International Trade: U.S. Agencies Have Taken Some Steps, but Serious Impediments Remain to Restricting Trade in Burmese Rubies and Jadeite
Published: 2009-09-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress passed the Tom Lantos Block Burmese JADE Act in 2008 prohibiting the import of Burmese-origin jadeite, rubies, and related jewelry and calling for certain international actions. The act also requires GAO to assess the effectiveness of the implementation of this section of the act. This report assesses (1) key characteristics of the trade of Burmese-origin jadeite and rubies; (2) progress agencies have made to restrict imports of Burmese-origin jadeite, rubies, and related jewelry; and (3) the progress agencies have made in pursuing international actions. GAO reviewed and analyzed policy guidance, reports, and trade data and interviewed officials from the Departments of State (State), Homeland Security (DHS), other U.S. agencies, as well as U.S. and foreign jewelry industry representatives and foreign government officials.
section_title: What GAO Found
paragraphs: The Burmese jadeite and ruby trades are very different from one another and significantly involve China and Thailand. Burmese-origin jadeite is primarily purchased, processed, and consumed by China. Burmese-origin rubies are reportedly largely smuggled into Thailand, yielding little revenue to the Burmese regime, and are significantly processed there. U.S. agencies have taken some steps but have not shown that they are effectively restricting imports of Burmese-origin rubies, jadeite, and related jewelry while allowing imports of non-Burmese-origin goods. Some U.S. jewelry representatives said import restrictions constrain legitimate ruby imports. Agencies published an interim final rule, but DHS has not developed specific audit guidance or conducted any postentry reviews of importers' records. In addition, there is little guidance to importers on what constitutes verifiable evidence of non-Burmese-origin. Although agencies have begun to collect data on ruby and jadeite imports, further efforts could contribute to an understanding of whether restrictions are effectively targeting Burmese-origin imports. Agencies sent a required 60-day report to Congress, but it had little information on progress and challenges related to gaining international support to prevent trade in Burmese-origin rubies, jadeite, and related jewelry. Agencies have made no discernible progress in gaining such international support. Strong support and the cooperation of China and Thailand are important to restrict trade in these items, but highly unlikely. The Office of the United States Trade Representative has not requested a World Trade Organization waiver and State has not introduced a United Nations resolution, noting a number of countries would likely oppose a resolution. Finally, there have been no international meetings to negotiate a global arrangement restricting trade in Burmese rubies and jadeite similar to the Kimberley Process for restricting trade in conflict diamonds. Agency officials cited serious impediments to establishing such a framework.

section_title: Letter
paragraphs: The ruling military regime in Burma routinely restricts freedom of speech,  religion, and movement, and commits other serious human rights  violations against the Burmese people. Recently, the Secretary of State  noted growing concerns about military cooperation between North Korea  and Burma, which would be destabilizing for the region and pose a direct  threat to Burma’s neighbors. The Burmese regime and its supporters  reportedly finance their activities through various financial transactions  and trade with other countries, including trade in natural resources and  gemstones such as rubies and jadeite.
In 2003, Congress passed the Burmese Freedom and Democracy Act,  which banned the import of Burmese goods into the United States. To  promote a coordinated international effort to restore civilian democratic  rule to Burma, in 2008 Congress passed the Tom Lantos Block Burmese  JADE (Junta’s Anti-Democratic Efforts) Act of 2008 (JADE Act). The act  affirms that it is the policy of the United States to work with the  international community—including China and Thailand—to foster  support for the democratic aspirations of the Burmese people and to  coordinate efforts to impose sanctions on those directly responsible for  human rights abuses in Burma. The act has several provisions, one of  which amends the 2003 law to prohibit the import of jadeite and rubies  mined or extracted from Burma and jewelry containing such jadeite and  rubies into the United States and calls on the Administration to pursue  international actions to prevent the global trade in Burmese gemstones.  The JADE Act also requires GAO to submit a report to Congress assessing  the effectiveness of the implementation of this section, including any  recommendations for improving its administration.
Based on these provisions of the JADE Act, we examined the progress U.S.  agencies have made in response to the act. Specifically, this report  assesses (1) the key characteristics of the trade of Burmese-origin jadeite  and rubies; (2) the progress U.S. agencies have made to restrict imports of  Burmese jadeite, rubies, and related jewelry into the U.S. market; and (3)  the progress U.S. agencies have made in pursuing international actions,  including (a) seeking a World Trade Organization (WTO) waiver of U.S.
WTO obligations regarding import restrictions of the JADE Act; (b)  securing a United Nations (UN) resolution that expresses the need to  address trade in Burmese-origin jadeite, rubies, and related jewelry and  calls for a workable certification scheme to prevent such trade; and (c)  working to negotiate an international arrangement—-similar to the  Kimberley Process (which certifies the origins of rough diamonds)–-to  prevent such trade.
To address these objectives, we reviewed and analyzed Presidential  Proclamation 8294—-To Implement Amendments to the Burmese Freedom  and Democracy Act of 2003; U.S. Customs and Border Protection (CBP)  guidance, including 19 Code of Federal Regulations (CFR) Parts 12 and  163—-the interim final rule; and other documents, cables, reports, and  memos from relevant U.S. agencies. We interviewed officials from the  Departments of State (State), Homeland Security (DHS), and the Treasury  (Treasury), and the Office of the United States Trade Representative  (USTR), and other agencies involved in responding to the JADE Act. We  also met with representatives of the U.S. jewelry industry in New York. To  gather information on the Burmese jadeite and ruby trades and the impact  of the JADE Act on these trades, we traveled to Hong Kong, Thailand, and  Burma and interviewed U.S. agency officials, foreign government officials,  and representatives from the foreign jewelry industry. Appendix I provides  more details on our objectives, scope, and methodology.
We conducted this performance audit from December 2008 to September  2009, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The military regime in Burma has routinely restricted freedom of speech,  religion, and movement, and committed other serious human rights  violations against the Burmese people. Prior to 1990, Burma was ruled by  a military regime known as the State Law and Order Restoration Council.  In May 1990, national parliamentary elections were held that resulted in an  overwhelming victory for the National League for Democracy party, led by  Aung San Suu Kyi. However, the State Law and Order Restoration Council  failed to yield power and honor the results of the election and maintained  its policies of autocratic rule and repression of democratic opposition.  Since 1990, Burma has continued to suffer under this repressive rule; the  military regime has since changed its name to the State Peace and  Development Council. The military regime in Burma has detained or held  Aung San Suu Kyi under house arrest for the majority of the past 20 years,  continues to imprison democratic political activists in favor of democracy,  and commits other serious human rights violations.
