WATCHES made up one third of Hong Kong's domestic exports to Switzerland last year. Total exports, including re-exports, increased by five per cent to US$946 million, with watches and clocks valued at US$75 million. From January to April this year, domestic exports fell by 24 per cent and total exports dropped by two per cent. During the period, Switzerland bought US$20 million worth of Hong Kong-produced watches and clocks - a 15 per cent drop compared with the same period last year. Total exports increased last year due to a 15 per cent rise in re-exports, Wilson Law, Hong Kong Trade Development Council's (HKTDC) research manager, said. Re-exports, including watches and goods produced in China, made up 80 per cent of total exports, he said. Re-exports, including watches and clothing, was big business, Mr Law said. Although Hong Kong had a trade deficit of US$623 million with Switzerland last year, and domestic exports fell, re-exports of watches and textiles evened the imbalance. Clothing and fabrics made up half the exports last year but, in the first four months of this year, textile exports slumped 42 per cent compared with the same period last year. ''Domestic exports declined 16 per cent last year but a 15 per cent increase in re-exports to Switzerland means trade between the two countries is continuing to grow at a steady pace,'' Mr Law said. Clothing, watches and clocks, jewellery, toys and footwear were major re-exports last year. Hong Kong remained the world's largest exporter of watches. ''Many people do not believe we export the most watches in the world but, because labour and production costs are high in Switzerland and our watches are sold to a different market, there is great demand,'' Mr Law said. ''Swiss watches are upmarket and expensive, but Hong Kong's watches are cheaper and for the other end of the market. ''Our watches are bought as promotional items or for Swiss companies to give away as souvenirs. ''Switzerland excels in manufacturing watch components and is the biggest exporter in terms of value. But Hong Kong is master of watch design, colour and assembly.'' Jewellery made up eight per cent of exports and was worth US$21 million. Electrical goods and computer components were three per cent of total exports. Travel goods, optical instruments, electrical machinery, fish, crustaceans and telecommunications equipment also were exported. Imports were worth US$1.56 billion in 1993, but the US$623 million deficit would not pose a problem for Hong Kong, Mr Law said. ''Of course everyone is concerned about Hong Kong's balance of trade figures,'' he said. ''The territory depends a great deal on imports of raw materials which are essential for manufacturing and the domestic industry input. ''But the trade deficit with just one country is not really that alarming.'' Biggest imports were watches and clocks worth US$884 million. This amounted to 56 per cent of the total. Demand in Hong Kong was for expensive, top-of-the-range Swiss watches, including Rolex. Once imported, many were re-exported to other markets, Mr Law said. Removing the Hong Kong/ Switzerland Textile Agreement in 1986 also boosted trade. ''Switzerland is a liberal textile market and is the only major European country that has no quotas on Hong Kong garments,'' Mr Law said. ''The European Community has a textile quota and most exports to the EC are governed by bilateral textile agreements. ''The agreement with Switzerland is good for Hong Kong because, when the market is poised for expansion and expected to grow, we do not have to worry about a quota.'' Despite freedom in the textile export market, Mr Law said exports to Switzerland were limited because the Swiss population at 6.5 million was ''relatively small''. ''We cannot export too many textiles to Switzerland because there is no demand,'' he said. ''There are also customs rules that limit the amount of Hong Kong products being re-exported through Switzerland to places like Germany.'' Mr Law said he did not expect a dramatic increase in domestic exports next year, but hoped re-exports would grow.