As Switzerland and China prepare to sign a landmark free trade agreement in July, the world-renowned Swiss watch industry has played a critical role in negotiations
The Federation of the Swiss Watch Industry (FH) recently announced that industry and government leaders signed a watch memorandum that spelled out China’s plans to cut tariffs on Swiss watches by 60% over the next decade.
The agreement states that once the free trade deal is signed, Swiss watch imports will be lowered by 18% in the first year and 5% annually after that.
Signatories to the memorandum will meet once a year, and include the FH, the Swiss State Secretariat for Economic Affairs, the China Horologe Association, and the Chinese Ministry of Industry and Information Technology.
“ This deal is likely to give a boost to lagging watch exports from Switzerland to Mainland China ”
As negotiations currently stand, the free trade agreement will allow Switzerland to remove tariffs on almost all goods imported from China, while China will remove them from 84% of imported Swiss goods.
This deal is likely to give a boost to lagging watch exports from Switzerland to the mainland. Swiss watches, which are popular for official “gifting” purposes in China, saw exports to China decline 26% in the first three months of the year.
Although there has been a general luxury slowdown this year, the steep watch decline has been particularly attributed to the government’s crackdown on luxury gifting. Sales in mainland China were down 22% in April.
High taxes on luxury goods have been a significant factor in high prices that have driven the majority of Chinese luxury purchases out of the country. While import duties are one factor, Swiss watches over $1,560 also have a steep luxury tax of 20 percent.
“ High taxes on luxury goods have been a significant factor in high prices ”
Yu Jianhua, China’s assistant minister of commerce, said in a press conference discussing the watch memorandum that value-added and consumption taxes would remain on watches.
Meanwhile, another official recently stated that some luxury goods may be reclassified as “daily necessities” and see lower taxes without discussing what these items may be.
Luxury goods play a major role in trade between China and many European nations. When French President François Hollande recently visited China to discuss trade between the two countries, he brought with him Kering chairman François-Henri Pinault.
“ Some luxury goods in China may be reclassified as “daily necessities” & see lower taxes ”
Mr Pinault then announced the donation of a set of Qing dynasty bronze zodiac heads, which had caused a great deal of controversy between China and France. When Mr Pinault’s PPR changed its name to Kering, it became “Kai Yun” in Chinese, meaning “open sky”, a synonym for good luck.
Chinese nationals bought one quarter of the world’s luxury goods by value in 2012, at home and abroad, according to estimates by Bain & Company for Altagamma, the Italian trade body. Becoming the most important consumer group in the world for luxury brands.
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