In response to the behavior of the military regime in Burma, the United  States has taken a number of actions aimed at pressuring the regime and  promoting democratic reform in the country. Since 1990, the U.S. Mission  in Burma has been headed by a chargé d’affaires. In 1997, the United  States prohibited new investment in Burma and later imposed  countermeasures on Burma due to its inadequate measures to eliminate  money laundering. In 2003, Congress passed the Burmese Freedom and  Democracy Act of 2003, which required the President to ban the  importation of any Burmese product into the United States in order to  strengthen Burma’s democratic opposition and support the National  League for Democracy as the legitimate representative of the Burmese  people.
However, despite the 2003 law, some Burmese gemstones were being cut,  polished, and treated in third countries, such as Thailand, and exported as  products of those third countries to the United States and other countries.  To increase pressure on the military regime to end its human rights  violations and restore democracy, Congress passed the JADE Act in 2008.  Among its provisions are measures (1) imposing a ban against current and  former leaders of the Burmese regime, their immediate family members,  and supporters from traveling to the United States; (2) imposing targeted  financial sanctions against those same persons; and (3) granting authority  to the Secretary of the Treasury to impose additional banking sanctions  against those persons. In addition, the JADE Act amends the 2003 law to  prohibit the importation into the United States of jadeite and rubies mined  or extracted from Burma and jewelry containing jadeite and rubies mined  or extracted from Burma (fig. 1). It also calls on the Administration to  pursue international actions to prevent the global trade in Burmese-origin  gemstones.
The JADE Act also calls on the Administration to develop an international  arrangement—-similar to the Kimberley Process Certification Scheme  (KPCS) for conflict diamonds—-to prevent global trade in Burmese-origin  jadeite and rubies and jewelry containing Burmese-origin jadeite and  rubies. In November 2002, diamond-producing and diamond-trading  countries launched the KPCS, a voluntary global system to control the  trade of rough diamonds and to assure consumers that the diamonds they  purchase have not helped to finance violent conflicts. The United States  and other KPCS participants are responsible for ensuring that the integrity  of the certification scheme is upheld and that the Kimberley Process  works toward preventing conflict diamonds from entering the legitimate  trade of rough diamonds. In instances of noncompliance, KPCS can expel  or suspend a participant.
section_title: The Burmese Jadeite and Ruby Trades Are Distinctly Different, and Significantly Involve China and Thailand
subsections: section_title: Burmese-Origin Jadeite Is Primarily Purchased, Processed, and Consumed by China
paragraphs: According to foreign jewelry industry representatives, jadeite generally is  mined in the northern Kachin state of Burma (fig. 2), where rough jadeite  rocks can range in size from that of a small egg up to a 1-ton boulder.  According to agency officials and jewelry industry representatives,  virtually all of the jadeite exported out of Burma is sold at government  auctions in Rangoon. Jewelry industry representatives said that the vast  majority of this jadeite is purchased by buyers from China (both the  mainland and Hong Kong); a very small amount is bought by buyers from  the rest of the world.
According to agency officials, the flow of jadeite generally goes from  Burma to South China for processing, cutting, carving, and manufacture  into finished jadeite products that are consumed domestically in China.  According to foreign jewelry industry representatives, the price of jadeite  continues to rise because the consumer demand for articles made of  jadeite in China continues to grow.
According to foreign jewelry industry and government officials, the  Chinese have a long history of buying and using jade for jewelry,  ornaments, and decorations, including statues. Jadeite, a relatively rare  and high-quality form of jade that is believed to come mostly from Burma,  has positive cultural significance to the Chinese. Figure 3 shows examples  of statues carved out of white jadeite. Foreign jewelry industry  representatives said that a widely held belief among the Chinese is that  jadeite, including wearing jewelry made from jadeite, such as the pieces  shown in figure 4, brings good fortune and health.
According to foreign jewelry industry representatives, there are millions of  consumers of jadeite in China; Burmese jadeite products processed and  finished in China are consumed directly by China’s internal market.  According to estimates by these representatives, approximately 100,000  people carve and polish jadeite in China, and as many as 3 million people  work in the jade industry overall.
section_title: Burmese-Origin Rubies Are Largely Smuggled into Thailand, Yielding Little Revenue to the Burmese Regime, and Are Significantly Processed There
paragraphs: In contrast to jadeite, rough Burmese ruby stones are relatively small and  thus easy to transport and smuggle. They are typically found through  small-scale mining techniques, such as panning for stones in riverbeds,  digging small pits or trenches, and locally quarrying ruby-bearing marble.  The major areas for ruby mining are in Mogok and Mong Hsu in northeast  Burma. According to U.S. agency officials, small-scale Burmese miners  generally collect rubies and hope to avoid paying taxes to the Burmese  government. They sell their stones to small and midlevel mom-and-pop  operations that sell the stones at the Thailand-Burma border. Burmese  migrants carry the stones over the border to sell to Thai traders.
Although some of the highest-quality rough rubies might be sold at the  government auctions, according to foreign government and industry  officials, most rough Burmese rubies processed in Thailand have been  smuggled over the border and probably result in little or no revenue for  the regime in Burma. Figure 5 shows some Burmese-origin rubies that  have been processed and are for sale in Thailand. The very nature of  smuggling prevents the Burmese regime from extracting much revenue  from these stones. U.S. agency officials said that the Burmese regime  probably derives much more revenue from gemstones (such as jadeite)  that are almost exclusively sold at government auctions in Rangoon.
Jewelry industry representatives told us that most rough stones found in  Burma are of uncertain value until they are heat treated and then cut and  polished in Thailand. Once Burmese rubies in rough form enter Thailand,  the rubies typically find their way to Chanthaburi or Bangkok for cutting,  heat treatment, polishing, and setting in jewelry. Thai government officials  claim that as rough Burmese rubies go through these processes, they  undergo substantial transformation (fig. 6), and become products of  Thailand.
