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

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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

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more auctions to be held in October and December 2008, total
sales could be well above US 650 million. End Note.)

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Burma's Jade and Gem Exports
2005-2008*
In Millions US Dollars
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Product 2005 2006 2007 2008*

-------------- --------------
Gems 28.8 30.3 26.5 14.3
Jade 167.8 375.8 535.1 528.9
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Total 196.6 406.1 561.6 543.2
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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.

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Destination of Burmese Gem Exports 2006-2008*
Value in USD
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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

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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 --
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Total 28,815,465 26,531,323 14,360,458
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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.

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Destination of Burmese Jade Imports, 2006-2008*
In USD
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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 --
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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

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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