VZCZCXRO7352
PP RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHCHI #0084/01 1750136
ZNR UUUUU ZZH
P R 240136Z JUN 09
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 1074
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHOO/CHINA POSTS COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHCHI/AMCONSUL CHIANG MAI 1156

UNCLAS SECTION 01 OF 03 CHIANG MAI 000084 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN ECPS ECON PREL PGOV BM TH
SUBJECT: JADE ACT: SMUGGLING OF BURMESE GEMS REMAINS HIGH AT MAE SAI 
 
REF: A. CHIANG MAI 70 (MAE SOT GEM MARKET) 
     ¶B. 08 RANGOON 62 (RANGOON AUCTION) 
     ¶C. RANGOON 333 (BURMESE GEM PRICES) 
     ¶D. CHIANG MAI 67 (BACKDOOR TRADING ROUTES) 
     ¶E. 08 CHIANG MAI 97 (BURMESE REMITTANCES) 
     ¶F. 08 CHIANG MAI 114 (AFRICAN RUBIES DOMINATE MAE SOT) 
 
CHIANG MAI 00000084  001.2 OF 003 
 
 
Sensitive but unclassified; please handle accordingly. 
 
 
 
------------------- 
 
Summary and Comment 
 
------------------- 
 
 
 
¶1. (SBU) In contrast to other gem markets in Thailand such as 
Mae Sot and Chantaburi, where African gems make up the bulk of 
the merchandise, smuggled Burmese gems (mainly rubies and jade) 
continue to dominate the local Mae Sai market.  While Mae Sai 
gem traders and jewelry producers complain that the U.S. JADE 
Act is harming the local Thai polishing and finishing 
industries, they blame the overall decline of Thai gem trade on 
the global economic slowdown, higher gem prices forced by the 
auctions in Rangoon, and domestic political instability in 
Thailand.  In Mae Sai, the smuggling of Burmese gems reveals an 
informal banking sector and possible links to the narcotics 
trade, which further highlight the lawlessness of the 
neighboring Wa-controlled region of Burma. 
 
 
 
¶2. (SBU) Comment:  As the Burmese regime continues to force gems 
to flow through government-sponsored Rangoon auctions and as 
African gems grow more competitive globally, it is noteworthy 
that the Mae Sai market - though shrinking overall - remains a 
significant entry-point for smuggled Burmese gems.  In contrast 
to Mae Sot (ref a), the smuggling services sector appears to be 
burgeoning and relatively open in Mae Sai, a possible 
consequence of the fact that the neighboring Wa region of Burma 
is politically and geographically isolated from Rangoon. 
Despite this, overall trade in Burmese gems appears to be down, 
even through Mae Sai's smuggling routes; however, there appears 
to be few links between that decline and the U.S. JADE Act.  End 
Summary and Comment. 
 
 
 
------------------------------------ 
 
Causes of a Declining Mae Sai Market 
 
------------------------------------ 
 
 
 
¶3. (SBU) Amid the global economic downturn and GOB efforts to 
control Burmese gem supply, the Mae Sai gem market (like other 
gem markets in Thailand) is in decline, local traders and 
jewelry businessmen told econ staff during a June 19 visit. 
(Note: Mae Sai is located at the northern most point of Thailand 
and is adjacent to the Wa-controlled area of Burma.  The other 
major entry point for smuggled Burmese gems into northern 
Thailand is Mae Sot, which is located on the western Thai-Burma 
border.)  Gem polishers and jewelry makers said that the main 
cause of the decline over the past two years has been the global 
economic slowdown, which has driven down demand for luxury 
goods.  According to some gem and jewelry retailers in Mae Sai, 
domestic political instability in Thailand is also to blame. 
Political turmoil, which has reduced tourism, means fewer 
consumers of jewelry products within Thailand, they assert. 
 
