UPDATE: Swiss Watch Makers Face EU Scrutiny

Swiss watch manufacturers are facing regulatory scrutiny in the European Union amid an industry-wide investigation that aims to establish whether luxury watch makers such as Compagnie Financiere Richemont SA (CFR.VX) are refusing to supply spare parts to independent repairers.

The European Commission probe, which follows an antitrust investigation in Switzerland on the future supply of watch components, comes after a years-long legal battle between watch manufacturers and the European Confederation of Watch & Clock Repairer's Associations, or CEAHR, that claims some watch makers, especially from Switzerland, refuse shipment of spare parts.

"It's difficult for us to get any spare parts from firms such as Richemont, especially for luxury brands such as Jaeger-LeCoultre" said Martin Taylor, general manager at the British Horological Institute, which is a member of CEAHR. "While we are very happy with Rolex, it's mixed with Swatch [Group SA (UHR.VX)]. We have no problems to get spare parts for Omega but we experience a lot of difficulties with luxury brands such as Breguet."

On its website, CEAHR claims that the practice of the main Swiss brands is hurting watch repairers and customers. It said that "free competition no longer exists" and that this supply practice entails the risk that customers may overpay and suffer delays when urged to send watches to the original manufacturer.

Swatch confirmed the probe, saying "it concerns almost the entire watch industry" and said it was "confident" about the outcome of the investigation. Richemont declined to comment, while Rolex couldn't be immediately reached. The European Commission, which had turned down an earlier request from CEAHR, declined to identify the companies involved in the investigation.

Swiss watch makers, although hurt by the strong Swiss franc, are experiencing an unprecedented boom, especially in regions such as Asia, where demand for luxury brands has been strong over the past few quarters. The lucrative business has also attracted many new participants to the market, which has irked traditional players, whose efforts were instrumental in turning the ailing sector around in the 1980s.

Because of the huge demand, Swatch, which is the world's largest producer of mechanical parts, has asked the Swiss Competition Commission, or WEKO, to launch an investigation into whether the company can reduce the supply of watch components to competitors.

Swatch's strong position in the components area is a legacy of the time it helped to restructure the Swiss watch industry, when it was one of the rare companies to invest in this sector. It has urged other watch makers to launch their own component units as its manufacturing unit, ETA SA Manufacture Horlogere Suisse, is struggling to meet Swatch's own demand.

Switzerland's WEKO said its own investigation is ongoing and isn't linked to the EU antitrust investigation. When WEKO launched its investigation in June, it had asked Swatch to continue supplying parts to competitors this year. But as part of WEKO's additional measures that accompany its investigation, the commission is allowing Swatch to partially reduce the supply of watch parts in 2012. Neither WEKO nor the European Commission said when they expect to close their investigations.

-By Goran Mijuk, Dow Jones Newswires, [phone]; [e-mail]

(Alessandro Torello in Brussels contributed to this article.)