Protecting the label is essential to the industry's image, profitability and future growth, many luxury watchmakers say, and studies by St Gallen and Zurich universities do show the tag can almost double a luxury watch's price.
The issue is part of proposed new legislation before Switzerland's Parliament to regulate the use of the label for foods, services and industrial products.
In the first discussions in the two houses of Parliament, the lower house has argued that 60 per cent of the value of an industrial product must originate in Switzerland for it to be labelled "Made in Switzerland", in line with the draft law proposed by the government, while the upper house holds that 50 per cent is sufficient.
This means cost-conscious watchmakers in the lower-priced segment can import 100 per cent of the cases, dials, hands and straps and still mark their watches "Swiss Made" as long as half of the parts of the watch movement are made at home.
The directive also has little-to-no heft in international trade disputes, making it a blunt sword in the fight to protect the reputation of "Swiss Made", luxury watchmakers said.
"Thanks to current weak Swiss laws, watches produced almost entirely in China can be sold legally under the "Swiss Made" label," Jean-Daniel Pasche, chairman of the Swiss watch federation (FH), said in a telephone interview.
"This is going to harm the label over time as consumers nowadays want to know what they are buying. Some complain their Swiss watches are not as Swiss as they should be," he said.
The debate over how high to set the threshold is partly due to concerns that producing more in Switzerland, where salaries and prices are high, could hurt small and mid-sized firms' margins, already squeezed by a strong Swiss franc.
Ronnie Bernheim, head of the maker of Switzerland's railway clocks, Mondaine, said a threshold as high as 60 per cent could compel makers of lower-priced watches to buy cheaper components abroad.
"If you import a lower price component, also of lower quality, the Swiss percentage goes up. Lower-quality products would qualify for 'Swiss Made'. It is paradoxical," said Mr Bernheim, on behalf of some 25 watchmakers opposing stricter rules.
Mr Bernheim added, LVMH's biggest watch brand TAG Heuer has been one of the few to publicly admit buying movement parts from Japan's Seiko while stressing this would not hurt its "Swiss Made" image.
"You can find these components in a very good quality in Asia," he said.
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Italy voted tighter rules for applying the "Made in Italy" tag to clothes, footwear and leather goods in 2010, asking that two stages of manufacture should take place in Italy. But the new law is awaiting European regulation on the matter.
The European Commission has proposed origin labels for both EU-made and imported goods, defining the origin as the country in which the last major step in the production process occurred.
"There are no such rules at the moment. This makes it very expensive and often impossible to take legal action against free riders abroad and have them punished," said Anja Herren of the Swiss federal institute of intellectual property (IGE).
Copyright @ Thomson Reuters 2013