 
 
¶4. (SBU) Aside from the economic crisis, Mae Sai businesses also 
blame efforts by the GOB to force the flow of Burmese gems 
through the Rangoon auctions for the market's decline (refs b 
and c).  While this process is not new in Burma, Mae Sai based 
merchants said they believe the regime has been tightening its 
control over gems in recent years.  According to one Thai-owned 
gem retailer in Mae Sai, as the Burmese regime cracks down on 
gem smuggling, it forces more traders to buy at the auctions 
where base prices are set artificially high.  This pushes prices 
of smuggled gems higher, which then raises costs for Thai 
polishers and jewelry producers who purchase the gems.  Higher 
prices have consequently pushed down the volume smuggled into 
Thailand.  Moreover, Mae Sai traders complained that they cannot 
 
CHIANG MAI 00000084  002.2 OF 003 
 
 
compete with the purchasing power of other traders at the 
auctions, particularly the Chinese and Taiwanese who primarily 
purchase Burmese jade.  One Thai gem dealer in Mae Sai said that 
the Chinese in particular are willing to pay very high prices at 
the auction, which he attributed to China's interest in 
supporting Burma politically.  Thus, official Burmese imports of 
gems into Thailand have declined as well. 
 
 
 
-------------------------------------- 
 
Three Smuggling Routes Through Mae Sai 
 
-------------------------------------- 
 
 
 
¶5. (SBU) While the Mae Sai gem market is in decline, smuggling 
of Burmese gems through this border town remains the primary 
mode of import.  Traders of Burmese gems in Mae Sai said 
smuggled gems enter through one of three methods: directly from 
a Burmese gem mine, via the auction in Rangoon and, 
subsequently, through smuggling networks, or by Thai consumers 
who cross into Burma.  In the first case, the Mogok mine in 
Burma is the primary source for gems bound for Mae Sot, while 
the Mineshu mine is the main source for gems going to Mae Sai. 
In these cases, miners smuggle the gems out of the mine and sell 
them to Burmese traders who carry them to Thailand via Mae Sai. 
These Burmese smugglers hide the gems on their body under their 
clothes and cross into Mae Sai by foot, at great risk of 
detection by Burmese military officials.  One Burmese smuggler 
told econ staff that he makes himself appear impoverished so 
that Burmese officials will not suspect him; he noted that the 
work he was doing was highly dangerous on the Burmese side. 
 
 
 
¶6. (SBU) The danger of smuggling directly from the mines has 
grown in recent years due to GOB efforts to control the gem 
trade, according to Burmese smugglers and Thai traders at Mae 
Sai.  Consequently, a second smuggling route is developing 
through which gems flow from the mines to the Rangoon auction 
via official channels, then are smuggled out by those who bid on 
the gems at the auction.  A Thai gem trader described the 
process as follows:  Burmese cronies or government officials 
will purchase rough gems in bulk at the annual Rangoon auction 
for a certain price (presumably having competed with foreign 
bidders).  Those domestic buyers then divide up their bulk 
purchase into smaller rations, which are then sold off (at 
higher marginal prices) to smugglers who will carry them into 
Thailand for trading.  Thus, the consequence of the GOB 
crackdown on Burmese gem supply is not so much a decline in the 
level of smuggling but rather that the revenue from smuggling 
goes to individual Burmese regime officials as well as to 
independent Burmese traders.  In Mae Sot, on the other hand, 
smuggling revenue ends up in the pockets of smaller traders with 
no connections to the regime (ref a). 
 
 
 
¶7. (SBU) In the case of high-end rubies, sapphires, and jade, 
Thai traders do not trust these smuggling methods.  (Jade is not 
often smuggled in raw form due to its weight and bulkiness; it 
is sold at the auctions in 100 kilo pieces.)  According to Thai 
gem traders in Mae Sai, if a Thai consumer (such as a Bangkok or 
Chantaburi-based jewelry retailer) identifies a certain 
high-value gem available in the Burmese market through hear-say 
or photos, that consumer will travel directly to Tachilek, Burma 
(adjacent to Mae Sai) to purchase the gem and carry it back 
himself, without declaring the gem to Thai or Burmese customs. 
This is particularly common in the Wa-controlled area of Burma 
which borders Mae Sai and reportedly hosts lawless trade of gems 
and other goods (see para 11 and ref d). 
 
