China to Cut Import Duties on Swiss Watches in Free Trade Pact

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BEIJING, China — China agreed to cut import tariffs on Swiss watches by 60 percent in 10 years as the two nations seek to expand trade, a move that may boost sales by retailers such as Hong Kong-based Hengdeli Holdings Ltd.

The reductions will take effect after the countries sign a free-trade agreement, which may take place in July, Assistant Commerce Minister Yu Jianhua said in a briefing in Beijing today. The duties will be cut by 18 percent in the first year and around 5 percent in each of the following nine years, according to a transcript posted on the ministry’s website.

Chinese imports of Swiss-made watches tumbled 24 percent in the first quarter from a year earlier, the third straight decline as President Xi Jinping’s campaign against corruption damps demand for luxury gifts and economic expansion cools. Hermes International SCA last month reported a decline in watch sales due to China, while LVMH Moet Hennessy Louis Vuitton SA, the world’s largest maker of luxury goods, said Chinese retailers have been purchasing fewer watches than expected.

“The trend would be that prices will drop to some extent, but we can’t tell now by how much,” Yu said of Swiss watch prices, citing factors such as other duties including value- added and consumption taxes that will remain unchanged.

The two countries signed a memorandum of understanding on concluding the free trade agreement during Premier Li Keqiang’s visit to Switzerland last week, Xinhua reported on May 24.

China currently levies import tariffs mostly between 15 percent and 20 percent on watches, Yu said, according to a transcript of the briefing posted on the Commerce Ministry’s website.

Swiss watchmakers are bracing for a slowdown this year as Kepler Capital Markets forecasts the industry’s exports may increase 5 percent, which would be the worst performance since the 22 percent decline in 2009. The Chinese market has been shrinking as the administration cracks down on extravagant spending by government officials.

China will cut import duties on 84.2 percent of imports from Switzerland to zero, and will lower the levies on another 12.3 percent of Swiss shipments by 60 percent over a 10-year period, including watches, Yu said. The European nation will exempt 99.7 percent of Chinese shipments from the tariffs once the agreement takes effect, according to the transcript.

By: Zhang Dingmin; Editor: Nicholas Wadhams