the Competition commission has to intervene is limited, because the pass-through of currency benefits follows specific economic patterns, and these cannot be influenced by competition policy. What is conceivable, the Competition commission says, would be an arrangement between competitors not to pass on any exchange rate benefits to customers or consumers. An arrangement of this type would result in direct or indirect price fixing and would accordingly be presumed to remove effective competition. According to the report, a further scenario that would be relevant to competition law could arise if there is a vertical agreement on the non-pass through of exchange rate benefits in a sales network (e.g. between foreign producers/manufacturers and their national dealers). The Competition commission noted however that an arrangement of this type is not covered by the Competition Act if it is made within a group of companies. But it cannot be excluded that article 7 of the Competition Act (unlawful practice by a dominant undertaking) could...

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