WRITTEN QUESTION E-2250/02

by Robert Goebbels (PSE) to the Commission

(23 July 2002)

Subject: Broad economic policy guidelines for Luxembourg

In its proposals on broad economic policy guidelines adopted by the Council on 21 June CSL 10093/2002 COM(2002) 191 final, the Commission stated with regard to the Luxembourg economy that some elements of the competition framework, such as obsolete legislation on prices, have the potential to restrict competition on product markets. The abolition of fixed and monitored prices was therefore proposed.

Given that Luxembourg has tended to be in the group of Member States with the lowest rates of inflation for the last 15 to 20 years, on what verifiable facts has the Commission based its assertion of the supposed ineffectiveness of the price administration system in that country? Can it quote specific cases in which competition has been restricted on the Luxembourg products market?

Did the Luxembourg government suggest that the Commission hand it a pretext to attack a price control system that is in no way obsolete, having proved its worth down the years? Or do the Commission's proposals draw on that liberal ideology which bristles at the words price control?

Answer given by Mr Solbes Mira on behalf of the Commission

(16 September 2002)

As the Honourable Member rightly points out, the broad economic policy guidelines adopted by the Council in June 2002 refer to the danger of restricted competition on the product market arising from certain laws and regulations in force in the Grand Duchy of Luxembourg, and in particular the provisions relating to fixed and monitored prices.

The question is not whether the price controls are effective or not in holding inflation down. The point is that there is legislation which can limit the degree of competition in the Luxembourg economy to the detriment of the consumers.

In Luxembourg, prices are controlled by the Prices Office Act 1983; the Office's task is to supervise, monitor and fix prices. This body is part of the Competition and Consumer Protection Directorate in the Ministry of Economic Affairs. It authorises increases in the maximum prices of certain products.

The official maximum price can be applied to the prices of household bread, petroleum products, proprietary medicinal products, taxi rides, home-produced wines such as Ebling and Rivaner served in cafés, the maximum margins in trade in household furniture, gingerbread, imported branded goods, heating equipment and cinema tickets.

The fixing of maximum prices may at first sight seem to be to the consumer's advantage, but unfortunately this is not borne out in practice. The Luxembourg Minister for Economic Affairs has stated that, in the past, state intervention on prices led to rigid markets and the imminent danger that all products would be aligned on the fixed maximum price. This could distort competition and prevent the seller from passing on legitimate cost increases, and also have the practical effect of making consumers pay the maximum price because producers could align their prices on the price implicitly deemed acceptable by the Office.

The Luxembourg authorities came to the conclusion that there were no grounds for applying these rules to all products and that it was accordingly more prudent to liberalise prices to enable producers to evaluate the parameters of their firms' individual situation and determine the selling price independently. This new form of competition should generate the lowest prices that are possible on each sector's own parameters.

Luxembourg has already repealed, among others, the 1992 regulation fixing the price of home-produced wine and the regulation fixing the price of bakery products. A Bill has been drafted to reform the price legislation. Dropping the current system will not fully liberalise prices. Initially, the reform will not apply to pharmaceutical products, and state intervention will always be possible in cases where competition is lacking or in the event of a short term dysfunctioning of a market.