 
 
¶8. (SBU) Both methods contribute to the significant portion of 
smuggled gems that enter Thailand via Mae Sai.  According to gem 
retailers in Mae Sai, they are not concerned about the fact that 
their supplies enter Thailand illegally.  One high-end, 
Thai-owned retailer told us that when suppliers (i.e., 
smugglers) come to their shop to show their products, the 
company does not ask whether the goods entered Thailand 
illegally or not.  Company contacts said that the concern of 
retailers, polishers, and jewelry makers in Mae Sai is not how 
the gems arrived in Thailand but the quality and resale value of 
the gem itself.  They told us that because most of their goods 
are not for export (but for purchase by foreign tourists or 
 
CHIANG MAI 00000084  003.2 OF 003 
 
 
wealthy Thais), they are not concerned about acquiring 
certificates of origin, for example.  In contrast, a gem dealer 
in Chiang Mai told us (ref a) that an increasing number of 
American tourists have asked for certificates of origin over the 
past two years. 
 
 
 
--------------------------------------------- ------------ 
 
In Mae Sai, Informal Financial Services for Gem Smuggling 
 
--------------------------------------------- ------------ 
 
 
 
¶9. (SBU) Gem smuggling in Mae Sai has led to the development of 
informal Thai-owned financial services for Burmese gem 
smugglers.  One Thai businessman who offers such services 
explained that, officially, his business provides retail space 
to Burmese and Thai traders to meet and negotiate prices. 
Beyond that, however, the business serves as an informal bank 
for the Burmese gem smuggler.  When a smuggler enters Thailand, 
for example, with about $30,000 worth of rubies strapped to his 
body (as was the case with the smuggler we spoke with there), he 
sells the gems at the shop and returns to Burma empty handed. 
 
 
 
¶10. (SBU) Instead of carrying the money he earned back to Burma, 
he passes the cash to the Thai businessman who owns the trading 
market and who holds the money for him.  Simultaneously, this 
Thai businessman also functions as an exporter of goods that are 
illegal to export to Burma (such as soft drinks and instant 
noodles).  In Burma, traders who purchase these illegal imports 
from him then pay for the goods to the Burmese gem smuggler 
whose money is being held back in Mae Sai (and his balance there 
is deducted accordingly, along with a commission to the Thai 
business owner).  This cross-border financial services system 
closely resembles that used by Burmese migrant workers to remit 
wages back to their relatives in Burma (ref e). 
 
 
 
------------------------------------------- 
 
High Value Gem Smuggling and the Drug Trade 
 
------------------------------------------- 
 
 
 
¶11. (SBU) Another sector that has potential links to gem 
smuggling is narcotics, according to one American jewelry 
retailer in Mae Sai.  This retailer told econ staff that he is 
reluctant to purchase Burmese gems (he said most of his supply 
is from Africa, Australia, and North America) because he 
believes purchasing such gems provides financing to the region's 
drug trade.  This retailer, who has been living in Mae Sai for 
over 40 years, said that middle-grade gems that are smuggled 
into Thailand via Mae Sai and which make up the bulk of the 
trade volume probably have no affiliation with drug traders. 
However, revenue from high-value smuggled gems, which can be 
purchased from the Wa by Thais traveling to Burma, financially 
supports the narcotics trade, he asserted.  (Comment:  We note 
that the Wa's 20th anniversary celebration book, released 
earlier this year, contains pictures of the Wa mining and 
polishing gems.  We have no hard evidence that links the Wa 
directly to gem smuggling, though the Wa and other armed groups 
in Shan State are key customers of consumer goods exported from 
Thailand to Burma via Mai Sai.) 
 
 
 
¶12. (U) This cable was coordinated with Embassies Bangkok and 
Rangoon. 
MORROW