Thai officials claim that the value of a rough ruby is only 10 percent of the  value of an average piece of finished Thai ruby jewelry exported to the  United States. The rest is Thai value-added processing. Generally, a high- quality finished Burmese ruby is known for its special character, such as  its translucent and brilliant color scheme, known as “pigeon-blood” red.  According to agency officials, rubies of Burmese origin have historically  commanded a price premium that is recognized in industry price guides.  This premium has created an incentive for traders to try to pass high- quality non-Burmese stones as being of Burmese origin.
Thai gemstone industry representatives said they are seeking to use rubies  from non-Burmese sources such as Madagascar, Tanzania, and Kenya, but  said that there are challenges to using stones from these sources.  According to these representatives, Madagascar has some high-quality  rubies, but requires that the value-added processes on these rubies be  performed within its borders. Working with Burmese rubies is a  competitive advantage for Thailand because it has easy access to the  stones, the stones are generally cheaper because they are smuggled, and  Thai traders have developed social and cultural networks with the  Burmese ruby traders.
According to Thai government and jewelry industry officials, the United  States is one of Thailand’s top five overall trading partners, and jewelry  remains one of the top three Thai exports to the United States. The United  States and Europe are Thailand’s main export markets for finished ruby  jewelry. Based on information from Thai jewelry industry representatives,  in 2008 Thailand’s jewelry exports to the United States were valued at $8  billion. Also in 2008, according to these representatives, Thailand  exported approximately $12.6 million (429 million Thai baht) worth of  rubies to the United States.
Thai jewelry industry representatives stated that from October to  December 2008, Thai jewelry exports to the United States, on average,  declined by 30 percent. Moreover, they stated that roughly 1.2 million  Thais worked in the jewelry industry in October 2008 and estimated that  100,000 to 120,000 jewelry industry jobs had been lost by March 2009.  Thai jewelry industry representatives claim that these declines are due, in  large part, to the import restrictions under the JADE Act.
section_title: U.S. Agencies Have Taken Steps to Prohibit Imports of Burmese-Origin Rubies, Jadeite, and Related Jewelry, but Have Not Shown That They Are Effectively Targeting These Imports
subsections: section_title: Agencies Held Outreach Meetings with U.S. Jewelry Representatives; Some Representatives Said Import Restrictions Constrain Legitimate Ruby Imports
paragraphs: According to agency officials, the National Security Council convened an  interagency working group and tasked the Department of Commerce  (Commerce) with holding meetings with group members and U.S. jewelry  industry and laboratory representatives to obtain information about the  trade in jadeite and rubies. In response, Commerce arranged four  meetings, one with U.S. agency gemstone experts in October 2008, and  three with U.S. jewelry industry representatives and agency officials in  October and November 2008. In addition to Commerce, agency officials  from Treasury, DHS, the United States Geological Survey, the United  States Trade Representative, State, and the International Trade  Commission attended. According to agency officials, some industry  representatives who attended these meetings have spoken broadly in favor  of U.S. import restrictions on Burmese-origin rubies, jadeite, and related  jewelry because they believe the restrictions will negatively impact the  Burmese regime. Other representatives have expressed doubts about the  government’s ability to impose an import restriction regime that will not  compromise legitimate non-Burmese ruby imports, noting that the nature  of the ruby trade is decentralized and informal, which complicates  definitive certification of country-of-origin determination.
Some representatives of the U.S. and foreign jewelry industries we  interviewed also expressed concern about U.S. import restrictions under  the JADE Act. They said that U.S. import restrictions have little impact on  the military regime in Burma and negatively impact small-scale miners and  traders in Burma and jewelry workers in Thailand. According to jewelry  industry representatives, as a result of the act, some U.S. dealers have  become reluctant to deal in rubies, jadeite, and related jewelry whether or  not they were from Burma. Although the import restrictions in the JADE  Act allow trade in non-Burmese-origin rubies, jadeite, and related jewelry,  some industry representatives said that the restrictions imposed by the act  have reduced trade in rubies overall, not just trade in Burmese rubies. For  example, one gemological lab director noted that since the inception of  the law, few dealers have submitted rubies for testing, suggesting that  dealers are less inclined to trade in rubies overall.
Some representatives of colored gemstone dealers expressed concern that  CBP agents may not have the ability to differentiate between Burmese and  non-Burmese rubies, jadeite, or related jewelry and this could lead to  wrongful seizures. For example, a ruby dealer we met with said he wanted  to purchase a 5-carat, reportedly non-Burmese, ruby during an overseas  trip. The dealer paid a gemological laboratory to have the stone tested for  a country-of-origin determination. However, he decided not to purchase  the ruby because (1) as a result of testing, the stone was judged as  originating from one of six possible countries, one of which was Burma,  and (2) with no way to definitively prove the stone was not from Burma,  the dealer was concerned CBP officials might mistakenly or arbitrarily  seize the stone.
section_title: U.S. Agencies Modified the Harmonized Tariff Schedule Codes and Published an Interim Final Rule, but Ambiguities in the Rule Remain
paragraphs: The President issued Presidential Proclamation 8294 on September 26,  2008, implementing prohibitions and conditions in the JADE Act and  authorizing U.S. agencies to take actions called for in the act. Specifically,  the proclamation modified the Harmonized Tariff Schedule (HTS) of the  United States to prohibit the importation of certain goods of Burma. In  addition, according to agency officials, in October 2008, the HTS was  amended to include new HTS subheadings that identify and can be used to  track the import of non-Burmese-origin rubies, jadeite, and related  jewelry.
Acting to implement the JADE Act and Presidential Proclamation 8294, in  January 2009, Treasury and CBP published an interim final rule detailing  requirements and responsibilities for U.S. importers and foreign exporters  on imports of non-Burmese-origin rubies, jadeite, and related jewelry into  the United States. The interim final rule detailed conditions on the  importation of rubies, jadeite, and related jewelry and offered guidance  and details about importer and exporter responsibilities, including the  exporter written certification process, importer certification scheme with  a verifiable evidence standard, and importer record-keeping requirements.
