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
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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
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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
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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
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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