MOST RUBIES SMUGGLED INTO THAILAND AND COME WITH

UNCLAS SECTION 01 OF 02 BANGKOK 003703 SIPDIS DEPT FOR EEB/ESC/TFS (JMARSHALL) DEPT FOR EAP/MLS (LSCHEIBE) E.O. 12958: N/A TAGS: PGOV PREL EFIN ECON ETRD BM SUBJECT: MOST RUBIES SMUGGLED INTO THAILAND AND COME WITH NO CERTIFICATES REF: A. A. SECSTATE 127059 DEMARCHE REQUEST) ¶B. B. BANGKOK 6239 (A BURMESE ROCK BECOMES A THAI RUBY) ¶C. C. BANGKOK 3207 (ORIGIN OF THAI RUBY EXPORTS HARD TO DOCUMENT) BANGKOK 00003703 001.2 OF 002 ¶1. (SBU) Summary. Thailand's ruby processing industry does not formally document the country of origin of the raw stones. Industry sources say that most rubies are smuggled in from either Burma or Africa. None of the smuggled goods come with certificates of origin, although it may be possible for dealers to develop an informal certification system. The Government has expressed interest in creating a certification scheme to comply with the JADE Act, but has no concrete plans at this time and has concerns about how to certify a country of origin for raw stones with confidence absent expensive testing. They have also said that should the U.S. ban the import of rubies processed in Thailand, they would "have no choice" but to bring a case against the U.S. at the WTO for violation of country of origin rules. End Summary. ¶2. (SBU) Comment: Thai gem industry sources are surprisingly frank about the undocumented nature of their inputs. They continue in a state of denial, despite our explanations of what the JADE Act will require of U.S. importers and consequently of them. It appears that they believe that their frank explanations of how difficult it would be to create a paper trail will discourage us from enforcement of what in their view is a pointless law that will have little if any impact on the Burmese regime. The Government understands better the possible consequences for Thai gem exports to the United States, but has a hard time imaging how a certification system, absent forensic testing, would ever be reliable given the informal, mom and pop nature of the industry. . , ¶3. Per reftel A, post has gathered information on Thailand's ruby industry and keyed responses to reftel's queries as follows: ¶4. (SBU) Ascertain from local industry representatives the typical chain of custody of a ruby from mine to point of export, or from import to export, including any controls private entities maintain to ensure authenticity and protect against smuggling: Based on conversations with the Thai Gem and Jewelry Traders Association (TGJTA) and the Chantaburi Gem and Jewelry Traders Association (CGJTA),Thailand,s largest gem industry groupings, Thailand no longer mines a significant amount of rubies. Most rubies processed in Thailand come from Burma, Madagascar, and Tanzania. For African rubies, Thai dealers or their agents go directly to Africa, purchase the rubies, and hand-carry them back to Thailand. Most of these transactions are done under the table. TGJTA states that no strict controls are in place to prevent smuggling. The vast majority of rubies from Madagascar and Tanzania are smuggled to avoid paying taxes and because the government of Madagascar has restricted the export of rubies. ¶3. (SBU) Determine what, if any, documentation for this process already exists: According to TGJTA no formal documentation exists to record imports of rubies from Madagascar, Tanzania, or Burma since they are often smuggled. TGJTA believes it is possible for the governments of African countries to issue certificates, but this rarely happens since the sales would have to be reported to the governments. For rubies legitimately imported into Thailand, Royal Thai Customs documents would be available to show the rubies entry into Thailand. However, TGJTA believes a significant amount of rubies are not declared and are hand carried or shipped via airfreight undeclared into Thailand to avoid VAT and duties. As a BANGKOK 00003703 002.2 OF 002 result of the JADE Act, TGJTA is informing members that they should keep records of transactions and be prepared to demonstrate country of origin. However, these documents would be generated by the smugglers or Thai gem dealers themselves. TGJTA believes African dealers will develop some kind of certificate of origin scheme backed by the African government, but TGJTA says that African rubies are generally not bound for the U.S. market due to their lower quality. TGJTA is also considering issuing country of origin certificates to their members. However, these would essentially be self-certifying and not backed by lab tests. Conducting actual gemological tests on rubies would be prohibitively expensive according to TGJTA (see reftel B). ¶4. (SBU) Report on the major export markets, whether intermediary or final, for rubies extracted from or finished in the host country: TGJTA states that 25-30 percent of their ruby exports are bound for the U.S. market. In general, the rubies are in finished form and are often embedded in larger jewelry pieces. TGJTA believes most of the rubies bound for the U.S. originate in Burma because these stones tend to be of higher quality. The remainder of higher quality ruby exports go to the European Union while lower quality rubies from Africa are exported to neighboring countries or sold in Thailand. ¶5. (SBU) Engage host government officials to ascertain the level of government involvement in the gem industry, including but not limited to: control of mines, licensing, taxing authority, and issuance of any certificates of origin of rubies for export: The RTG is not aware of significant ruby mining in Thailand and does not own or control ruby mines. The RTG exercises basic customs authority over rubies officially imported or exported, but does not issue certificates of origin. Any determination of a ruby,s country of origin would depend on the individual gem dealers declaration. The RTG also believes most raw rubies to be smuggled into Thailand. (Note: The RTG believes Thailand is the country of origin, under WTO rules, for products whose last substantial transformation occurred in Thailand. That would apply to all rubies processed here. The Government has told us that if Thai ruby exports are banned from the U.S., they will "have no choice" but to bring a case against us in the WTO. End note.) ¶6. (SBU) Discuss with industry and government representatives what possibilities exist for creating certificates of origin and/or a chain of custody paper trail for rubies, particularly focusing on the possibilities for credible documentation in which enforcement officers in the United States could maintain a high degree of confidence: The Thai Ministry of Commerce (MOC) and Ministry of Foreign Affairs (MFA) are open to the idea of creating government issued certificates of origin. Both MOC and MFA state they are concerned about the JADE Act's impact on Thailand's economy and are in close contact with Thai gem associations. TGJTA also says they have approached the RTG about creating a government backed certification scheme. While all parties seem interested in such a system, there are no immediate plans for implementing a government certificate. MFA officials have also questioned whether such certificates would have to be backed up by laboratory tests to be credible. JOHN