In May 2013 the Federation of the Swiss Watch Industry (FH) announced that industry and government leaders had signed a memorandum regarding China’s plans to cut tariffs on Swiss watches incrementally over the next decade, with an end result of a 60 per cent on existing tariffs.
The memorandum formed a part of a broader Free Trade Agreement (FTA) between the two countries, with FTA itself signed on July 6 in Beijing between Johann Schneider-Ammann, Switzerland’s Economic Minister, and China’s Commerce Minister Gao Hucheng.
The FTA is obviously extensive, covering areas such as labour and employment, technology, the environment, intellectual property and competition matters, but it is in the agreements regarding trade barriers for goods and services that are of note for Horologium readers. As well as reductions in duties on Swiss products for pharmaceuticals, textiles, shoes and machine tools, there are, as mentioned, to be important changes for the Swiss watch industry.
According to the agreement Switzerland will implement a policy of no tariffs on 99.7 per cent of products imported from China. China will eventually remove tariffs on 84.2 per cent of products imported from Switzerland.
Duties on Swiss watch imports to China will be lowered by 18 per cent in the first year and 5 per cent annually after that, with the final 60 per cent reduction reached in ten years.
In addition, customs duties on these watches will drop from current 11 – 12.5 per cent to 4.4 – 5 per cent.
Whilst import duties have been one factor in the high proportion of mainland Chinese purchasing luxury watches in countries where taxes are lower, especially in neighbouring Hong Kong, the luxury tax of 20 per cent on Swiss watches over $1,560 has also been a large contributing factor.
China is Switzerland’s third-largest export market after the European Union and the U.S. In 2012 their bilateral trade was US$26.31 billion. In the first five months of 2013, there were already US$22.9 billion worth of goods traded.
Watches and jewels account for about one-third of Swiss exports to China. They totalled 1.6 billion CHF in 2012, but there has been a bit of a downturn this year, so the signing of the FTA will be a welcome one for the Swiss industry.
Between January and May 2012 exports amounted to 721.3 million CHF. For the corresponding period in 2013, the figure was 553 million CHF, a drop of 23.3 per cent. In May 2013 exports to China were 118.2 million CHF, a 19.4 per cent drop on 2012’s May figure of 146.7 million CHF. See the Federation of Swiss Watch Industry for more figures if interested.
As well as for completed watches, there will be either the removal or reduction of tariffs on watchmaking products such as alarm clocks, movements, exterior components and supplies. Only watch bracelets manufactured from precious metals exported separately will see their 20 per cent customs duty maintained.
The deal will need to be ratified by the Swiss parliament and is expected to take effect in 2014.