How Much Will Luxury Benefit From Swiss-China Trade Pact?

    After Swiss watch exports to China suffered blows in the wake of the luxury crackdown, don't expect the recently signed Swiss-China free trade agreement to generate a lightning-fast recovery.
    China agreed to cut import tariffs on Swiss watches by 60 percent in 10 years. (foeoc kannilc/Flickr)
    Betty ChenAuthor
      Published   in News

    China agreed to cut import tariffs on Swiss watches by 60 percent in 10 years. (foeoc kannilc/Flickr)

    Following an announcement in May that Switzerland and China signed a "watch memorandum" in which China agreed to cut tariffs on Swiss watches by 60 percent over the next decade, China and Switzerland this past weekend signed a new free-trade agreement (FTA) in Beijing. The deal could boost some of Switzerland's most important exports to China, including pharmaceuticals and machine tools, while watches and jewelry, which make up 32 percent of Switzerland's total exports to China, may only see gains in the long term.

    While trade relations with the European Union remain tense, Switzerland will be at an economic advantage "as one of the first Western countries to sign a free-trade agreement with China," said Johann Schneider-Ammann, Switzerland's Economic Minister, at the signing in Beijing. According to the agreement, Switzerland will immediately impose zero tariff on 99.7 percent of products imported from China, and China will eventually impose zero tariff on 84.2 percent of products imported from Switzerland.

    Johann Schneider-Ammann, Switzerland's Economic Minister (L) and China's Commerce Minister Gao Hucheng (R) sign a free trade agreement between China and Switzerland at a ceremony on July 6 in Beijing. (Xinhua)

    The pact is extensive, covering government procurement, environment, labor and employment cooperation, and intellectual property and competition, which had rarely been discussed by China in previous FTA negotiations. The agreement provides both countries with a platform not just for trade, but for the exchange of knowledge and technological innovation. For instance, China will expand imports of advanced watch detection technologies, which will help develop China's domestic watch industry. Both countries also pledged to hold talks on medical cooperation, aiming to promote the practice of traditional Chinese medicine in Switzerland.

    Schneider-Ammann was joined by China's Commerce Minister Gao Hucheng in the signing ceremony. “The China-Switzerland FTA is of comprehensive, high opening level and mutual benefits,” said Gao, “the signing of the FTA is a milestone in the China-Switzerland business relations.” Schneider-Ammann said, “the China-Swiss FTA is a full and comprehensive pact with various contents and solid foundation, which contributes to the sustainable development of bilateral business relations and brings about a deep and profound influence on both countries' economic development.”

    China is now Switzerland's third-largest export market after the European Union and the United States. In 2012, Swiss exports were valued at 7.83 billion Swiss francs, while imports from China were valued at 10.29 billion Swiss francs. However, the value of Swiss watch exports in May fell 3.9 percent year-over-year to 1.8 billion Swiss francs (roughly the same amount in USD), partly due to double-digit declines in exports to China and Hong Kong by 15.7 percent and 19.4 percent, respectively, according to the Federation of the Swiss Watch Industry.

    Amid the lagging watch exports from Switzerland and China's crackdown on official luxury gifting, the deal, which took three and a half years to negotiate, is likely to give a boost to fancy watchmakers, which currently face 15-20 percent import duties. However, the process won't happen overnight, considering the fact that the cuts are going to kick in incrementally over the course of a decade.

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