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Swissness Bill: Two Perspectives

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Introduction

Over the years, Swiss products and services enjoy excellent popularity all over the world. Switzerland’s first-ranking performance among twenty-five best country brands in the 2012-13 Country Brand Index has no doubt proved that Swiss brand is a renowned one. To customers, goods designated “made in Switzerland” are associated with exclusivity and tradition, and is a guarantee of impeccably high quality.

In an increasingly competitive business world, the reputation of Swiss products has made it favourable for firms to use Swiss designations to earn extra revenues. Businesses are now using “made in Switzerland” and the “Swiss cross” to indicate the country of origin of their products. This has brought some undesirable consequences, in particular, the misuse and abuse of indications of Swiss designations.

In view of these, the “Swissness bill” was proposed to enhance the Swissness of alleged Swiss products, that is, to manufacture mainly with components in obtained domestically in Switzerland. The legislation has great impacts on business operation and consumers’ interests.

This essay first discusses the reasons for the proposal of the Swissness bill under globalisation. It then further evaluates whether the bill is beneficial from the viewpoints of local producers and consumers respectively.

A brief overview of the Swissness bill

The draft of the Federal Act on the Protection of Trade Marks and Indications of Source provides a more sophisticated regulation on the indication of geographical source of a product, thereby defining how “Swiss” the product should be in order to label it as being Swiss. Under the proposal, at least 50 per cent of the total manufacturing costs must incur in Switzerland for a product to be labelled as Swiss. For industrial goods, at least 60 per cent of the manufacturing costs must incur in Switzerland. Research and development costs may also be included in the said costs. For processed natural products, especially foodstuffs, at least 80 per cent of the weight of the raw materials must come from Switzerland, excluding those materials that cannot be found domestically or that are temporarily unavailable.

Aims of the “Swissness” bill

The three principle aims for proposing the “Swissness” bill are outlined as follows.

(a) Prevent abuse of indications of “made in Switzerland”

The first and perhaps most fundamental aim is to prevent abuse of Swiss designations. The worldwide reputation enjoyed by Swiss brands, which is highly appreciated by customers, is a competitive advantage since it enables Swiss goods to be positioned in higher price category and therefore sold for higher profit. In a study conducted in 2008, it was shown that up to 20 per cent of sales proceeds from typical Swiss consumer goods – and even up to 50 per cent for luxury goods – could be traced back to the use of the phrase of “made in Switzerland”.

In the globalised economy, markets located at different geographical locations are simultaneously opened up for businesses in all countries. The volume of international trade has been increasing drastically from day to day. Consequently, it has attracted companies, both inside and outside the country, to take advantage of the skyrocketing economic value of Swiss goods to promote their business and boost the profit by indicating “Swissness” in their products. According to a survey conducted in 2006, over 50 per cent the respondent companies replied that they use the “Swiss” trademark in co-branding, while 40 per cent of them indicated an intention to use the trademark even more extensively in the coming five years. Furthermore, the increase of trademarks endorsed with “Switzerland” or alike is a tremendous quadruple in ten years, from April 2000 to April 2010.

A product that is labelled “Swiss” doesn’t necessarily represent it is really made in Switzerland. Wrongful uses of Swiss brand, cheap imitations and false declarations of origin, both domestically and abroad, have greatly increased over these years. Such an overuse has led to a loss of reputation that dilutes the Swiss label and reduced its economic value. Moreover, customers who are misled by the reckless use of the Swiss label will lose their confidence not only in the products but also Swiss production as a whole. The reputation of Swiss products may be undermined. This would in turn lower the competitiveness of the truly ‘made in Switzerland’ products in the global market.

The Swissness bill was proposed to prevent the abuse of “made in Switzerland” designations so as to protect the value of “Swissness” from being diluted. The Swiss brands can be preserved and strengthened while the loss of confidence as well as the economic damages associated can be counteracted.

(b) Preserve the value of the Swiss label with better legislation

The second aim of the bill is to provide more clear regulations to the use of the Swiss label.

Due to rising globalisation, some firms have relocated their production bases to the periphery countries to save production costs. Businesses usually utilise global sourcing to acquire cheaper foreign raw materials and then packed as Swiss goods. As a result, a product labelled “Swiss made” can actually be completely made in other countries, from mostly non-Swiss raw materials. The fundamental problem is that except Swiss watches, there is no specific regulation with regards to the use of Swiss designations.

