THAI GEM INDUSTRY BELIEVES ANTI-BURMA LEGISLATION

C O N F I D E N T I A L SECTION 01 OF 04 BANGKOK 005927 SIPDIS SIPDIS E.O. 12958: DECL: 11/26/2017 TAGS: EMIN ETRD PHUM PREL BM TH SUBJECT: THAI GEM INDUSTRY BELIEVES ANTI-BURMA LEGISLATION WOULD DO MORE HARM THAN GOOD REF: A. REF A: 2002 DAR ES SALAAM 1655 ¶B. REF B: 2002 STATE 238575 BANGKOK 00005927 001.3 OF 004 Classified By: Charge d'Affaires a.i. James F. Entwistle, reason 1.4(b) and (d) SUMMARY -------------- 1.(C) The Thai Gem and Jewelry Traders Association (TGJTA) believes that a ban on the import of Burmese rubies, such as advocated in bills being considered by the United States Congress, would have little impact on the Burmese government because most Burmese rubies reach Thailand through informal means outside the control of the junta. However, such a ban would significantly hurt poor Burmese mining the stones and the skilled craftsmen involved in the processing and trading of gemstones in third countries such as Thailand. TGJTA supports a ban on buying gemstones from government of Burma (GOB) sources, supports blacklisting dealers who participate in the Rangoon auction and suggests a certification scheme for rubies akin to the Kimberley Process for conflict diamonds. End Summary. BACKGROUND -------------- ¶2. (U) Bangkok has long been a leading center of trading, cutting, and polishing precious stones. According to trade data from the Thai Ministry of Commerce, precious stones and jewelry are Thailand's sixth largest export by dollar value. In 2006, Thailand exported precious stones and jewelry worth USD 938.8 million to the United States and USD 964.8 million to the European Union. Together, the United States and the EU in 2006 comprised nearly 52 percent of Thailand's total exports in this category. The lion's share of the rubies and sapphires cut and polished in Thailand come from Burma, although some are mined domestically or are imported from other countries. ¶3. (U) Myanmar Gems Enterprise (MGE),controlled by the government of Burma, runs an auction at least twice a year in Rangoon where jade, rubies, sapphires, pearls and other precious stones are sold to international dealers. The latest auction was held November 14-26 amid calls by human rights groups to boycott. ¶4. (SBU) To learn about the Thai perspective on the issue, Econoff met on November 14 with Mr. Vichai Assarasakorn, President of the TGJTA, and the following representatives of the TGJTA board of directors: Mr. Somboon Sangiembut, Mr. �00A;Pongdej Rattapongprakorn, Mr. Vichian Veerasaksri (who is also President of the Colored Stone Commission),Mrs. Prapee Sorakraikitikul, Mr. Somchai Phornchindarak (who is also the CEO of the Bangkok Gems and Jewelry Fair),Mr. Anthony Brooke, and Mrs. Watcharawan Boonruang. Also present were Mr. Chavalit Salwala, President of the Thai Color Stone Promotion Club (TCP),and Mr. Somjate Archaviboolybol, International Organizations Manager for the Federation of Thai Industries (FTI). SMUGGLED FROM SHAN STATE TO THE JEWELRY TRADE CENTER -------------- --- ¶5. (C) TGJTA says that the MGE auction accounts for a very small portion of the actual gem trade between Burma and BANGKOK 00005927 002.3 OF 004 Thailand because most gems are sold through "informal" means directly to traders across the border, avoiding payment of GOB royalties. According to TGJTA, the bulk of the business at the MGE auction is jade bound for Hong Kong and mainland China. (Note: The size and weight of jade make it difficult to smuggle and easier for the government to maintain control over the trade. End note.) Press reports from Rangoon said the current auction included 5140 lots of jade, 274 lots of gems and 259 lots of pearls. ¶6. (C) Chavalit estimates that in the 1980s, less than three percent of Burmese rubies purchased by Thai traders passed through the MGE auction. After the 1996 truce between the GOB and Golden Triangle heroin kingpin Khun Sa, the government gained access to Shan State ruby production through a deal that allowed Khun Sa and the Shan United Army to keep 60 percent of the revenue from certain ruby mines, as an incentive to get out of the heroin business, with the rubies marketed through the MGE auction. Still, Chavalit estimates that no more than 30 percent of Burmese rubies pass through the MGE auction, with the rest reaching Thailand through informal "private" channels. If poor Burmese miners in the region who eke out a living moving gemstones across the border lose their income from rubies, Chavalit claimed, they could end up back in the narcotics trade. ¶7. (C) Thai Ministry of Commerce trade statistics appear to lend credence to Chavalit's estimates. According to official figures, Thailand imported only USD 3.21 million in precious stones from Burma in 2006, a minuscule figure considering that quality rubies often sell for a per-carat price higher than diamonds. ¶8. (C) TGJTA dismissed the oft-quoted figure in the press that claims 90 percent of the world's rubies come from Burma. They concede that probably 90 percent of the very largest, highest-quality stones come from Burma but that in the overall trade, perhaps 40 percent are of Burmese origin. TGJTA underscored that these are all very rough estimates and that hard, reliable numbers simply do not exist due to the murky nature of the gemstone trade. TGJTA SAYS A BLANKET BAN IS BLUNT AND IMPRACTICAL... -------------- -------------- ¶9. (U) In October, two bills were proposed in the U.S. Senate (S. 2172 and S. 2257) and one in the House (H.R. 3890) that would ban the importation of all gemstones mined in Burma, regardless of where the stones are cut and polished. Human rights NGOs have also called for a ban. Major jewelers, including Tiffany, Cartier, and Bulgari have announced