Fortunately, the US Customs and Border Protection (CBP) has recently clarified that Section 301 duties will not apply to products of Hong Kong origin, and that when filing custom papers and assessing customs duties “goods that are products of Hong Kong should continue to report International Organization for Standardization (ISO) country code HK as the country of origin”.
In the case of wristwatches, the country of origin of the movement determines the country of country of the timepiece. Accordingly, a watch with one country of origin for the movement, another for the case, and another for the wristband, is considered, for purposes of US entry, to be a product of the country in which the movement was produced.
While that’s the case for complete wristwatches, the application of the new marking rule on the brand’s DIY kits can be far more complicated. Describing how that has affected the company’s strategy, Lai said: “We couldn’t find any similar products in the market as a reference. To play safe and avoid any possible violation of the rules, we’re selling the DIY watchmaking kits – in which most of the tools are made in China, except for the movements and other parts and components which come mainly from Switzerland, Japan or Hong Kong – to the US market in one single package of mainland China origin.
“Luckily, the kits we sell to US consumers via e-commerce are all priced under US$800 – the de minimis threshold for duty-free entry . We’re also working on distribution deals with partners in the US, while assessing the practicality of separately marking the origins of the movements and other components sourced or produced from Switzerland, Japan or Hong Kong for our higher-priced items, so as to minimise import tax payments if any, and incorporating a USB flash drive with value-adding watchmaking teaching videos.”
The future of Hong Kong watches
The global watch market is forecast to shrink in 2020, but Lai is confident that agile watchmakers with good branding and omnichannel marketing strategies will be able to survive and thrive in the so-called new normal. Looking at how Covid-19 has affected his industry, Lai said: “The watch distributors who rely on traditional offline channels are taking the biggest hit from the pandemic. As far as we understand, brands with e-commerce direct-to-customer capabilities are doing pretty well even in these challenging times.”
Business support schemes such as the SME Export Marketing Fund (EMF) are already helping start-ups and SMEs like EONIQ to expand cross-border e-commerce business during the pandemic. Lai pointed out in what ways they have proved useful, saying: “These subsidies are helpful in supporting some solid year plans and major branding activities, such as setting up or upgrading e-commerce websites or apps. When it comes to fast-changing marketing activities, such as placing social media ads, companies are advised to rely more on their own resources in order to enjoy the greatest flexibility. At EONIQ, we’re now relying on the Facebook algorithm to identify the most payoff channels where we can get the highest sales conversion or ROI (return on marketing investment) on a daily basis.”