BURMESE GEM AND JADE EXPORTS ON THE RISE

C O N F I D E N T I A L SECTION 01 OF 04 RANGOON 000750 SIPDIS STATE FOR EAP/MLS, INR/EAP, EEB/TFS OES FOR ANN COVINGTON BANGKOK FOR REO OFFICE PACOM FOR FPA TREASURY FOR OASIA, OFAC E.O. 12958: DECL: 09/23/2018 TAGS: ECON SENV PREL PGOV ETRD BM SUBJECT: BURMESE GEM AND JADE EXPORTS ON THE RISE REF: A. RANGOON 062 ¶B. RANGOON 061 RANGOON 00000750 001.2 OF 004 Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 (b and d) Summary -------------- ¶1. (SBU) The value of Burmese jade and gem exports increased substantially in 2007, up 38 percent from 2006. Jade sales accounted for 90 percent of the total. Trade analysts predict 2008 exports will exceed 2007 levels and could reach more than USD 650 million. Burma's jade and gems are sold primarily at state-controlled auctions. In 2007, the majority of Burma's gems were sent to Japan; almost all of Burma's jade was sold to Hong Kong and China. State-owned Myanmar Gems Enterprise accounted for 95 percent of 2007 jade and gem exports, funneling profits directly into regime coffers. End Summary. Unearthing Buried Treasure -------------- ¶2. (C) Myanmar Economic Holdings Ltd. (MEHL),a state-owned enterprise under the jurisdiction of the Ministry of Defense, controls the production of Burma's gem and jade mines (Ref A). Private Burmese companies interested in the extraction of jade or gems must form joint ventures with MEHL to receive proper mining permits from the Ministry of Mines. By law, foreign companies are not allowed to mine gems or jade in Burma. According to Nay Min Han, General Manager of MK Gems (a private gem dealer),per the joint venture agreements, private companies must sell high-quality gemstones through MEHL at the government's annual emporiums. However, MEHL permits firms to sell and export lower-quality stones through private sales. In comparison, GOB regulations mandate that all jade mined in Burma must be sold at MEHL auctions. ¶3. (C) MEHL holds jade and gem emporiums four or five times a year, depending on available stocks. The GOB identifies and invites local and foreign companies to participate in the week-long emporiums, during which they can view and bid on jade and gem lots. Emporium prices are set in euros, and companies must pay a registration fee of 10,000 euros (USD 15,000) in order to bid on available lots through silent auction (Refs A and B). In 2008, MEHL held auctions in March and July; other auctions are planned for October and December. According to Zaw Win Naing, General Manager of privately-owned Kambawza Bank (which owns several jade and gem mines),the majority of companies participating in the 2008 emporiums were from China and Thailand. The GOB has yet to release official sales figures from these emporiums. High Demand for Jade and Gems -------------- ¶4. (C) According to Burmese private consulting firm Business Investment Group (BIG),2007 was a record year for Burmese exports of jade and gemstones. Burmese companies exported over USD 561 million in jade and gems, a 38 percent increase over 2006. Jade sales accounted for 90 percent of those exports. Through July 2008, Burma exported more than USD 543 million, of which 98 percent was jade. BIG trade analysts predict that as demand for Burmese jade and gems increases worldwide, 2008 exports will exceed 2007 figures and could total much as USD 650 million. (Note: With two RANGOON 00000750 002.4 OF 004 more auctions to be held in October and December 2008, total sales could be well above US 650 million. End Note.) -------------- -------------- Burma's Jade and Gem Exports 2005-2008* In Millions US Dollars -------------- -------------- Product 2005 2006 2007 2008* -------------- -------------- Gems 28.8 30.3 26.5 14.3 Jade 167.8 375.8 535.1 528.9 -------------- -------------- Total 196.6 406.1 561.6 543.2 -------------- -------------- Source: Business Investment Group, September 2008 *Through July 2008 ¶5. (C) Myanmar Gems Enterprise, a company under the jurisdiction of MEHL, exported approximately 95 percent of Burma's total jade and gems sales in 2007, worth approximately USD 533 million. Other state-owned enterprises, including Myanmar Ruby Enterprise, Myanmar Pearl Enterprise, and Myanmar Jade Enterprise, as well several private companies, accounted for the rest of 2007 exports. Asia is the Largest Market -------------- ¶6. (C) The majority of Burma's jade and gem exports go to Asia. In 2007, Japan and Thailand imported