Interview: Maryland Watch Works

PB: The “Made in the U.S.A.” standard is complicated for watches. The requirements of the Swiss Made brand protect traditional Swiss component and movement manufacturers and ensure that foreign brands come to Switzerland in order to produce credible luxury watches. However, the share of value creation preserved in Switzerland as a result of the Swiss Made rule is remarkably low.  The cost of components and movement assembly for a typical Swiss luxury watch is only 6% of its retail price. The bulk of the value creation happens in the consumer’s mind through branding and functions such as design and marketing in Switzerland, but the Swiss Made label does not require them to do so.

In the face of increasing competition, the Swiss have taken measures to protect their watch industry, hanging on to the prestige accorded “Swiss” watches but acknowledging certain realities. The Swiss have had established regulatory systems that have governed Swiss manufacturing since the 1920’s. [See U.S. International Trade Commission Pub. 177 and MIT Professor Amy Glasmeier’s book Manufacturing Time: Global Competition in the Watch Industry 1795-2000.] Through a combination of cartelization and government involvement, the Swiss industry has been regulated to control both horizontal and vertical production supply through government and private industry. If a watch or its movement is to be considered Swiss, 60% of its value must be Swiss and 40% of the value of the watch or movement can be in Chinese parts (kits) customized as needed, assembled, calibrated, and cased up in Asia or Switzerland. [See Federation of the Swiss Watch Industry (FHS), “Guide to the Use of the Designation “Swiss” for Watches.“]  The minimum rate of 60% was not chosen at random, it corresponds to the rate used in the free-trade agreement between Switzerland and the European Union.  According to Jean-Daniel Pasche, President of the Swiss Watch Federation FH Watch Industry, Switzerland’s private, professional and non-profit trade association,

The rate of 60% is the result of a compromise among the industry and adopted by the Swiss government. It was not possible to fix a higher rate as this would have been considered as a perfectionist measure in contradiction with the WTO (World Trade Organization) rules and free trade agreements. The 60% rule has its basis in real-life economics, on one side; the rate of 60% ensures a clear majority of Swiss value within a Swiss-made watch.  On the other side, this grants a certain flexibility for the brands in sourcing components.

The Swiss know that a healthy industry depends on competing in every price segment. The 60% Rule means inexpensive watches produced in Switzerland may still carry the “Swiss Made” label. More importantly, the law ensures that well-paying jobs for highly skilled watchmakers stay there.

Based on the current FTC criteria, few watches or movements manufactured or assembled here in the USA will ever qualify.  And maybe that’s the way the Swiss want it.  American companies were further put at an enormous disadvantage in 2005 when the Federation of the Swiss Watch Industry urged the Swiss government to press the U.S. into negotiations “with a view to a free trade agreement, which would be hugely beneficial to the Swiss watch industry. According to an FHS memo titled “The Swiss Watch Industry – Free Trade Agreement With The USA A Golden Opportunity,”

Definition of origin and marking stipulations also pose problems for our industry. According to American legislation, the origin of the watch is determined solely by the place of assembly of the movement, completely overlooking any notion of final assembly of the watch (T2) and final inspection by the manufacturer, as outlined in the Swiss made ruling. This definition, much wider than the one we are used to in Switzerland, opens the door to all manner of violations and considerable risk of confusion. Moreover, the watch and its components must show highly restricting marks of origin, which the United States is virtually alone in demanding.

I’ll quote that last part again in case you missed it, “the watch and its components must show highly restricting marks of origin, which the United States is virtually alone in demanding.”  American companies are competing against the Swiss, who can claim “Swiss Made” despite Swiss standards, which allow up to 40% of a watch to be made outside Switzerland whereas American companies can make 95% of a watch in America and still not be able to claim the symbol of bedrock manufacturing: “Made in America.” It’s worth noting that some historic “American” brands were in fact using Swiss-sourced mechanisms within their own cases. We cannot compete globally against other countries when the bar is so high. The lack of domestic supply for so many of the key elements needed to make a finished watch means there is little chance for any brand to legitimately stamp “Made in the USA” on a popular-priced watch.

There are two claims to “American Made”: “unqualified” or “qualified.”  [You can read the National Institute of Standards and Technology (NIST) list here.] “Unqualified” means that “all or virtually all” significant parts and processing are of U.S. origin. The product may contain a small number of foreign ingredients if they’re not significant — the knobs of a barbecue grill, for instance. Companies must be able to document any claim.

“Qualified” claims, the main cause of confusion, come in many forms, but each must tell the whole story.

Take any Apple product. The packaging says, “Designed by Apple in California, Assembled in China.” That’s an acceptable claim. By contrast, a company could land in trouble if it said, “created in the U.S.” without specifying the country of manufacture since consumers are likely to interpret a vague, stand-alone term like “created” as all-inclusive. The FTC requires companies to post prominent, unambiguous statements (such as the actual country of origin) to leave an accurate impression.