According to the amended regulations, if an importer brings rubies,  jadeite, or related jewelry into the United States, using the non-Burmese- origin HTS codes serves as a certification by the importer that these goods  were not mined or extracted from Burma. CBP officers do not verify the  authenticity of the certification. Agency officials said that to determine  rubies, jadeite, and related jewelry are not from Burma, CBP officers rely  on (1) the non-Burmese-origin HTS codes under which the items are  shipped, and (2) statements on accompanying commercial invoices that  the items did not originate in Burma. Agency officials stated that CBP  officers will likely have difficulty authenticating country-of-origin  statements on commercial invoices. U.S. jewelry industry officials also  expressed concern over the reliability of statements on foreign invoices  from exporters, because of the potential for fraud or abuse by exporters  trying to access the U.S. market, and U.S. agency officials acknowledged  this possibility.
Further, agency officials said that there is little CBP officers can do to  challenge such exporter statements unless there is obvious and clear  conflicting evidence on the commercial invoice or in the shipment itself.  Agency officials and U.S. jewelry representatives said that a CBP officer  has no way to discern where a stone is from, or even if a stone is authentic  or not. CBP officials could have problems distinguishing one colored  gemstone, such as garnet, from another, such as ruby. Jadeite jade and  nephrite jade also share similar characteristics, including colors and  texture.
The interim final rule also mandates that at the time of importation, the  importer must have in his possession written certification from the  exporter certifying that the jadeite or rubies were not mined or extracted  from Burma, with verifiable evidence that tracks the stones from the mine  to exportation or the place of final finishing. The importer is required to  maintain these records of certification for at least 5 years. However, U.S.  jewelry industry representatives have expressed concern that the rule  does not offer practical instruction on what constitutes verifiable  evidence. Agency officials stated that there are no set standards to  evaluate verifiable evidence provided by importers. Agency officials  acknowledged that currently, CBP officers rely on experience to  determine what is valid, verifiable evidence. U.S. jewelry representatives  said that without clear guidance as to what constitutes verifiable evidence,  the importer would have to rely on whatever documentation the exporter  can provide as evidence of the articles’ origin. Though the interagency  working group discussed the option of developing further guidance on  what constitutes verifiable evidence, this has not yet occurred. As a result,  there is no further guidance from U.S. agencies to importers as to what  constitutes acceptable verifiable evidence to maintain records on articles  of non-Burmese origin.
Since the implementation of the interim final rule, DHS has not developed  specific guidance to conduct postentry reviews of importers’ records of  verifiable evidence nor has it conducted any such postentry reviews. As a  result, U.S. agencies have no process for validating that Burmese-origin  rubies, jadeite, or related jewelry have been effectively restricted from  entering the United States. According to CBP officials, CBP is in the  process of developing a postentry review operation to verify that the  recordkeeping requirements laid out in the interim final rule are being met.  Agency officials acknowledge that it will be difficult to track a ruby’s  movement from the mine to the final marketplace to properly authenticate  a gemstone’s country of origin because of the decentralized, informal, and  fractured nature of the ruby-trading business. CBP officials said that they  plan to conduct postentry reviews of importer information on rubies,  jadeite, and related jewelry entering the country in order to verify that a  certification from the exporter is on file as required by the interim final  rule. However, to date, CBP has not executed this plan.
The JADE Act does not require, and the interim final rule does not provide,  any mechanism to test gemstones for country-of-origin determination, and  there are impediments to accurate and definitive determination of whether  a ruby is of Burmese origin. Specialized gemological laboratories in the  United States and abroad offer a variety of testing services for gemstones  such as rubies. According to jewelry industry representatives, country-of- origin testing involves the use of various tests to identify distinguishing  characteristics of a gemstone and compare those characteristics with  those of reference stones from other sources around the world. In some  cases, the tests may identify characteristics that are unique to a particular  source and provide a high degree of certainty that a stone is from a certain  location. In other cases, the tests may indicate that the gemstone could  have originated from multiple sources around the world. In particular,  rubies from some African countries often have characteristics similar to  those of rubies from Burma, which reduces the certainty of the results and  complicates the use of country-of-origin testing for the purposes of the act.  As a result, making a definitive determination as to the country of origin of  a particular gemstone or group of gemstones will be challenging for a U.S.  importer or agencies attempting to enforce U.S. import restrictions.
In addition, according to agency and jewelry industry officials, for  relatively low-value jewelry that may include multiple, low-value rubies,  the cost of testing the rubies could be significantly higher than the value of  the jewelry. During our visit to the gemstone trading marketplace in  Chanthaburi, Thailand, we saw fully finished and processed Madagascar- origin rubies being sold for 10 cents apiece. However, a gemological lab  we visited in New York charged $50 per ruby to produce a country-of- origin determination. Industry representatives and agency officials  confirmed that testing may be cost-prohibitive. In addition, industry  representatives said that it can be extremely difficult to test large numbers  of rubies or jadeite set in jewelry because some stones are too small to test  or are obscured by their settings.
section_title: U.S. Agencies Have Begun to Track Non-Burmese- Origin Ruby and Jadeite Imports, but Lack Data to Determine Whether Restrictions Are Effectively Targeting Imports
paragraphs: DHS has tracked the imports of reportedly non-Burmese rubies, jadeite,  and related jewelry into the United States since October 2008, but there  are insufficient data to fully assess the impact of import restrictions under  the JADE Act. Our analysis of the limited data from DHS on imports from  October 2008 to May 2009 shows that ruby, jadeite, and related jewelry,  reportedly of non-Burmese origin, are continuing to be imported into the  United States. (See table 1.) According to DHS data, Thailand, China,  Pakistan, and India reportedly exported more than $70 million dollars  worth of non-Burmese-origin rubies, jadeite, and related jewelry into the  United States from October 2008 to May 2009.
The data show that the United States imported more rubies, jadeite, and  related jewelry from Thailand, in terms of value, than from any other  country. There were also a number of reportedly non-Burmese-origin  jadeite imports (excluding jewelry), worth approximately $2.6 million,  although U.S. and foreign jewelry industry officials told us almost all  jadeite is of Burmese origin. During this time period, no shipments were  seized by CBP on the grounds that they were suspected to be of Burmese  origin.
