Free trade with China: what benefits for the watch industry?

As part of a master’s thesis, students at the ZHAW explored how the free trade agreement between Switzerland and China has benefited the domestic watch industry during its first year.

When it comes to imports, the FTA is mainly used to bring primary materials and watch components into Switzerland, while the export side mainly deals with complete watches. The FTA utilization rate has been calculated at 76.5% for imports, i.e. more than three-quarters of all watchmakers are now exempt from customs duties thanks to the FTA. As a result, Swiss companies managed to save CHF 3.6 million in the first year alone. However, figures also show that around CHF 684,000 in customs duties was still paid for watchmaking goods, for whatever reason. CHF 2.8 million in savings came from just two categories: watch cases and wristbands, both in base metals. Significant savings were also made on imports of case backs and quartz watches originating in China.

These figures were calculated using data provided by the Swiss customs authorities. Unfortunately, no Chinese data was available to conduct a corresponding analysis for the export side. Nevertheless, we can approximate the actual benefit to Swiss watch exports based on the companies registered as approved exporters and declarations of origin submitted to Swiss customs. At first glance it appears as though several businesses are registered but have not submitted a single declaration of origin, i.e. have not used the FTA at all so far. Happily, some of these companies were willing to provide more details about the reasons for this. They do not use the FTA because the potential savings would be less than the costs associated with the problems that arise when dealing with customs. Especially in the time immediately after the agreement came into effect, Chinese customs authorities frequently rejected certificates of origin and so blocked shipments.

One company in particular is a role model for best practices: this approved exporter sent 619 declarations of origin to China and, thanks to its use of the FTA, saved around CHF 4.7 million in the first year. If the company continues this successful practice, it will achieve cumulative savings in excess of CHF 100 million in 10 years (thanks to gradual tariff dismantling).

The abovementioned study, under the direction of the International Management Institute at the Zurich University of Applied Sciences (ZHAW), concludes that the majority of Swiss watch exports take place under the FTA. This means that a maximum of CHF 27 million in Chinese customs duties will have been saved in its first year. Although this is relevant, the idea of free trade on the export side is still something of a pipe dream. Around CHF 23 million in customs duties is still paid each year, due either to a lack of coverage by the FTA (e.g. watch wristbands made of precious metals) or the slow progress of tariff dismantling. The number of FTA users will increase along with the incentives to use it, which means that the savings achieved will also rise. Despite difficulties in its use and tough tests of patience, the FTA will eventually turn out to be lucrative for Swiss companies, and not just in the watch industry.

Country consulting: China (various dates in June)

Impulse: Asian Growth Stories (22 June in Zurich)

Further information about the free trade agreement

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