So in the watch world, the qualified claim is “Made in the U.S.A. from domestic and foreign parts” or “Assembled in the USA from foreign and Domestic Parts.” This is acceptable.

TTB: Acceptable, but a lot to write on a watch dial. 

PB: Yeah, no shit. According to Julia Ensor, an attorney in the FTC’s Enforcement Division who I’ve been going back and forth with over several years (and as you may remember, she also sent closing letters to Shinola watches, Weiss watches and Niall watches for deceptive “Made in the U.S.A.” marketing) has stated that,

In order for a product to be considered “all or virtually all” made in the United States, the final assembly or processing of the product must take place in the United States.  Beyond this minimum
threshold, the Commission will consider other factors, including, but not limited to:

• • The portion of the product’s total manufacturing costs that are attributable to U.S. parts and
    processing;
  • How far removed from the finished product any foreign content is; and,
  • The importance of the foreign content or processing to the overall function of the product.

Substantiating that a product underwent final assembly or processing in the United States is only the first step toward making an unqualified “American Made” claim.  Because consumers likely understand “American Made” claims to mean that products are “all or virtually all” made in the United States, a manufacturer should possess and rely upon a reasonable basis that its product is “all or virtually all” made in the United States at the time the manufacturer makes the unqualified claim.

TTB: Given all that, what will it take for you to produce an American Made movement that meets the U.S. legal requirements? What practical issues stand in the way?

ES: Feasibility. No company is going to start growing their own jewels just for watches, vibrate hairsprings on a mass scale, make mainsprings or make an incabloc system. I think the closest any affordable movement will get is about 75-80% of the watch so getting to FTC to change its standards for watchmaking to match the standards for “American Made” cars will be the best way to get there.

PB:  According to Julia Ensor, “without a movement, a watch cannot tell time. Therefore, movements are essential to the function of a watch.”  So to make an American Made product, our focus is on producing the movement but how do we produce an American Made movement when the standard is “all or virtually all” and the FTC doesn’t really define “virtually?” According to Ensor, there are other catches in all of this such as how far removed from the finished product is the foreign content, and how important is the foreign content to the product?  In my discussions with Ensor, the significant parts would be those of the movement such as bridges, trains, mainplate (virtually all). The Commission will consider manufacturing costs assigned to the US portions and foreign portions of the product and how far removed the foreign product is from the final item, and let me tell you the cost of manufacturing parts here is somewhat high. We are trying to work with our partners to bring the costs down.

The key to reviving this industry is extensive collaboration between private industry and government.  We need government investment and incentives to re-build production and purchase manufacturing equipment. We meed low-interest loans, incubation and growth incentives, business tax breaks for American companies. And we need trade enforcement measures on watches made overseas all compel companies to open factories in the U.S. to serve the local markets. Also, worker-training programs and apprenticeships, consisting of local talent and skills in manufacturing and assembly, are essential to productivity and innovation. Without a concentrated, collaborative, national effort, it will be difficult for the American watch industry to reestablish itself.

A great first effort would be for the FTC to establish phases for the watch industry in which every American watch company could achieve the “Made in the USA” moniker with varying levels of distinction (Type 1 includes 20% US content, Type 2 includes 40% US content etc.,) for American made until we can reach a certain percentage as the Swiss have done. There needs to be greater discussion on this within the watch industry — the brand owners — and the FTC. I say brand owners because Swiss lobbying associations such as the American Watch Association are only involved in protecting and promoting largely Swiss brands through the reduction of taxes and tariffs on watches, the elimination of burdensome regulation on watch companies and their suppliers, and the protection of intellectual property rights of member watch companies through strong trademark, copyright and patent laws. See how that impacts American companies involved in the resurgence here in the US.

I posit to you that an American watch company, no matter how large or small, who calls the USA home for their headquarters, pays taxes in the USA and employs US citizens, should be able to display Made in the USA somewhere on a watch or movement with the various level of US content involved. American watch brands today offer a value proposition compared to their Swiss competitors and we shouldn’t hinder ourselves or our fledging watch industry by competing with them. I shall leave you with this quote to consider from a man whom I have the utmost respect for, Jean-Claude Biver, former President of LVMH’s Watch Division and who is now starting his own brand., who said “The Swiss watch industry has no competition.”  If the FTC doesn’t consider a new standard for American watches Mr. Biver’s statement will hold true for a very long time, at least here in America.

TTB: You mentioned the need for worker training and apprenticeship programs to rekindle the American watch industry. Tell us about MWW’s own apprenticeship program. I understand it is one of the only programs of its kind in the US.

ES: Yes, it is the only apprenticeship for watchmaking approved by any State government since the 70s. I created the curriculum and had it approved by the State of Maryland and the U.S. Department of Labor.  The funny thing about the Watchmaking Apprenticeship program is the Maryland Department of Labor had to check with the US Department of Labor as a program had not been State-approved since the 70s. The Department of Labor had to look in its records at some historical examples. It took a year for us to meet the requirements of the program and then we started it right when COVID first started.