Swiss to complain to China over new watch tax

The Chinese are going to have to pay more for luxury like this. Corum

The Swiss authorities are to intervene over China's "discrimination" against luxury watches, which have been hit by a sudden 20 per cent consumer tax.

Beijing’s tax, introduced at the beginning of this month, is considered a threat to the flourishing business of Swiss watchmakers at the top end of the market.

The Swiss watch industry had exports last year of SFr351.3 million ($273 million) in China.

Christophe Hans, a spokesman at the Swiss economics ministry, confirmed to swissinfo that the tax was a case of de facto discrimination.

“99.6 per cent of imported luxury watches in China come from Switzerland,” he earlier told the Handelszeitung business weekly.

Although the tax in theory affects both imported and luxury watches produced on the domestic market, no top-end watches are made in China.

“The economics ministry is going to intervene at various levels in the coming days,” Hans said. He did not elaborate but no measures of retaliation are foreseen.

Hans said Switzerland, as a major seller of components to the Chinese watch industry, hoped however that China would reconsider its position.

He added that the case was not being taken to the World Trade Organization because the Swiss had not found a comparable legal precedent.

Discrimination

Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry in Biel, also spoke of discrimination.

He noted that the compulsory levy on imported luxury watches in China now comes to about 50 per cent, the same as in India.

Pasche and the authorities in Bern were only informed of the luxury tax shortly before it was introduced.

The head of the watch federation’s economic division, Maurice Altermatt, told the Handelszeitung that the tax would have direct consequences on sales.

“Such a high tax can undermine the efforts and investments that Swiss watch companies have been making in China,” he said.

Reduce sales

The Swatch Group – with the Breguet and Blancpain brands at the top end – is trying to adapt to the new market conditions.

“This tax will reduce our sales in the top segment in China,” said Beatrice Howald, the group’s head of public relations.

But she hoped that that the losses would be compensated by sales of watches in the middle segment.

At the Richemont group – owners of the Cartier, Piaget and Vacheron Constantin brands – spokesman Alan Grieve said the effects of the tax could not yet be determined.

But it was clear that the Chinese market would not lose any of its importance as a result of the new tax.

“The Chinese market is already today very important for us and it quite clearly has great potential,” Grieve said.

“We respect the decisions of the Chinese government. We must now prove [our capabilities] in a new environment.”

However, Grieve said the group naturally supported the intervention of the Swiss government and the watch federation in defending the interests of the Swiss watch industry.

swissinfo

In brief

The value of Swiss watch exports to China increased by 25.7% in 2005 to reach SFr351.3 million.

China ranks tenth in the markets for Swiss watches and components.

Swiss watch exports reached a record level in 2005, with a value of SFr12.323 billion (+10.9% compared with 2004).

The Federation of the Swiss Watch Industry feels the positive trend should continue in 2006, but at a slightly sustained rate.

China was the biggest exporter of finished watches in 2005. But at 884.6 million pieces, the figure was 15% down on 2004.