However, even with the data generated from the recent tracking of  reportedly non-Burmese-origin imports, it is still difficult to determine  whether or not the import restrictions imposed under the JADE Act are  effectively targeting Burmese-origin items. First, DHS did not track data on  the import of non-Burmese-origin rubies, jadeite, and related jewelry prior  to September 2008. As a result, it is not possible to compare the amount of  rubies, jadeite, or related jewelry that entered the United States prior to  the implementation of the law, in order to analyze the effect of the law.  Second, using current HTS codes, CBP does not separately track imports  of ruby jewelry and jadeite jewelry because both are currently categorized  under the same HTS codes. Without this information, CBP cannot  determine the amount of (1) rubies, plus ruby jewelry, and (2) jadeite, plus  jadeite jewelry, imported over time and cannot analyze the effect of the  law on U.S. importation of these distinct gemstone products. Third, less  than 2 percent of shipments (41 out of more than 2,500) had quantities of  rubies, jadeite, or related jewelry listed. Without accurate data on the  quantity of products imported, and the corresponding per unit value of  items in such shipments, CBP cannot assess the total quantity of  reportedly non-Burmese-origin rubies, jadeite, and related jewelry  imported into the United States. Without this information or the  corresponding per unit value of items in such shipments, CBP cannot  analyze patterns of trade, such as whether higher- or lower-value items are  coming from particular countries, exporters, and so forth. Such  information could be useful in the event that CBP considers testing on  some subset of the stones, such as those with a high per unit value.
In addition, agencies lack accurate and reliable data on gemstone exports  from Burma to other countries, which hinders efforts to analyze the  impact U.S. import restrictions are having on Burmese production and  supply of gemstones. According to agency officials, the Burmese regime’s  records on ruby and jadeite production and exports cannot be verified.  Agency officials stated that data on Burmese ruby and jadeite production  is limited to official Burmese government sources and may be unreliable.  A leading economic scholar on Burma noted that Burma’s official  economic statistics are incomplete, internally contradictory, and  frequently subject to dramatic revision.
section_title: U.S. Agencies Have Made No Discernible Progress in Gaining International Support to Prevent Global Trade in Burmese Gemstones
subsections: section_title: Strong Support and Cooperation of China and Thailand Are Important to Restrict Global Trade in Burmese-Origin Jadeite, Rubies, and Related Jewelry, but Highly Unlikely
paragraphs: China’s support and cooperation are critical if the United States  government hopes to prohibit international trade in Burmese jadeite and  jadeite jewelry. However, according to U.S. agency officials and foreign  jewelry industry representatives, it is nearly impossible to secure Chinese  cooperation to stop the trade in Burmese jadeite because of the strong  demand for jadeite in China and because finishing and processing it is a  source of employment. According to U.S. agency officials and foreign  jewelry industry representatives, because almost all Burmese jadeite is  imported by China and the Chinese have a very strong internal demand for  it and economic interests in processing it, as discussed earlier, the United  States has very little leverage in attempting to gain China’s active support  and cooperation in order to stem the international trade of Burmese  jadeite. In addition, agency officials said China would not support  implementing a ban on Burmese jadeite because they oppose all sanctions  against Burma; China fundamentally opposes the concept of sanctions  against Burma as a policy tool.
Thailand’s support and cooperation are also critical if the United States  hopes to effectively prohibit international trade in Burmese rubies and  ruby jewelry. However, it is highly unlikely that Thailand will support  measures under the JADE Act given the act’s impact on Thailand’s  economy. In addition, U.S. agency officials, foreign government officials,  and Thai jewelry industry representatives told us that import controls  under the JADE Act are hurting small-scale miners and traders in Burma  and dealers and laborers in Thailand, not the military regime in Burma.
Thai government officials also said they are concerned that European  governments could follow the United States and adopt JADE Act-style  restrictions on Burmese-origin rubies and ruby jewelry.
According to U.S. agency officials, the fact that Thai government officials  are willing to publicly voice their concerns about the import restrictions in  the JADE Act can be taken as evidence that the act is having a negative  impact on the Thai jewelry industry. Agency officials said, however, that it  is difficult to determine whether this impact is caused by the global  economic downturn, the JADE Act, or some combination of both. U.S.  agency officials stated that Thailand already felt challenged by the United  States on other trade issues, such as intellectual property rights and  accusations of questionable labor practices regarding shrimp production.
section_title: Required 60-Day JADE Act Report Was Sent to Congress, but Has Little Information on Progress Made in Gaining International Support
paragraphs: The JADE Act required the President to transmit a report to Congress  describing actions the United States has taken during the first 60 days after  the enactment of the act to seek (1) the issuance of a draft WTO waiver,  (2) the adoption of a UN resolution, and (3) the negotiation of an  international arrangement—-similar to the Kimberley Process Certification  Scheme for conflict diamonds. Presidential Proclamation 8294 authorized  the Secretary of State, in consultation with the United States Trade  Representative, to transmit the report to Congress. According to State, this  report was sent to Congress on February 23, 2009.
The report states that during the 60-day period following enactment of the  act, the Administration was engaged in developing regulations to  implement the act’s provisions. However, the report submitted is just a  page and a half long and only provides basic statements on actions taken,  such as a Presidential Proclamation being issued and the HTS being  amended. According to the report, State informed two countries engaged  in processing and trading rubies and jadeite of the new import restrictions  under the JADE Act. The report also states that State engaged European  Union counterparts to discuss the act and how to best harmonize  respective sanctions against Burma. Beyond these basic statements  covering actions taken during the first 60 days, the report has little  information on the overall progress agencies have made or the challenges  they face in gaining international support.
section_title: USTR Officials Have Not Taken Steps to Request a WTO Waiver
paragraphs: According to the President’s Proclamation, USTR is responsible for taking  all appropriate actions to seek the issuance of a draft waiver decision by  the WTO Council for Trade in Goods waiving applicable WTO obligations  with respect to the import restrictions of the JADE Act. However, USTR  officials said that they have taken no formal steps to initiate a waiver  request at the WTO. The Administration has not indicated that it considers  U.S. import restrictions under the JADE Act to be inconsistent with U.S.  WTO obligations.
