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Competition hits the isle of high prices: despite the many bilateral treaties between Switzerland and the EU, this country remains an island of high prices. Even if the expensive Euro has dulled the sharpest edges that gouge us, Swiss consumers continue to pay up to double their EU neighbours. Swiss News investigates why.

As an expat in Switzerland, you've probably been there; at a party, somebody brings up the high prices in Switzerland. How can it be that there is so little variety for such shocking prices? Another guest weighs in that she finds a strangely unapologetic attitude when she has to return something, with the shopkeeper taking down all sorts of personal information as if trying to lay blame, she says.

And the astute consumer who crosses the street from the supermarket to the small grocery store may have nabbed the best buy in both stores, says another, but the piercing look from the cashier in the small shop is a killer. They conclude that Switzerland is a country where the vendor, and not the customer, is in charge.

Shopkeepers in charge

US citizens, the purest defenders of free enterprise and customer rights, stand aghast at this curious balance of power, though the Swiss themselves do not seem to be bothered.

Here customers stay loyal to their shopkeepers no matter what. Buying Swiss products from familiar Swiss businesses is a habit that has survived in modern urban society. The Swiss continue to act as if they depend on the only store in the valley.

Why is it that the laws of competition, and supply and demand, seem to have so little impact in Switzerland? The foremost impediment is the structure of the Swiss internal market, in which the frontiers between the cantons form solid barriers against a free exchange of goods, services and people.

Neighbouring cantons do not recognise one another's school systems. Vocational training has only regional value. As a result, rarely can students who obtain a diploma in one canton, move to another.

The alumnus of a teacher-training course in Canton Zurich will not be recognised in a classroom of Canton Zug.

Only when there is shortage of a certain kind of professional will an exception be made. The world of construction follows the same pattern. A call for bids on potential projects is a cantonal matter. Builders from other cantons simply don't have a chance, presuming they can take part in the bid at all.

Call it cartel, agreement, or tradition, there is an underlying system in place, which not only keeps the internal market firmly regulated but also keeps foreign imports at a distance.

Fruits of competition

Slowly but surely the system has begun to change. Canton Aargau opened up its borders to competition from other regions and prompted strong words of support from the federal government for doing so.

However, there is an enormous gap between Swiss world players such as UBS, Nestle and Novartis and the domestic corporations dominated by small- and mid-sized enterprises. The latter hardly leave their regional niches, although this choice sorely limits their potential market.

If mobility within the Swiss federation is limited, it's no surprise that imports from abroad face hurdles. Take the agricultural sector, where the Swiss farmers enjoy a remarkable degree of protection.

Barriers in name only

Supported by a strong lobby in Swiss parliament, they have succeeded in maintaining sky-high import levies on fruits from the European Union. The time frames for free import are carefully adjusted to national harvests. For instance, in the summer months, a levy of 333 Euros is imposed on every 100 kilograms of EU strawberries.

In many cases, these financial disincentives keep foreign fruit off Swiss soil, allowing Swiss prices to remain high. Only when national supplies have dried up, are import barriers relaxed. Even then, the system of licences is so complex that food importers cannot get perishable goods to their customers fast enough.

A special case of protectionism lies in the rules for packaged goods. These are barred for import if the product information does not comply with Swiss regulations. It means that German cream, Schlagsahne, which is half as expensive as the Swiss product, cannot be sold in Switzerland because here whipped cream is called Schlagrahm.

The differing terminology is an import barrier in disguise.

Dropping the barriers

The Swiss Ministry of Economic Affairs once calculated that Swiss retailers could save up to 42 billion Euros if they could buy for EU prices, passing on the benefits to their Swiss customers.

Recently, the Liberal Party in the Swiss parliament has argued that it has had enough and that it is high time to adopt what is known as the 'Cassis Dijon principle.' Under Cassis Dijon, EU countries are obliged to give free access to products from another EU country.

Switzerland isn't in the EU, but presumably the government believes it should drop all barriers to EU countries in exchange for the same consideration.

It added that Swiss corporations are increasingly hampered by exceptions in existing treaties. The first bilateral treaty with the EU has already been in force since 2002.

In principle, a free trade of goods and services and the free passage of employees should function impeccably today. However, Switzerland is caught in a tedious process of implementation and harmonisation. In view of the dispersed domestic market, there are still many hurdles to overcome.

Minister of Economic Affairs Joseph Deiss is well aware of it, which may explain his cautious answer in the Lower House when he was addressing the Cassis de Dijon principle.

Deiss voiced the opinion that the Swiss should not introduce the principle too hastily. In its recurring negotiations with Brussels, the Swiss government probably prefers not to make concessions too quickly.

Discounters at our door

Despite the official pro-European standpoint of the Swiss government, it seems realistic not to expect too much from Bern.

There is however, light at the end of the tunnel for bargain-hunters in Switzerland. The major retailers Migros and Coop have started a fierce competition in their budget lines.

Discount chain Denner has recently taken over its rival Pick Pay, preparing itself for the fight against the existing giants and newcomers from Germany.

And perhaps most important of all, the first Aldi store of Switzerland opened just over a month ago. The German mega-discounter's arrival in Switzerland is expected to trigger a long-awaited slide in retail prices.

The "Cassis de Dijon" principle

In the European Union, the so-called "Cassis de Dijon" principle has been widely accepted since the 1970s. When the German company Rewe wanted to start selling the French liquor, Cassis de Dijon, in their stores, German authorities objected. The potion did not have the prescribed 25 per cent alcohol, which was mandatory for fruit liquor in Germany.

Rewe went on to sue the German authorities successfully before the European Court of Justice, arguing that this boiled down to an import prohibition. The European Court recognised Rewe's claim, so that since 1979 every EU-country is obliged to give free access to products from another EU country.

The "Cassis de Dijon" principle applies to all sectors that have not yet been harmonised by EU law.
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Title Annotation:POLITICS
Author:Heddema, Renske
Publication:Swiss News
Date:Dec 1, 2005
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