In accordance with the Federal Act on the Protection of Trademarks and Geographical Indications, the use of “Switzerland”, “Swiss made” or other designations is allowed so far as it is not “inaccurate”. In comparison, the Swiss cross is given more protection by virtue of the Federal Law on the Protection of Coats of Arms and Other Public Insignia. Moreover, the Trademark Law stated, though only generally, the justified conditions for using Swiss designations, which is that the origin of goods shall be determined by the place of manufacture or by the origin of the basic materials and components used. Under the original legislation, the “Switzerland” brand does not even exist in the legal sense. Moreover, the necessary level of “Swissness” in order to be an appropriate indication of source is not set out clearly. Even in the previous court rulings, there are only loose guidelines provided.

In terms of international legal framework, the Paris Convention, the TRIPS Agreement and the Geneva Convention all set out certain prohibitions in the use of misleading indications of sources. However, the country of origin is usually loosely defined in these international laws.

The proposed Act amendment would establish more precise criteria for determining what products are qualified to be called “Swiss made” such that abuse of can be avoided. It also includes clear punishments that may be given for illegal use of Swiss label, such as fine, confiscation of products and even imprisonment. This facilitates a well-established regulatory framework, which can boost investors’ confidence not only in the guaranteed quality and assured origin of Swiss products, but also the confidence in investing in Switzerland. The leading position of Switzerland in the global market can be subsequently maintained.

(c) Facilitate law enforcement abroad

The final aim of the bill is to facilitate law enforcement abroad. The current law enforcement in protecting the Switzerland designations in other places is insufficient, which greatly undermined the effectiveness in protecting the Swiss designations around the world.

In the era of globalisation, the number of trans-national corporations (TNCs) has been escalating all over the world. These TNCs operate their business in more than one country. Such a globalised mode of trading means that the operation of TNCs is subject to the regulation of legislations of different countries. Nevertheless, in terms of the level of protection and legitimacy, laws in other jurisdictions are dramatically different from Swiss law.

Although at present, there are international treaties protecting the “made in Switzerland” and the Swiss cross, the interpretation of the relevant parliaments is often vague, which undermines the effectiveness for prosecutions brought against illegal uses of Switzerland designations. Moreover, it is a rare case for law enforcement through a foreign court to be taken as the designation of “made in Switzerland” does not exist in legal sense.

The objective of the legislation is to reinforce protection for Swiss indications of source, not only at a national level, but also at an international level. It was proposed that more frequent observation and intervention of illegal use of “Swiss” label in other territories should be done via the collaboration of different governmental organisations. For example, it was suggested that the Federal Institute of Intellectual Property work closely with the Directorate of Political Affairs to bolster trademark registration monitoring activity in countries with serious illegal usage.

“Swissness bill” to local producers: More negative impacts than positive benefits

The enactment of the bill poses both positive and negative impacts on local producers in Switzerland. From their perspective, the advantages could not outweigh the negative consequences as a result from the commencement of the bill. Hence, the Swissness bill is unbeneficial to the producers in general.

Firstly, to the local producers in Switzerland, particularly those in the food industry, it seems unreasonable to require them to manufacture products with 80 per cent of the raw materials needed acquired locally in Switzerland. In a highly developed economy like Switzerland, the production costs are relatively high compared to those in less developed countries. To reduce costs, apart from relocating production bases to less developed countries, they can also source the raw materials required for production through the Internet. Such a practice of global sourcing effectively helps them minimise the material costs, and in turn cut down operation costs. However, the bill now requires a certain fixed percentage of manufacturing costs or raw material costs to be incurred domestically in Switzerland. This would reduce businesses’ flexibility in making choices of production inputs, limiting to high-cost Swiss raw materials. Moreover, to comply with the legislation, some Swiss companies would have to move their manufacturing process back to Switzerland, which would incur a huge expenditure as well.

