Fashion Valley threatened by EU customs tax

The logistics centres in Ticino are a world away from the glamorous Parisian catwalks Keystone

Over the past decade, the Swiss canton of Ticino has become home to some of the world’s most famous fashion labels. But a new border tax now threatens the burgeoning industry.

Zegna, Gucci, Versace and Hugo Boss have all set up major logistics centres in a region known as “fashion valley”.

Ticino’s high-end rag trade is now threatened by a recent European Union decision to begin charging a 12 per cent duty on so-called re-exports, European-made goods that pass through Switzerland before returning to EU markets.

The unexpected decision was due to take effect from March 1, but was postponed for three months after the Swiss government protested, arguing that the move would jeopardise three decades of free trade between Switzerland and the EU.

In Ticino, shocked fashion executives are hoping Brussels will drop plans to introduce the tax completely.

“It’s a big problem for us,” said Maurizio Binelli, the director of Veze, a firm that handles more than a million items of clothing, shoes and leather goods for fashion giant Versace.

“All my goods arrive from Italy or other parts of the EU and 70 per cent of that returns there,” Binelli said.

Threadbare margins

Binelli estimates that the EU tax would cost Versace some SFr3-4 million ($2.4-3.1 million) per year.

The fashion industry, including the more exclusive end of the market, is a fiercely competitive business where profit margins are razor-thin and at the mercy of ever-changing consumer tastes.

Versace’s Swiss operation is a far cry from the slick glamour associated with the industry’s catwalks and upmarket high-street boutiques.

A plain warehouse in an unremarkable industrial area outside the town of Mendrisio, just minutes from the Italian border, is the nerve centre of Versace Classic, a brand of casual wear owned by the famous Italian company.

From here, Italian-made designer goods are gathered, packaged and dispatched all over the world.

It’s a similar story at Hugo Boss, Bally and Gucci, all of whom have logistics centres clustered in the tongue-shaped strip of Ticino that juts into northern Italy.

Competitive advantage

Claudio Camponovo, head of Ticino’s chamber of commerce, says fashion valley has grown thanks to Switzerland’s lower taxes and employment costs.

“It’s a big branch for our economy,” Camponovo said. “These companies that chose Ticino gave the region a big boost by using the transport, building and banking industries.”

Camponovo estimates that fashion valley employs around 4,000 people, and is still expanding rapidly. One company has recently invested some SFr90 million in a new logistics facility.

The industry also owes its existence to Milan, Italy’s fashion capital just thirty minutes away by car.

Loss of investment

But Camponovo argues that proximity means nothing if the sums don’t add up.

“In fashion, a difference in cost of 12 per cent is a big difference.

“And the real loss is not only the tax cost, but the loss of working places and investment that these companies have made in the last few years,” he says.

Camponovo believes the EU’s proposed tax will also hurt European economies, as EU firms increasingly look outside the union.

“They may move [from Switzerland], but I don’t think they will move to within the EU. They will look for better places where taxation is not so heavy.”

swissinfo, Jacob Greber in Lugano

In brief

“Fashion Valley” is in the canton of Ticino.

Luxury clothing brands such as Gucci, Versace, Hugo Boss, Zegna and Bally all have logistics or corporate facilities in the region.

Lower taxes and wage costs compared to Italy, as well as its proximity to Milan, have helped boost Ticino’s role in the global fashion industry.

A recent decision by the EU to impose a 12 per cent tax on re-exports now threatens that industry.

Re-exports are goods made in the EU and exported to a third country before being sent back to the EU.

Switzerland has complained to Brussels about the move, which has been postponed until June 1.