In Surprise Ruling, COMCO Halts Swatch Group Escapement Cuts

Swatch Group logo Switzerland’s Competition Commission (COMCO) has ruled that it would be “premature” to allow the Swatch Group to reduce supplies of assortments (i.e. the regulating organ of a mechanical movement: escape wheel, pallet lever, balance wheel and balance spring) that it sells to Swiss watch brands outside the group. While favoring a continued reduction in supplies of mechanical watch movements, COMCO halted further cuts in assortments supplies. It rejected a proposed plan for a gradual reduction of both movements and assortments through 2021 and 2025 respectively. The surprise ruling is the latest development in a drama that has gripped the Swiss watch industry for two years. At issue is whether the Swatch Group, the world’s largest watch company and the dominant supplier of mechanical movements and parts to Swiss watch brands, can legally reduce those supplies. In June 2011 the Swatch Group declared its intention to cut supplies and asked COMCO to investigate the matter. At Swatch’s request, COMCO initiated a formal investigation of the firm. In a July 12 announcement, issued in French, German and Italian, COMCO said that it had rejected a settlement agreement negotiated and signed by the Swatch Group and COMCO staff (called the Secretariat) in spring 2013. That agreement set the terms for a staged reduction of supplies to third parties of mechanical movements through 2021 and assortments through 2025. The agreement was presented to the commission for approval but was rejected on July 8. “The Competition Commission has not approved the settlement agreement,” COMCO declared in a press release. The commission instructed the Secretariat to renegotiate the agreement. COMCO issued different instructions regarding the supplies of movements and assortments: “The Competition Commission accepts in principle that Swatch Group can reduce in stages and under certain conditions, delivery of mechanical movements.” COMCO declared flatly that it “is in favor of reducing deliveries of mechanical movements.” Therefore, it allowed the Swatch Group to continue to reduce supplies of mechanical movements under a provisional plan it approved in 2011. It allowed the Swatch Group to reduce by the end of 2012 its supplies of movements to 85 percent of the quantities delivered in 2010. The reduction was extended through 2013. COMCO announced on July 12 another 10-percentage-point reduction in 2014, bringing the amount to 75 percent of the 2010 quantities. Assortments, however, are another matter. COMCO stated, “As essential components of mechanical movements (the assortments), the Competition Commission considers that a reduction in deliveries would be premature, given the current situation in the market and the uncertain development in this area. It wants to wait and see what the developments will be in the relevant market in the coming years, before agreeing to supply cuts.” In 2011, it allowed provisional cuts in assortments of 5 percent of 2010 quantities, which it extended for 2012 and 2013. Those cuts “apply until the end of 2013,” Comco said. It said nothing about 2014; presumably supplies of assortments will return to 2010 levels. The ruling is a reprieve for many Swiss watch brands that worried where they would get supplies of hairsprings, the thinner-than-a-hair spring attached to the movement’s balance that is crucial for the movement’s operation. The Swatch Group, through its Nivarox-FAR subsidiary, supplies more than 90 percent of the Swiss watch industry’s hairsprings. COMCO’s “let’s wait and see” ruling protects assortment supplies for the moment. But the thorny subject of Swiss watch hairspring and assortment supplies is far from over.

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