According to USTR officials, a WTO member requests a waiver when it  implements a measure that it acknowledges is inconsistent with its WTO  obligations but believes that other WTO members would not be opposed  to the measure’s continued application. Thus, requesting a waiver for the  JADE Act would represent an acknowledgment that the import  restrictions on Burmese articles are inconsistent with U.S. WTO  obligations.
According to agency officials, if the Administration decides that a WTO  waiver is necessary, USTR would submit a waiver request to the WTO  Council for Trade in Goods, which would then consider the request.  Agency officials also said if the council approves the waiver request, it  would submit a report to the WTO General Council, which would then  formally endorse the Council for Trade in Goods’ report, and the waiver  would be approved. The Council for Trade in Goods and the General  Council would make these decisions based on a consensus of the entire  WTO membership. An approved WTO waiver would allow the United  States to apply import restrictions on Burmese jadeite, rubies, and related  jewelry entering the United States without running afoul of its WTO  obligations. If consensus is not reached in the Council for Trade in Goods,  the waiver request does not move forward and the continued use of the  measure by the United States or other country may be challenged by a  WTO member under the WTO dispute settlement mechanism.
Because of the WTO’s consensus decision-making process, any WTO  member—-including Thailand, Burma, or any country that feels directly or  indirectly negatively affected by the law—-could effectively veto a WTO  waiver request by the United States. Agency officials said WTO members  rarely initiate a waiver request unless they believe that a consensus exists  for its approval. In addition, agency officials said the process of seeking  and acquiring a WTO waiver request may take a long time because the  decision to get a waiver is predicated on a consensus decision. USTR  officials noted that past WTO waiver requests submitted by the United  States were held up for a number of years; even very small countries have  held up waiver requests.
section_title: State Has Not Introduced a UN Resolution against Burma, Noting That a Number of Countries Would Likely Oppose It
paragraphs: State has not introduced a UN resolution, noting that a number of  countries at the UN are generally opposed to resolutions against Burma.  Officials said that the Administration is currently undertaking a review of  the U.S. government’s Burma policy that, when completed, would enable it  to determine how to best integrate the objectives of the JADE Act into its  overall diplomatic strategy. State has also taken some basic steps to gather  information about ruby markets in certain countries. For example,  according to agency officials, as the JADE Act was being developed, the  embassy in Bangkok produced several reporting cables on the ruby  industry in Thailand. Agency officials said these cables provided  background information on topics such as where the rubies were from, the  process of finishing rubies, the sales of rubies and ruby jewelry to the  United States and Europe, and the extent of Burmese ruby smuggling into  Thailand.
In December 2008, State headquarters sent a cable to posts in response to  the JADE Act. According to State officials, State headquarters sought  information on the import and processing of Burmese rubies in countries  thought to be involved in the ruby trade, including Thailand and China. In  response, State staff at overseas posts met with jewelry industry  representatives or government officials in their respective countries to  discuss the ruby trade. However, State headquarters did not ask posts  about the importation or processing of Burmese jadeite. According to  agency officials, posts were not asked about the importation or processing  of Burmese jadeite because the United States is not an export market for  jadeite. In addition, the cable did not explicitly ask staff to conduct  diplomatic outreach to secure their host governments’ support for the  JADE Act. According to agency officials, the cable was intended to solicit  information on the trade in rubies rather than to seek to secure host  government support for the JADE Act. On their own, officials at some  posts we visited reported that they conducted outreach, particularly with  those governments that wished to discuss their positions on U.S. import  restrictions under the JADE Act with State officials.
According to State officials, a number of countries at the UN are generally  opposed to resolutions targeted at Burma. State has approached a couple  of other countries about the feasibility of a UN resolution, but has not yet  introduced one. Agency officials said a proposal calling for the creation of  a workable certification scheme for Burmese rubies and jadeite will likely  be challenged by some countries at the UN on the basis of its technical  feasibility. According to these officials, even with a reliable technical  process to establish which rubies, jadeite, and related jewelry are of  Burmese origin, it is doubtful such a resolution would pass.
section_title: There Have Been No International Meetings Convened to Negotiate a Kimberley-like Framework, and Agency Officials Cite Serious Impediments to Establishing a Framework
paragraphs: State officials said they have had working-level discussions with like- minded countries about the possibility of negotiating a Kimberley-like  framework to prevent the global trade in Burmese-origin rubies, jadeite,  and related jewelry. State officials said they would, to the extent possible,  continue discussions with like-minded states to develop a framework that  could win sufficient international support to trace and document the  origin of these products. However, to date, there have been no  international meetings convened among relevant countries, private  industry, and nongovernmental organizations to negotiate a Kimberley-like  framework, as occurred for conflict diamonds. Agency officials said there  are serious impediments to achieving this objective, such as lack of  international support and the inherent difficulty in identifying the country  of origin for rubies and ruby jewelry, as discussed earlier. In addition,  agency officials said there are key differences between the global diamond  and Burmese ruby industries that could complicate establishing a  Kimberley-like framework.
According to agency officials, the Burmese ruby industry mostly consists  of decentralized small-scale operations, is subject to significant smuggling,  lacks documentation, and is often carried out through cash exchanges. In  contrast, while some diamonds are extracted using small-scale mining  techniques, the deep diamond mining industry tends to be more  centralized, with large, highly capitalized resource extractors like DeBeers  that can more effectively control and track mining through all stages of  production. Further, according to agency officials, low-quality rubies are  much more common than low-quality diamonds. There are very large  quantities of small, low-value rubies; much smaller quantities of large,  high-value rubies; and a tremendous variety of rubies in between.
For example, based on our analysis of DHS’s data on ruby shipments (that  had a declared quantity) coming into the United States between October  2008 and May 2009, the average value of a ruby article was less than 1  cent. Moreover, according to these same data, a single shipment of rough  rubies arrived in Charleston, South Carolina, in October 2008 that included  89 million rubies worth a total of only $35,600 (on average, each ruby was  worth less than 1/10 cent). Rubies and jadeite can be used in products  unimaginable in the diamond context; while conducting our audit in  Rangoon, we saw numerous examples of “paintings” composed entirely of  various colors of ruby, jadeite, and other colored gemstones glued to  canvases (fig. 7). Such products are composed of literally thousands or  tens of thousands of stones; each stone could have come from one of any  number of sources.
