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R 010406Z JUN 09
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UNCLAS SECTION 01 OF 03 BANGKOK 001296 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MLS DRICHELSOPH, LSCHEIBE 
STATE PASS TO USTR 
TREASURY FOR OASIA 
DHS FOR CBP 
 
E.O. 12958, AS AMENDED: N/A 
TAGS: PGOV PREL EFIN ECON ETRD BM TH
SUBJECT:  GAO LEARNS OF JADE ACT'S IMPACT IN THAILAND 
 
REF: A) 07 BANGKOK 5927 (THAI GEM INDUSTRY BELIEVES) B) 07 BANGKOK 
6239 (A BURMESE ROCK) C) 08 BANGKOK 3207 (ORIGIN OF THAI RUBY) D) 08 
BANGKOK 3703 (MOST RUBIES SMUGGLED) E) 09 BANGKOK 711 (CHANTABURI 
ARTISANS LAMENT) 
 
BANGKOK 00001296  001.2 OF 003 
 
 
¶1.  (SBU)  Summary:  A Government Accountability Office (GAO) team 
visited Bangkok and Chantaburi May 12-15 to investigate the 
implementation and impact on Thailand of the U.S. Tom Lantos Block 
the Junta's Anti-Democratic Efforts Act (JADE Act).  Private gem 
dealers claim the JADE Act, which bans the importation of Burmese 
jadeite and rubies, has resulted in 100,000 layoffs and a 40 percent 
drop in ruby sales.  Gem dealers also maintain that rubies are 
generally smuggled from Burma with no profits going to the Burmese 
junta.  Gem dealers and the Royal Thai Government (RTG) believe 
Burmese rubies undergo a "substantial transformation" through 
processing in Thailand, making Thailand the product's country of 
origin under WTO rules.  RTG officials said Thailand would not 
support a WTO waiver for the U.S. on the ruby import ban.  At this 
point, however, the RTG has no plans of filing a WTO case against the 
U.S.  End Summary. 
 
¶2.  (SBU)  Comment:  While we cannot verify the statistics cited by 
gem dealers and they may well be inflated out of self-interest, there 
is little doubt that the JADE Act has negatively affected the ruby 
industry in Thailand.  The global economic recession has also hit 
Thai gem and jewelry exports hard, but RTG claims that the JADE Act 
violates U.S. obligations under the WTO cannot be dismissed. 
Concerned about plummeting overseas sales for what had been 
Thailand's third largest export category, yet not wanting to pick a 
WTO fight with us, the Government hopes that the GAO visit and 
resulting report will somehow mitigate the effects of the JADE Act's 
implementation.  End comment. 
 
WTO issues and a UN Resolution 
------------------------------ 
¶3.  (SBU)  Econoff accompanied a GAO team to the Thai Ministry of 
Commerce (MOC) and Ministry of Foreign Affairs (MFA) on May 13.  MOC 
and MFA officials stated that the RTG has no problem with the 
motivation behind the JADE Act---punishing the Burmese junta. 
However, the RTG believes the Act, as it stands, unintentionally but 
unfairly hurts Thailand in contravention of WTO rules.  MOC and MFA 
officials stressed that if the U.S. were to seek a WTO waiver, 
Thailand, with the probable support of other countries, would have no 
choice but to oppose it.  MFA officials also indicated that the very 
fact that the legislation contains a section requiring the U.S. 
President to seek a waiver indicates that the USG recognizes the JADE 
Act goes against WTO rules. 
 
¶4.  (SBU)  MOC and MFA officials stated Thailand is not currently 
considering initiating a WTO case against the U.S. even though the 
RTG maintains that rubies undergo a "substantial transformation" in 
Thailand and that, under WTO rules of origin, the rubies are Thai 
products.  RTG officials stated a preference to work through 
diplomatic channels to seek a resolution and viewed the GAO visit as 
an opportunity to get the U.S. Congress to revisit the act. 
 
¶5.  (SBU)  With regard to the idea of seeking a UN Resolution calling 
for the establishment of a Kimberly-like process for rubies, MFA and 
MOC officials expressed interest in the idea, but admit they have not 
explored or fully comprehend how such a system would work. 
Similarly, the Thai Gem and Jewelry Traders Association (TGJTA) does 
not oppose a Kimberly-like scheme for rubies, but does not believe 
such a system would work.  TGJTA members believe the diamond industry 
is much more regulated and involves, in general, big corporations and 
their vendors whereas rubies involve countless small-time dealers and 
traders.  The RTG also remains open to implementing a 
government-backed certification scheme for rubies, but MOC officials 
stated they do not have the ability to verify a ruby's country of 
origin because they lack the technical skills to do so. 
 
The Impact of the Jade Act 
-------------------------- 
¶6.  (SBU)  Econoff and the GAO team met with several board members of 
the TGJTA on May 14.  TGJTA agreed with the intention of the JADE 
Act, but argued that the law harms Thailand and does not punish the 
Burmese junta.  TGJTA claims upwards of 90 percent of rubies from 
 
BANGKOK 00001296  002.2 OF 003 
 
 
Burma are now smuggled across porous borders in northern Thailand. 
TGJTA believes that, typically, individuals or families---often 
ethnic minorities--- in Burma mine for rubies, then pass them on to 
middlemen who are often friends or relatives.  These middlemen 
smuggle the rubies to Thailand.  TGJTA officials asserted trade in 
black market rubies does not benefit the junta as smugglers do not 
pay taxes or report their sales.  However, TGJTA officials did admit 
that smugglers may pay-off some Burmese officials along the way to 
facilitate smuggling and that miners may pay the Burmese government 
for rights to mine. 
 
