THAI MARKET TURNS TO AFRICAN RUBIES AS SMUGGLING OF BURMESE

UNCLAS SECTION 01 OF 02 CHIANG MAI 000114

SIPDIS

E.O. 12958: N/A
TAGS: SENV ECON ETRD PGOV EINV TH BM CH
SUBJECT: THAI MARKET TURNS TO AFRICAN RUBIES AS SMUGGLING OF BURMESE
STONES DECLINES

REF: A. 2008 RANGOON 61: FINANCING THE REGIME WITH JADE, NOT GEMS

B. 2007 BANGKOK 6239: A BURMESE ROCK BECOMES A THAI RUBY

CHIANG MAI 00000114 001.2 OF 002


Sensitive But Unclassified; please handle accordingly.

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Summary
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1. (SBU) The long and porous border of the Mae Sot area with
Burma, and proximity to the Burmese gem mines, have made this
region historically a center for the smuggling of Burmese gems.
However, imported African rubies now dominate local markets in
Mae Sot. Retailers say Burmese rubies are too expensive
compared to African ones and believe stricter Burmese controls
are directing Burmese production into the Rangoon auctions,
especially in high-end gems. In addition, China's appetite for
jade has caused the Thai border trade in jade to all but dry up.
End summary.

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Mae Sot Gem Market in Decline
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2. (SBU) Because of its geographically and commercially
strategic location, Mae Sot in Tak Province has played a
historically significant role in the trade of Burmese gems. The
Thai border town is home to about 300 gem traders and retailers,
many of whom work part-time, and a few gem wholesalers,
according to the chairperson of the Mae Sot Gemstones and
Jewelry Club. The two small gem markets in Mae Sot, which are
located in the center of town and at the Thai-Burmese Friendship
Bridge, bustle every morning with brokers buying and selling
smuggled gems and semiprecious stones. Over time, these factors
have built up Mae Sot's reputation as a Burmese gem supply hub.


3. (SBU) During recent casual visits to the Mae Sot gem markets
by local Consulate staff, however, traders and retailers
reported that the Mae Sot gem market is in decline because of
the falling competitiveness of Burmese gems, low local demand,
and an increasing control of the market by the official auction
in Rangoon that leads to fewer, and lower quality, raw gems
available to be easily smuggled out of the country.

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Burmese Rubies Can't Compete with African Imports
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4. (SBU) Despite its proximity to Burma and the mines of Mogok
north of Mandalay and the Mineshu mines in Shan State,
approximately 70 percent of rubies sold in Mae Sot are now
imported from Africa, mainly Madagascar, according to one shop
owner. In the shop stalls, it appeared to the Consulate staff
that over 90 percent of the rubies for sale were from Africa. A
source at the Tak Chamber of Commerce said that the "vast
majority" of rubies in Tak now come from Africa. Local
merchants said that the low prices of African rubies are too
competitive for Burmese gems, even when smuggled. Because of
low quality and demand, the price of a one-karat rough, uncut
Burmese ruby in Mae Sot is only about $0.90; but even that low
price cannot compete with African rubies which are marketed to
the tourist crowd as more beautiful and affordable, though less
rare than Burmese rubies. Many retailers admitted to falsely
selling African rubies as Burmese rubies to tourists, who are
willing to pay more for "Burmese" ones.

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Low Demand Hurts Retailers
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5. (SBU) Besides declining competitiveness of Burmese gems, Mae
Sot and Chiang Mai merchants complained of low demand for
precious gems. In Mae Sot, retailers said that local demand has
dwindled to a few local traders and tourists. The trade of
valuable smuggled gems from Burma through Mae Sot is a thing of
the past; and local demand survives only because of Mae Sot's
historical reputation. In both Mae Sot and Chiang Mai, jewelry
retailers complained of the decline in global demand for
precious gems as luxury goods. With high commodity prices
globally, jewelry merchants believe that consumers are shifting
their preferences to cheaper, custom-made jewelry.

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The Dominance of the Rangoon Gem Auction
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6. (SBU) Merchants believe that the decline in Burmese stones in
Mae Sot has driven more Bangkok-based gem dealers to buy
directly from the auction in Rangoon. Mae Sot's share of the
value of Thailand's total Burmese ruby imports is now only 5%,

CHIANG MAI 00000114 002.2 OF 002


according to the Mae Sot Gemstones and Jewelry Club. One
merchant said that the Burmese regime has taken increasing
control of the high-end ruby trade. A Chiang Mai jewelry
producer said that high quality gems are now more difficult to
find in the border towns of Mae Sot and Mae Sai. (Note: Post
plans to visit and report separately on the Mae Sai gem market.)

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China Takes the Jade Market
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7. (SBU) The economic rise of China has also contributed to the
decline of the Mae Sot market. Besides rubies, jade has
traditionally been the other major gem export from Burma. While
Thailand's demand for jade is relatively low, Thailand's border
towns used to do a moderate trade in jade. Now that has
changed. Chinese bidders have pushed prices so high that Thai
traders in Northern Thailand have all but dropped the jade
trade.

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Comment
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8. (SBU) While we cannot say for sure what is going on in the
Burmese gem industry, the decline in volume and quality of
Burmese rubies in the markets of Mae Sot is consistent with
local vendors' beliefs that the Burmese government has tightened
control over gem mining and transport, leaving less to smuggle
out cheaply. The most dramatic change, however, has been the
influx of African gems. Prices for Burmese stones may be rising
because of greater interest in the Rangoon gem auctions, but so
long as African rubies can be brought in at lower prices, they
will inevitably continue to dominate local markets, at least for
non-high-end stones.


9. (U) This cable was coordinated with Embassies Bangkok and
Rangoon and Consulate General Chengdu.
ANDERSON