Mechanical movements: COMCO’s dictate harms the Swiss watch industry

ETA mechanical watch movement
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Biel/Bienne (Switzerland), December 18, 2019 - The Competition Commission (COMCO) wants to prohibit Swatch Group or its subsidiary ETA from supplying mechanical movements to third parties in 2020. COMCO has always obligated ETA to supply its customers with movements and now it intends to prohibit it from doing so for the whole of 2020. 

The provisional measures adopted by the Competition Commission (COMCO) are incomprehensible and unacceptable. Above all, they are unnecessary because the situation in the market for Swiss Made mechanical movements has changed drastically since the settlement of 2013. Furthermore, they reinforce the positioning of a new dominant player.

With its decision, COMCO is also interfering in economic policy and is restructuring the entire Swiss watchmaking industry. In doing so, it is exceeding and violating its authority. In view of the negative financial repercussions that these decisions will entail, Swatch Group reserves the right to claim damages. Swatch Group requests that the settlement reached in 2013 be terminated as planned on 31 December 2019. 

Inexplicably, these provisional measures are based on a false and outdated premise. Since the signing of the settlement between COMCO and Swatch Group in 2013, the market for mechanical movements in Switzerland has changed fundamentally: ETA is no longer the market leader in this sector. Due to the settlement reached in 2013 and the will of Swatch Group, production volumes and capacities have been reduced year after year. 

At the same time, other players significantly increased their own production levels and, as in the case of Sellita, far exceeded those of ETA. In 2019, Sellita produced and supplied one million mechanical movements (roughly twice as many as ETA), making it the new market leader in this sector. Accordingly, customers are no longer dependent on ETA. It is absurd and unacceptable, given the new situation, that COMCO is now completely prohibiting ETA from supplying its customers with movements. The provisional measures have no legitimacy. The prerequisites for a delivery ban have not been met.

With its decision prohibiting ETA completely from making deliveries to third parties in 2020, COMCO is effectively driving ETA out of the market (exceptions for SMEs are stipulated in theory, but de facto impossible). On the other hand, Sellita will become an even more dominant player due to its production volume. COMCO has thus reshuffled the cards for the industry and is, in effect, making economic policy by completely restructuring a strategic market area. However, this contradicts its mission and its authority. One of COMCO's mandates is precisely "the prevention of state restrictions on competition". In this case, however, it has created such a restriction itself and is giving even more clout to an already very dominant player.

It is also very surprising that the main arguments for these provisional measures are fully in line with the wishes expressed by Sellita in the course of the proceedings. The terms used by COMCO in its official communication correspond, practically word for word, to those used by Sellita. This raises the question of whether the COMCO Secretariat can be influenced – or is even already under outside influence – and whether it still takes its decisions completely independently.  

The timing of the decision is also problematic. The COMCO Secretariat apparently took neither the urgency of the dossier nor the planning timeframe into account. However, the deadline set at the end of 2019 has been known to COMCO for six years within the framework of the settlement. Swatch Group has repeatedly tried unsuccessfully to draw COMCO’s attention to the urgency of the situation and has insisted on the absolute necessity for the Commission to take a definitive position on this matter. Swatch Group officially called COMCO’s attention to the matter no fewer than six times between September 25, 2018 and August 27, 2019. Other players in the watchmaking industry have also warned COMCO in view of the approaching deadline. In vain.

Not only for Swatch Group but also for all its customers – whether larger companies or small and medium enterprises (SMEs) – it was extremely important to know what would happen in this matter and whether and in what quantities they could purchase mechanical movements. For planning reasons alone. COMCO’s decision, and this is just a provisional measure, will officially be announced only tomorrow. This means only 12 days before the end of the year. From an industrial point of view, this is absurd.

How is it possible to plan and prepare seriously for the 2020 financial if COMCO suddenly decides at the end of 2019 to change the previous conditions fundamentally by prohibiting ETA from supplying its customers? Swatch Group and its customers generally plan their future production twelve months (or more) in advance. It is customary to place orders for movements no later than the 30th of June for the following year, which COMCO itself acknowledges. We would like to point out that Swatch Group has always stressed that it intends to continue its deliveries beyond the end of 2019, choosing its own customers. The other players in the watch industry who expect ETA products to equip their watches in 2020 are now in a very complicated position. Starting with SMEs, which ETA cannot supply due to COMCO’S dictates. But how can a watch be sold without a movement?

What will tomorrow bring? In addition to the many obstacles that COMCO has imposed on the industry for 2020 - with repercussions until 2021-22 due to delivery deadlines - uncertainty will prevail for many months and investments will be slowed down. The Commission is unlikely to take a final decision on this sensitive matter of mechanical movements until sometime in 2020. At this stage, COMCO has not yet announced any timetable.


The 2013 Settlement

The 2013 settlement allowed Swatch Group to reduce deliveries in stages. The delivery commitment remains valid until 31 December 2019. On the basis of the 2009-2011 average, Swatch Group, or ETA, has to deliver 75% of the quantities sold in 2014/2015, 65% in 2016/2017 and 55% in 2018/2019. ETA will then be released from all its obligations on 31 December 2019. In this framework, Swatch Group, or ETA, undertakes to treat each of its customers equally. Swatch Group has scrupulously and rigorously fulfilled all of its obligations.


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