Moreover, it may be of practical difficulty for the local producers to acquire sufficient raw materials for production in order to meet up with the prescribed benchmark specified in the legislation. Nestle Switzerland, for example, found it impossible to satisfy the weight requirement as there were simply not enough Swiss agricultural products available to meet the 80 per cent limit. Such a requirement may be found inflexible especially in situation when a particular material is available in Switzerland in a very small amount, which falls out of the circumstances of exceptions yet is an inherent problem faced by producers.

Added to the above, the bill may be counter-productive to the aim of enhancing producers’ market position in the world. The increase in production costs puts pressure on the producers to further increase the selling price, which has been already in a high-priced category, in order to maintain their profitability. For those customers who require only similar quality as Swiss products, they may tend to seek substitutions in order to save money. As a result, pure Swiss products may become less competitive in the world market, which would affect their market shares and, in turn, their profit earned.

On the other hand, producers in some industries will benefit from the bill. For example, the research-intensive industries can take advantage in the sense that the costs for research and development can also be accounted as production costs, which would relieve part of their pressure in meeting the cost requirement. In addition, the agricultural sector could also benefit since the demand for Swiss raw materials, especially for the food industry, is expected to increase.

Furthermore, under the newly proposed bill, the requirements for using the Swiss designations are higher while the law enforcement would be tightened. This would essentially reduce the number of products that can be legally labelled as “made in Switzerland”. In this sense, products that are labelled have a more guaranteed quality. This would also bring an intangible benefit of enhancing the reputation of Swiss producers and their products. As such, the competitive advantage of Swiss products is retained. In a long run, the Swiss quality label can be defended, which would be favourable to the image of Swiss producers as a whole.

To conclude, although the Swissness bill may bring benefits to the producers to some extent, the additional costs that may incur in compliance with the legislation are considered to be enormous, which outweigh the benefits brought about by the bill. The advantages brought about also seem too sector-specific since only few industries would be able to benefit from the bill. In the broadest sense, profit maximisation is still the primary aim and major concern of businesses after all, whereas the bill would inevitably increase the operation costs of the local producers in Switzerland, deteriorating their financial interest.

“Swissness bill” to consumers: Benefits dominate

From the perspective of consumers, it is believed that the Swissness bill is mostly beneficial to them, as seen from the fact that the benefits brought can overweigh the undesirable results that may be brought about by the bill.

Firstly, the bill offers a better protection to consumers’ rights. Consumers have the right to acquire a product that meets up their expectation after paying a certain amount accordingly. With tightened regulatory framework, circumstances such as being misled by wrongful or illegal use of Swiss designation would be greatly reduced. Meanwhile, the reduced number of products that are legally labelled as “Swiss made” would enable consumers to obtain products which are in line of their expectation that they are manufactured with materials mostly from Switzerland.

Secondly, consumers would benefit from the competitions among producers in the same industry. As price-cutting strategy is infeasible for producers as the production costs are already unavoidably high in compliance with the legislation, to attract more consumers, producers would have to improve the products while maintaining the price at a competitive level. Consumers would then be able to get the desired products of higher quality at a more justified price.

On the downside, however, the obvious disadvantage of the Swissness bill is undoubtedly the increase in product prices. It is reasonably foreseeable that the pressure of the additional costs incurred as a result of compliance with the new legislation is likely to be transferred to consumers. Consumers would have to pay more than before for the same quantity of the same product.

Nevertheless, the higher price is justified by the fact that the products they have paid for are totally “Swiss”, that is, majorly made from raw materials or components within Switzerland. A study by the Federal Office of Agriculture showed that the majority of respondents expect a Swiss-labelled product to be 100 per cent Swiss. It is fair enough to conclude that consumers are prepared and willing to pay more for Swiss products since they have great expectations of Swiss food products.

Given the compromise the high price is justified by the “Swissness” inherited in Swiss products and the willingness to pay more for products of better quality, the benefits of having consumers’ rights to be protected and better guarantee of obtaining high quality Swiss products definitely outweigh the price concern. As such, the Swissness bill is majorly beneficial to consumers.
Conclusion

The “Swissness” bill is a vital step taken by the Swiss government in the era of globalisation to battle for enhancement of the economic value enjoyed by Swiss products as well as the worldwide reputation of Swiss brands as a whole. Contrary to previous legislations, it clearly sets out criteria for legal use of Swiss designations in products with the aim to better protect the privileged Swiss brand name and avoid misuse of the designation.