In addition, according to agency officials, the effort to restrict the trade of  Burmese-origin rubies and jadeite has, thus far, been a unilateral effort by  the U.S. government led by Congress. In contrast, the effort to develop the  Kimberley Process for conflict diamonds was a multilateral effort. For  conflict diamonds, the diamond-producing countries and the international  diamond industry supported efforts to restrict trade in conflict diamonds.  Because of this broad international support, other countries, the  international diamond industry, and nongovernmental organizations have  worked to establish and maintain the Kimberley Process and its  mechanisms to restrict the flow of conflict diamonds.
section_title: Conclusions
paragraphs: One of the purposes of the JADE Act is to promote a coordinated  international effort to restore civilian democratic rule to Burma, and  recent events further demonstrate the human rights violations of the  regime. U.S. measures to exert pressure on the regime include two types  of trade measures: one designed to restrict U.S. imports of jadeite and  ruby originating from Burma and the other to utilize mechanisms such as  the UN to restrict worldwide trade in Burmese jadeite and rubies.  However, as the evidence in this report indicates, U.S. agencies have not  shown that they are effectively targeting imports of Burmese-origin rubies,  jadeite, and related jewelry while allowing imports of non-Burmese-origin  goods. While agencies have published an interim final rule, they have not  developed specific audit guidance or initiated any postentry reviews of  importers’ records. In addition, there is little guidance to importers on  what constitutes verifiable evidence. Additional steps to implement this  rule, along with further improvements in the data collected on imported  rubies and jadeite, could contribute to an understanding of whether import  restrictions are effectively targeting Burmese-origin goods.
With regard to the goal of restricting worldwide trade, the Department of  State submitted a required 60-day report to Congress, but the report had  little information on progress or the challenges involved in gaining  international support. Since that report, USTR has not requested a WTO  waiver and State has made no discernible progress in introducing a UN  resolution or negotiating a Kimberley-like process. Although agencies cite  a number of factors that could impede progress, the current status has not  been communicated to Congress. In order for Congress to provide  oversight and assist in the design of an effective set of policies to exert  pressure on the regime in Burma, it needs accurate and complete  information about the effectiveness of existing policies and challenges in  implementing those policies, and our review demonstrates that this  information has not been provided.
section_title: Recommendations for Executive Action
paragraphs: In order to effectively implement the sections of the JADE Act prohibiting  the importation of Burmese-origin rubies, jadeite, and related jewelry  while allowing imports of non-Burmese-origin goods, we recommend that  DHS, in consultation with relevant agencies, develop and implement  guidance to conduct postentry reviews of importers’ records and provide  improved guidance to importers on the standards of verifiable evidence  needed to certify articles are of non-Burmese origin.
To enhance the effectiveness of U.S. policy against the military regime in  Burma, we recommend that State, in consultation with DHS and Treasury,  analyze the efficacy, challenges, and difficulties faced in implementing  measures to restrict trade in Burmese-origin rubies, jadeite, and related  jewelry in the context of the broader U.S. sanctions provisions in the  JADE Act, and report to Congress how these measures will contribute to  its efforts to influence the military regime in Burma.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to USTR and the Secretaries of State,  Homeland Security, the Treasury, and Commerce for their review and  comment. We received written comments from DHS, Commerce, and State  that are reprinted in appendixes V, VI, and VII; we also received technical  comments from USTR, DHS, and the Treasury, which we incorporated as  appropriate. DHS concurred with our first recommendation and State  concurred with our second recommendation.
DHS concurred with our first recommendation and noted in its comments  that its work to implement the recommendation will rely on consultation  with other relevant agencies of the U.S. government. DHS also stated that  it believes a U.S. governmentwide effort to establish international  agreement and standards to restrict trade in Burmese rubies, jadeite, and  related jewelry will offer a more comprehensive and realistic solution to  achieving the goals of the JADE Act, beyond DHS’s enforcement of U.S.  import restrictions. We acknowledge that the Kimberley Process for  conflict diamonds could offer a model for establishing such an  international agreement but, as we have noted in this report, there are  serious challenges that could make the establishment of such a process  difficult for preventing international trade in Burmese rubies, jadeite, and  related jewelry. In its comments, Commerce expressed concern about  language in our report characterizing its involvement in the interagency  working group to develop further guidance on what constitutes verifiable  evidence. In response, we modified this sentence in our report to more  accurately portray the entities involved.
State concurred with our second recommendation, to analyze the  efficacies, challenges, and difficulties in implementing measures under the  JADE Act. State noted that it would include the findings from this analysis  in its Semi-Annual Report on Conditions in Burma, due to Congress on  November 15, 2009. State also noted it would include our second  recommendation in the Administration’s overall policy review of Burma.
We are sending copies of this report to interested congressional  committees. In addition, this report will be available on the GAO Web site  at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-4347 or yagerl@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix VIII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To examine U.S. agencies’ efforts in response to the Tom Lantos Block  Burmese JADE (Junta’s Anti-Democratic Efforts) Act of 2008 (JADE Act)  (Pub. L. No. 110-286), we assessed (1) the key characteristics of the trade  of Burmese-origin jadeite and Burmese-origin rubies; (2) the progress U.S.  agencies have made to restrict imports of Burmese-origin jadeite, rubies,  and related jewelry into the U.S. market; and (3) the progress U.S.  agencies have made in pursuing international actions, including (a)  seeking a World Trade Organization (WTO) waiver, (b) securing a United  Nations (UN) resolution, and (c) working to negotiate an international  arrangement—similar to the Kimberley Process—to prevent global trade  in Burmese-origin jadeite, rubies, and related jewelry. To address these  objectives, we reviewed and analyzed documents, memos, reports,  guidance, papers, and cables from the Department of State in Washington,  D.C.; embassies in Rangoon and Bangkok; consulates in Chiang Mai and  Hong Kong; the United States Geological Survey (USGS); the Office of the  United States Trade Representative; the Departments of Homeland  Security, the Treasury, and Commerce; U.S. and foreign jewelry industries;  nongovernmental organizations; and academics.
