NEPAL: RUBY INDUSTRY UNREGULATED

UNCLAS SECTION 01 OF 02 KATHMANDU 000048 SENSITIVE SIPDIS EEB/ESC/TFS JOHN MARSHALL KLEIN, EAP/MLS LAURA SCHEIBE AND SCA/INS E.O. 12958: N/A TAGS: PGOV PREL EFIN ECON ETRD BM NP SUBJECT: NEPAL: RUBY INDUSTRY UNREGULATED REF: 08 SECSTATE 127059 No Watchful Eyes Over Trade in Rubies -------------- ¶1. (SBU) Nepal does not have any ruby mines, nor does the country have a finishing and cutting industry. All rubies and other precious gems for jewelry are imported. Neither the Government of Nepal (GON) nor private entities in Nepal maintain controls on the typical chain of custody of rubies to ensure authenticity and protect against smuggling. The GON treats rubies and other precious stones the same as imports of any other product, and no specific documentation, permission or clearance process exists for the gems. The Department of Customs monitors gems for duty purposes but imposes no restrictions or control over imports. Ramesh Maharjan, President of Nepal Gems and Jewelry Association, told Emboff that the private jewelry industry in Nepal flourishes on smuggled gems and stones. Minimal Exports -------------- ¶2. (SBU) According to Nepal Rastra Bank, the central bank of Nepal, Nepal exported approximately USD 4.2 million worth of jewelry products in FY 2007/08 -- a meager 1.2 percent of the country's total exports. Silver jewelry and semi-precious stones constitute the bulk of jewelry exports; while the export of jewelry made with rubies and other precious gems (diamonds, sapphires and emeralds) is insignificant. The United States and Germany are the main export markets for Nepalese jewelry created from these stones. Local chambers of commerce and the Nepal Gems and Jewelry Association issue unverifiable certificates of origin for jewelry manufactured in Nepal, upon which all export documentation is based. GON and industry sources do not rule out the possibility that gem and jewelry items are smuggled out of Nepal. Unknown Imports -------------- ¶3. (SBU) Although Nepal relies entirely on imports for precious and semi-precious stones, neither Nepal Rastra Bank nor any other GON entity publishes statistics on imports of gems. Maharjan, speaking from an industry perspective, said that diamonds constitute the largest quantity of precious stones entering Nepal. Rubies enter in moderate to high volume; jadeite is negligible. Jewelers source their gems primarily from India and Thailand. Maharjan told Emboff that because the GON imposes between 1 and 2 percent customs duty on precious stones, which in terms of value in Nepalese rupees is very high, many of the stones find their way into the Nepalese market through the porous Indo-Nepal border and the international airport in Kathmandu. Maharjan remarked that customs and security checks at the airport are extremely slipshod, and that metal detectors do not register in the case of stones. A small quantity of these undetected gems may be rubies that originate from Burma, entering Nepal overland through Bangladesh and India or by air via Bangkok. KATHMANDU 00000048 002 OF 002 Comment -------------- ¶4. (SBU) Lax GON and industry record keeping makes the percentage of rubies in Nepal that originate from Burma rather than the regional neighbors of Thailand or Sri Lanka difficult to estimate. Whether Burmese rubies are among the miniscule number of rubies exported from Nepal in finished jewelry is even less possible to ascertain. The GON is unlikely to initiate the creation of certificates of origin or a chain of custody paper trail for rubies in Nepal. However, post believes that the GON could be persuaded to adopt a formal system for the documentation of rubies if the international community were to set the standard. Unfortunately, ineffective border control and government corruption would make enforcement of such regulations arduous at best. POWELL