Under cost-benefit analysis, it would seem that the Swissness bill is beneficial to consumers rather than producers. With tightened regulation, consumers can enjoy real Swiss products that are in line with their descriptions. The higher price they need to pay for is justified by the guaranteed quality of products. On the other hand, to comply with the new requirements in the bill, the operating costs for producers would be substantially increased. While the benefits seem uncertain, the huge cost burden conflicts with the producers’ key interest of earning profit. It can therefore be well concluded that the Swissness bill is mainly beneficial to consumers but unfavourable to local producers.

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[ 1 ]. The Country Brand Index (CBI) is an annual study conducted by FutureBrand to evaluate the impact and reputation of nation brands. It uses the Hierarchal Decision Model (HDM) to examine and rank countries as they relate to culture, industry, economy and public affairs to determine how key audiences see the world’s country brands, from awareness through to advocacy.
[ 2 ]. ‘Swissness: Protecting “Made in Switzerland” designations and the Swiss cross’ [2011] Swiss Federal Institute of Intellectual Property accessed 26 November 2012.
[ 3 ]. Swiss Federal Institute of Intellectual Property, ‘Protecting “Made in Switzerland” Designations and the Swiss Cross” [2006] Federal Council Report < https://www.ige.ch/fileadmin/user_upload/Juristische_Infos/e/j10802e.pdf > accessed 26 November 2012.
[ 4 ]. Nadine Kappeli, ‘Decoding the “Swissness” legislation: what constitutes “Swiss made”?’ [2011], International reports, Intellectual Asset Management.
[ 5 ]. Stephen Feige/Benita Brockdorff/Karsten Sausen/Peter Mathias Fischer/Urs Jaermann/Sven Reinecke, ‘Swiss Worldwide – International Study on the Perception of the Brand Switzerland’ [2008], University of St. Gallen.
[ 6 ]. Swiss Federal of Interllectual Property, ‘ “Swissness” Legislative Amendment: background, goal and content’ [2011] accessed 27 Novenmber 2012.
[ 7 ]. Marco Casanova, Die Marke Schweiz – Gefangen in der Mythosfalle zwischen Heidi und Willhelm Tell: Aktuelle Herausforderung im Zusammenhang mit der Verwendung der Marke Schweiz als Co-Branding-Pertner, in: Arndt Florack/Martin Scarabis/Ernst Primosch, (Hrsg.), Psychologie der Markenfuhrung, Vahlen, Munchen, p. 541 ff.
[ 8 ]. Ibid at 6.
[ 9 ]. Ibid.
[ 10 ]. Ibid at 4.
[ 11 ]. Zuppiger interpellation 05.3211 (‘Wrongful Use of the Swiss Cross’), Hutter postulate 06.3056 (‘Protecting the Switzerland Trademark’), Fetz postulate 06.3174 (‘Strengthening the “Made in Switzerland” trademark’), Reymond question 07.1001 (‘The importance of a true “Swiss made” for the watch industry’) and Berberat interpellation 07.3666 (‘The watch industry. Strengthening the “Swiss made” indication of source’).
[ 12 ]. Ibid at 6.
[ 13 ]. Marcel Bircher, “How Swiss is Swiss? – the ‘Swissness’ bill” [2010], Froriep Renggli < http://www.froriep.com/download/FR_Newsletter_IP_Tech_1_10_low.pdf> accessed 25 November 2012.
[ 14 ]. Ibid at 3.
[ 15 ]. Ibid at 3.
[ 16 ]. Thomas Stephens, “Food industry roasts ‘Swissness’ bill” [2010] < http://www.swissinfo.ch/eng/politics/internal_affairs/Food_industry_roasts_Swissness_bill.html?cid=8534050> accessed 25 November 2012.
[ 17 ]. Ibid at 3.
[ 18 ]. Ibid at 4.
[ 19 ]. Ibid at 6.
[ 20 ]. Ibid.
[ 21 ]. Ibid at 6.
[ 22 ]. Ibid at 16.
[ 23 ]. Ibid at 6.
[ 24 ]. Ibid.
[ 25 ]. Federal Office of Agriculture (2003): Agricultural Products 2007, Bern, 2007.

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