¶7.  (SBU)  Post-JADE Act, the TGJTA claims that ruby sales have 
dropped about 40 percent worldwide.  While TGJTA readily admits the 
current economic downturn has contributed to a drop in sales, the 
association points out sales in other gems have not dipped as 
substantially.  This, according to TGJTA, indicates the JADE Act is 
the primary reason for the plunge in ruby sales.  TGJTA also states 
that trade in rubies to the U.S. has essentially ceased as gem 
dealers have decided to stay away from rubies.  The inability to 
trade in rubies has resulted in Thailand accumulating a back-stock of 
up to $50 million of the stone.  (Note: Since Thai customs data does 
not break down gem exports down to individual types, it is difficult 
to verify TGJTA's claims.) 
 
¶8.  (SBU)  TGJTA also reports that about 100,000 people have been 
laid off in the ruby industry since the passage of the JADE Act. 
While TGJTA officials concede the economic crisis has played a big 
role in the lay-offs, they believe anecdotal evidence from 
association members and Chantaburi artisans indicate that the JADE 
Act is the main culprit (see ref E).  If the JADE Act continues, 
TGJTA foresees Chantaburi's ruby industry being devastated within a 
few years.  TGJTA believes China will supercede Thailand as the 
center for ruby processing within three to five years.  Because China 
has a large domestic market, Chinese dealers do not worry about the 
JADE Act. 
 
Burmese or Not Burmese? 
----------------------- 
¶9.  (SBU)  Verifying a ruby's country of origin is more of an art 
than a science according to two gem laboratories that the GAO team 
and econoff visited on May 14.  Officials at the Asian Institute of 
Gemological Sciences, a vocational college that also runs a lab, and 
the Gemological Institute of Thailand demonstrated sophisticated 
machinery that analyzes a stone's properties.  However, even with 
advanced technology, determining a ruby's country of origin is an 
educated guess at best.  In addition, the burden of documenting each 
stone's country of origin would be cost prohibitive (see ref C and 
D). 
 
¶10.  (SBU)  TGJTA also believes that rubies are "substantially 
transformed" in Thailand through processing.  TGJTA estimates that 
about 80-90 percent of a ruby's value lies in processing and setting. 
 A raw ruby stone's inherent value is only a small fraction of the 
value of the finished product.  For example, the price of purchasing 
a rough piece of ruby is about one-tenth of the final retail price of 
a finished piece of ruby set in a ring. 
 
¶11.  (SBU)  According to TGJTA, African rubies of varying quality are 
gaining an increasing foothold in Thailand.  While Burmese rubies 
have traditionally been of higher quality and famous for their 
"pigeon blood" color, African rubies are becoming increasingly 
desirable.  While a trained gemologist with advanced technology may 
be able to distinguish between African and Burmese rubies, the time 
and costs involved are prohibitive.  Despite the similarities, Thai 
artisans prefer working with Burmese stones because of the skill they 
have developed and perfected in working with those stones. 
 
Chantaburi 
---------- 
¶12.  (SBU)  The GAO team traveled to Chantaburi, about 150 miles east 
of Bangkok on May 15.  Chantaburi has become Thailand's center for 
ruby treating, heating, processing, polishing, and cutting.  In years 
past, Chantaburi had its own ruby producing mines, but these have 
largely been mined out.  However, the skills artisans in the area 
possess have enabled the town to become the world's leader in the art 
of ruby processing (see ref A and E). 
 
BANGKOK 00001296  003.2 OF 003 
 
 
 
¶13.  (SBU) The Chantaburi Gem and Jewelry Traders Association (CGJTA) 
took the GAO team on a tour of area factories.  Many of these 
factories are mom-and-pop operations, with factories literally above 
or in residences.  The GAO team witnessed the complete process of 
ruby finishing.  An unfinished stone resembled a dirty pebble and, to 
an untrained eye, would be judged valueless.  CGJTA members state 
that artisans in the area have perfected and keep secret their 
heating methods, a key component of bringing out a ruby's color and 
quality.  In addition, cutting, polishing, and treating a ruby is a 
labor intensive process requiring skill and experience.  Cutting or 
polishing the stone at the wrong angle or facet could destroy a 
stone's value. 
 
¶14.  (SBU)  The GAO team also toured the Chantaburi market where 
rubies and gems are sold.  The market occupies a few blocks and 
buyers generally set up tables and post what they want to purchase on 
sheets of paper.  Sellers move from table to table trying to hawk 
their wares.  The CGJTA pointed out how traffic at the market had 
decreased significantly since the JADE Act came into force.  Many 
sellers said that they could not sell their goods and that the JADE 
Act had depressed ruby prices to such low levels that some choose to 
hold on to their merchandise.  The market demonstrated how prevalent 
the ruby industry runs in Chantaburi-- a whole cottage industry has 
developed around rubies.  CGJTA claims that probably half the 
population is involved in the ruby trade, whether as owners, brokers, 
middlemen, or factory craftspeople. 
 
ENFORCING THE JADE ACT WILL BE DIFFICULT 
---------------------------------------- 
¶15.  (SBU)  The GAO team met with Customs and Border Protection (CBP) 
and Immigration and Customs Enforcement (ICE) agents at post.  CBP 
and ICE believed enforcing the JADE Act could be difficult because of 
the problems involved in producing credible documentation 
demonstrating a ruby's country of origin. 
 
¶16.  The GAO team also visited Hong Kong, Rangoon, and Chiangmai. 
 
¶17.  The GAO team did not have an opportunity to clear this message 
prior to departure from Post. 
 
JOHN