approximately two-thirds of Burma's gemstones. According to Nay Min Han, the majority of Burmese stones are exported in raw form. Purchasing companies then cut, polish, and set the stones, selling them for substantially higher prices. Nay Min Han, a gemologist trained in Bangkok, explained that only a trained gemologist, after conducting geological testing, can distinguish Burmese jade and gemstones from those originating in other countries. The molecular differences are not visible to the naked eye. He opined that EU and U.S. sanctions will be difficult to enforce, since companies will alter the country of origin certificate to eliminate any reference to Burma. Since the EU imposed sanctions on jade and gems in November 2007, direct sales to Europe have dropped dramatically, with the exception of jade sales to the UK, which have increased significantly, to over USD 4 million thus far in 2008. (Note: the UK Embassy here is unable to explain the increase. End Note.) However, Nay Min Han told us that companies now ship to Europe via third countries, such as Singapore or China, to circumvent EU sanctions. He noted that his company continues to see European tourists making local purchases, despite import restrictions. -------------- -------------- Destination of Burmese Gem Exports 2006-2008* Value in USD -------------- -------------- Destination 2006 2007 2008 -------------- -------------- Japan 8,728,056 11,401,587 7,643,496 Thailand 13,769,775 8,595,049 3,734,373 Hong Kong 3,697,046 3,903,062 2,633,385 Australia 899,712 363,841 262,385 Singapore 58,116 77,547 39,222 RANGOON 00000750 003.2 OF 004 Indonesia 35,864 208,689 27,842 Russia 152 13,494 20,041 Canada 98,828 -- 30 China 7,680 1,024,522 -- USA 2,640,120 353,233 -- Germany 227,446 125,195 -- India 57,224 37,298 -- Other 84,033 427,843 -- -------------- -------------- Total 28,815,465 26,531,323 14,360,458 -------------- -------------- Source: Business Investment Group, September 2008 *Through July 2008 ¶7. (C) More than 95 percent of Burmese jade is exported to Hong Kong and China each year. While Hong Kong by far imports the most Burmese jade, China's jade imports have increased by 900 percent since 2006. The Myanmar Gems Enterprise also exports jade to Thailand, Singapore, and Malaysia, as demand in these three countries has also increased substantially in recent years. Most analysts believe 2008 jade sales will likely exceed 2007 figures; MEHL will hold another auction for gems and jade in December. Aung Ko Win, owner of Kambawza bank and several jade and gem mines in Shan and Kachin States, told us that the GOB is putting pressure on jade companies to increase production over the next five years in order to meet Chinese demand. -------------- -------------- Destination of Burmese Jade Imports, 2006-2008* In USD -------------- -------------- Destination 2006 2007 2008 -------------- -------------- Hong Kong 371,329,791 523,089,437 503,737,967 China 1,974,866 8,823,738 10,640,168 Thailand 184,763 381,256 5,872,043 UK 363 -- 4,418,215 Singapore 818,399 2,776,237 2,231,884 Malaysia 4,607 -- 1,669,541 Japan 142,792 20,337 303,483 South Korea 4,696 9,384 -- UAE 1,314,729 -- -- Other 49,988 5,824 -- -------------- -------------- Total 375,824,631 535,106,427 528,873,300 -------------- -------------- Source: Business Investment Group, September 2008 *Through July 2008 Comment -------------- ¶8. (C) As with other natural resources, such as timber or minerals, the regime controls the production, sale, and export of jade and gems. Sales of jade, 95 percent of which are sold to other Asian countries, are the real money maker for the government. Local gem dealers predict that U.S. and EU sanctions banning the import of Burmese-origin gems and jade will have little effect on overall sales, which they expect will continue to rise. They point out that companies in Singapore, Hong Kong, Thailand, and elsewhere can and will amend certificates of origin to circumvent sanctions, relying on the inherent difficulty in determining source countries. We cannot confirm their claims that only a trained expert can identify Burmese stones, but if true, it would appear to create a significant challenge to making JADE Act and other RANGOON 00000750 004.2 OF 004 import sanctions stick. Post would appreciate updates on USG plans for implementation of the JADE Act and stands ready to provide additional information on the domestic gem and jade industries as needed. DINGER