We reviewed the JADE Act; Presidential Proclamation 8294—To  Implement Amendments to the Burmese Freedom and Democracy Act of  2003; U.S. Customs and Border Protection (CBP) guidance, including 19  Code of Federal Regulations (CFR) Parts 12 and 163—the interim final  rule; other documents, cables, reports, and memos from relevant U.S.  agencies; and documents from gemological laboratories, such as country- of-origin reports. In addition, we reviewed and analyzed Department of  Homeland Security/U.S. Customs and Border Protection data on the  source and value of reportedly non-Burmese-origin rubies, jadeite, and  related jewelry entering the United States from October 2008 to May 2009.
During the course of our review, we interviewed officials from the  Department of State in Washington, D.C.; embassies in Rangoon and  Bangkok; consulates in Chiang Mai and Hong Kong; USGS; the Office of  the United States Trade Representative; and the Departments of Homeland  Security, the Treasury, and Commerce, as well as foreign government  officials in Thailand and Burma to gather information on the Burmese  jadeite and ruby trades and the impact of the JADE Act on these trades. To  understand the perspectives of ruby and jadeite industry traders, dealers,  and association members, we interviewed U.S. jewelry industry officials in  New York City and foreign jewelry industry officials in Hong Kong,  Thailand, and Burma. In addition, to assess the validity of and collect  information on gemstone testing processes, we interviewed gemologists  and gemstone testing experts at three major U.S. laboratories in New York  City, and interviewed foreign gemstone testing experts at laboratories in  Bangkok. To collect detailed qualitative and contextual information about  Burma, including economic, political, social, and geopolitical variables, we  interviewed academic scholars from Harvard University, Georgetown  University, Macquarie University (Sydney, Australia), and the Brookings  Institution. We selected officials with a wide range of views and  experiences on the subject, including scholars with a range of expertise on  Burma’s economy and political situation.
The scope of our review was set by the JADE Act. The act has several  provisions, one part of which amends the Burmese Freedom and  Democracy Act of 2003 to prohibit the import of Burmese-origin jadeite  and rubies and jewelry containing Burmese-origin jadeite and rubies into  the United States and calls on the Administration to pursue certain  international actions to prevent the global trade in Burmese gemstones.  The JADE Act also requires GAO to submit a report to Congress assessing  the effectiveness of the implementation of this section of the act, including  any recommendations for improving its administration. We conducted this  performance audit from December 2008 to September 2009, in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on our  audit objectives.
section_title: Appendix II: Modification of Chapter 71 of the Harmonized Tariff Schedule of the United States
subsections: section_title: Prohibition on the importation of certain goods of Burma:
paragraphs: (a) Pursuant to section 3A of the Burmese Freedom and Democracy Act of  2003 (Public Law 108-61; 50 U.S.C. 1701 note), as amended by the Tom  Lantos Block Burmese JADE Act of 2008 (Public Law 110-286), for  purposes of goods provided for in headings 7103, 7113, and 7116, except as  set forth in subdivisions (c) and (d) of this note, the importation of any of  the following goods shall be prohibited:  i) jadeite mined or extracted from Burma and classifiable in  heading 7103 of the tariff schedule,  ii) rubies mined in or extracted from Burma and classifiable in  heading 7103 of the tariff schedule,  iii) articles of jewelry containing jadeite described in subdivision  (a)(i) of this note, whether classifiable in heading 7113 or 7116 of  the tariff schedule; and  iv) articles of jewelry containing rubies described in subdivision  (a)(ii) of this note, whether classifiable in heading 7113 or 7116 of  the tariff schedule.
With respect to goods entered or withdrawn from warehouse for  consumption, on or after September 27, 2008, should an importer  choose to enter any good under heading 7103, 7113 or 7116, the  presentation of such entry shall be deemed to be a certification by  the importer that any jadeite or rubies contained in such good were  not mined in or extracted from Burma.  (b) Notwithstanding the deemed certification under subdivision (a) above,  the importation of the following goods-  i) jadeite mined in or extracted from a country other than Burma  and classifiable in heading 7103 of the tariff schedule,  ii) rubies mined in or extracted from a country other than Burma  and classifiable in heading 7103 of the tariff schedule,  iii) articles of jewelry containing jadeite described in subdivision  (b)(i) or rubies described in subdivision (b)(ii) of this note,  whether classifiable in heading 7113 or 7116 of the tariff schedule,  is not permitted unless such goods comply with the terms of any  regulations issued by the Secretary of the Treasury to implement  section 3A(c)(1) of the Burmese Freedom and Democracy Act of  2003, as amended, or are covered by any waiver or certification  scheme that may be established pursuant to the provisions of  sections 3(b) and 3A of the act, as amended.  (c) The provisions of this note shall not apply to Burmese covered articles  and non-Burmese covered articles that were previously exported from the  United States, including those that accompanied an individual outside the  United States for personal use, if they are reimported into the United  States by the same person, without having been advanced in value or  improved in condition by any process or other means while outside the  United States.  (d) The certification established under subdivision (a) of this note shall  not apply to the importation of non-Burmese covered articles by or on  behalf of an individual for personal use and accompanying an individual  upon entry into the United States, with a proper claim under subheading  9804.00.20, 9804.00.45 or other appropriate provision of chapter 98 of the  tariff schedule.
section_title: Appendix III: DHS Data on Exporter- Reported Imports of Non-Burmese Rubies, Jadeite, and Related Jewelry
paragraphs: The following table shows Department of Homeland Security (DHS) data  on exporter-reported imports of non-Burmese rubies, jadeite, and related  jewelry into the United States from October 2008 to May 2009 (ranked  according to U.S. dollar value).
section_title: Appendix IV: United States Geological Survey Estimates of Ruby Production 2000-2005 (by Weight Measured in Kilograms)
paragraphs: ppendix IV: United States Geological Survey  imates of Ruby Production 2000-2005 (by  eight Measured in Kilograms)
section_title: Appendix V: Comments from the Department of Homeland Security
section_title: Appendix VI: Comments from the Department of Commerce
section_title: Appendix VII: Comments from the Department of State
section_title: Appendix VIII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Godwin Agbara, Assistant  Director; Ian Ferguson; Rajneesh Verma; Mary Moutsos; Etana Finkler;  and Karen Deans made key contributions to this report.