that they will not purchase gemstones of Burmese origin. Jewelers of America (JA) have come out in favor of the legislation. According to press reports, EU foreign ministers agreed in an October 15 meeting to ban imports of Burmese gemstones. ¶10. (C) TGJTA believes a blanket ban is not practical. Although tests of origin exist, TGJTA explained, the characteristics of corundum (the crystalline form of aluminum oxide that, depending on the color, is called ruby or sapphire once cut and polished) mined in Burma, Thailand, Cambodia, and Vietnam can be quite similar. As there is no absolutely accurate way to determine origin, TGJTA claims, tests could mistakenly identify gemstones from elsewhere in BANGKOK 00005927 003.3 OF 004 the region as Burmese. Moreover, TGJTA claims, these tests are expensive and impractical. ¶11. (C) TGJTA believes the proposed legislation is too blunt. As presently written, the bills would ban the importation of "any gemstone or rough unfinished geological material mined or extracted from Burma, whether imported as a loose item or as a component of a finished piece of jewelry." TGJTA believes the legislation does not specify what companies can do with stocks of gemstones they already have nor does it draw a line in time, i.e. would the legislation ban importing a grandmother's ruby ring that has been a family heirloom for fifty years. ...FEARS THAT THE THAI GEM INDUSTRY WILL LOSE... -------------- -- ¶12. (C) TGJTA says most of the value added in Burmese rubies is created in Thailand by skilled craftsmen who cook, cut, and polish the rough stones. Jewelers say that if this process is not done correctly, the rough stones can become severely damaged and rendered almost worthless. A ban, TGJTA asserted, would harm the livelihood of thousands of skilled Thai but have little impact on the Burmese junta's bottom line. TGJTA believes that in practice, a blanket ban on Burmese gemstones would damage not only the Thai gemstone industry, but would also affect innocent gem craftspeople and merchants worldwide, from Madagascar to Sri Lanka. ¶13. (C) One board member fears that recent press reports and an upcoming CNN documentary about "blood rubies" could do to the ruby industry what a Wall Street Journal article in November 2001 linking tanzanite to al-Qaeda did to the tanzanite industry (see ref A). After the story was published, the price of tanzanite plummeted. He said the allegations were later shown to be untrue but the damage was already done. ¶14. (C) TGJTA believes that there is an inherent conflict of interest in big Western jewelers' advocacy of the import ban. If the legislation becomes law, TGJTA claims, the price of rubies will plummet, possibly forcing small and medium sized traders and manufacturers out of business. The large companies, TGJTA alleges, would be able to take advantage of the situation to fill their stocks with rubies at the artificially low prices. One board member noted that big Western companies have only said they will not buy Burmese rubies, but they did not say they will not sell them. Another board member claimed that despite what the big companies say publicly, they have not in fact stopped buying Burmese gemstones from Thai dealers. ¶15. (C) TGJTA has already voiced its concerns with the Royal Thai Government. In a meeting at the MFA earlier this month with the DCM on an unrelated issue, Americas and South Pacific Director General Nongnuth Petcharatana raised TGJTA's concerns about the proposed ban. ...AND CHINA WILL WIN -------------- ¶16. (C) TGJTA argues that a ban will only benefit China. According to TGJTA, if Thailand cannot sell Burmese gemstones to the United States and the EU, its main markets, Thai traders will not buy rough Burmese gemstone and the Burmese BANGKOK 00005927 004.3 OF 004 traders will simply sell to the Chinese instead. ...BUT SUGGEST A KIMBERLEY PROCESS FOR RUBIES -------------- ¶17. (SBU) Chavalit provided Econoff a copy of the TCP official statement to its members, dated October 31, 2007. (Begin text of statement) "The Thai Color Stone Committee (TCP) as an international organization related to the colored gemstones trade fully support the International Colored Gemstones Association (ICA) official statement on Myanmar and gemstones of Burmese origin. TCP exhorts its members to desist and condemn buying Burmese gemstones from any government sources and government marketing organization. TCP further warns against any hasty decisions towards a systematic ban trade with Burmese gemstones as far as consideration on the negative impact and collateral damage is concerned." (End text of statement). ¶18. (C) TGJTA says they support the effort to deny the Burmese government revenue from the gem trade but believe there are more effective means available. In line with the TCP statement above, the TGJTA supports a ban on purchasing gemstones from MGE or any other GOB sources. TGJTA said they would even support the USG blacklisting traders who participate in GOB-controlled auctions. Finally, they suggest a certification scheme akin to the Kimberley Process that was implemented in 2003 to stem the flow of "conflict diamonds." (See ref B for the Kimberley Process Declaration and www.kimberleyprocess.com for current information). COMMENT -------------- ¶19. (C) It was clear from the meeting with Econoff that the TGJTA hopes that its side of the story will reach policymakers in Washington. It is difficult to verify the claims made by the Thai gem dealers, but we have no reason at this point to believe their information is incorrect. There is no doubt, however, that the group seems genuinely concerned that the proposed legislation in the U.S. Congress would severely affect their business if enacted into law. End comment. ENTWISTLE