Challenge to Bonn’s small business rules

Date: 21/11/1996

MEASURES introduced more than 60 years ago by the Nazi regime to protect small businesses in Germany are to be investigated by the European Commission in a move likely to result in their being banned.

Two measures - the Rabatte Gesetz and Zugabever Ordnung - which ban special offers and discounts by retailers, are being probed to discover whether they breach single market rules.

The Commission has decided to launch the first stage of infringement proceedings by sending Germany a letter requesting an explanation for the measures, introduced in 1933 as Adolf Hitler courted support from small businesses. A reply is expected by the end of the year.

However, the action has come too late for the Dutch giant PolyGram, which had complained that its compact disc and record club Sounds Plus was being kept out of the German market.

Dutch-based Sounds Plus is to close at the end of the year with the loss of 100 jobs. Operations were concentrated in the Netherlands in a cost-cutting move after the Hamburg unit, which was supposed to provide the bridgehead for breaking into the German market, was wound down.

PolyGram complained in April 1994 that the German laws were preventing it from using its normal record club marketing techniques of introductory offers, loyalty gifts and discounts.

The ban meant that it could match but not better the offers made by domestic media firm Bertelsmann, which already had a commanding 90&percent; market share of record and CD club sales in Germany. “We just were not able to carry out our business plan,” said a spokesman for PolyGram Europe.

The German government has defended the ban on consumer protection grounds, in spite of the fact that Bonn has itself tried to abolish it, but was forced to back down in the face of protests from small and medium-sized businesses.

The Commission is, however, making it clear that it finds Germany's consumer protection argument disproportionate and full of holes since PolyGram and other companies operate special-offer programmes throughout Europe without any problems.

“What may have been appropriate in the Thirties does not seem to be so on the verge of the year 2000,” said one official.

The case is also regarded as important for the future success of information technology services in Germany. Many network services, such as those offered by CompuServe, are sold with introductory discounts or free trials which, say Commission officials, could also be outlawed under the German rules.

“There have been no problems yet, but if these services take off there could well be some,” said an official.