China to Cut Duties on Swiss Watches

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China is to cut import duties on Swiss watches by 60 percent over the next 10 years under a free-trade agreement which should help reinvigorate Swiss watchmakers' sales in a key market.

Swatch Group and Richemont are grappling with slowing demand for luxury timepieces in mainland China due to a crackdown on expensive gifts for favours and slowing economic growth.

Exports of Swiss watches to mainland China, their third biggest market, grew just 0.6 percent in 2012, down from almost 49 percent growth in 2011.

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Under the first free trade pact China will sign with a country in continental Europe, the Asian country will allow 84 percent of Swiss exports to be duty-free, Assistant Minister of Commerce Yu Jianhua told a press conference on Monday.

"In the first year, we will cut import duties on (Swiss watches) by 18 percent and then by around 5 percent annually in the following years," Yu said. "They will be cut by 60 percent in 10 years."

The agreement, which should be signed when Switzerland's Economy Minister Johann Schneider-Ammann visits China in mid-July, will bring retail prices of Swiss watches in China down, but it is difficult to say by how much exactly, Yu said.

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Vontobel analyst Rene Weber said Swiss watches in China were subject to an import tax of 11 percent and a luxury tax of 20 percent on watches costing more than 1,500 Swiss francs ($1,600). There is also a value-added tax.

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"If the import tax is cut by 18 percent, the rate would fall to 9 percent from 11 percent. This wouldn't lead to lower prices and only have an impact on margins," Weber said, adding the development was nevertheless positive.

Exane BNP Paribas analyst Luca Solca said he believed the current slowdown in demand was driven by consumer mood.

"I wonder if the duty reduction can be enough to switch this - but it can certainly help move things in the right direction," he said.

Shares in Swatch rose 0.4 percent to 574.50 Swiss francs at 1249 GMT, while peer Richemont's stock was up 0.7 percent to 89.25 francs, outperforming a 0.1 percent higher sector.

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China is Switzerland's third biggest trade partner after the European Union and the United States, and the free trade deal will cover industrial goods as well as agricultural products.

Switzerland will offer zero tariffs on 99.7 percent of the value of goods from China, including all industrial goods, such as textiles, clothes, metal products, auto parts and components, Yu said.

More than 960 types of Chinese agricultural products will be on the list of duty exempt items, he said.