Indian and Thai Jewelry Industries Threatened by GSP Fate

Possible nonrenewal or changes in the U.S. government’s Generalized System of Preferences could raise the price of imported jewelry from India, Thailand, and Turkey.

The GSP is a 30-year-old program that lowers tariffs for imports from developing countries. India is a “beneficiary country” under GSP, but because it exports more than $100,000 in jewelry to the United States, it had been subject to the standard duty. But it received a waiver in 2001, lowering its jewelry duty from 5.5 percent to zero. Thailand and Turkey also have waivers on their jewelry duties.

The waiver has sparked a big jump in Indian jewelry imports, but now some in Congress want the GSP, which expires at the end of this year, to be changed or eliminated. One particular target is India, which they blame for the failure of the Geneva talks of the Doha Round of international trade negotiations, held in July.

Even if GSP is reauthorized, many think India’s jewelry waiver could be eliminated, which means it could again carry a 5.5 duty, says an official at the U.S. Trade Representative.

“Jewelry has become a football, a sacrificial lamb,” says Bob Golden of Leo Schachter, a New York diamond importer.

What’s interesting is that the trade—which generally is uniform on legislative issues—is split on this one.

On one side are American jewelry manufacturers and the Manufacturing Jewelers and Suppliers of America, who feel that the United States should not eliminate tariffs on Indian jewelry as long as India maintains tariffs on American jewelry. In some cases, the duties are over 30 percent, putting American-made jewelry products out of reach for Indian consumers.

“We don’t want the GSP extended,” says Frank Dallahan, executive director of MJSA, which is asking members to write their congressmen voicing objections to it. “There is free trade coming this way but not the other way. If you were David Yurman, you would like to be able to sell your product in India, but the duties on American-made jewelry going into India are crazy.”

Charles Lein, head of Stuller in Lafayette, La., says he “prefers there not be any kind of tariff. But if it’s zero, let it be zero both ways.

“We can’t compete with India on labor costs,” he continues. “The SEEPZ [special export] zone has been there for a long time. But this is a wonderful opportunity to say let’s open the door and level the playing field. This is an issue of basic fairness.”

On the other side are Jewelers of America (headed by a former MJSA executive director) and the Indian Diamond & Colorstone Association, which argue that retailers and consumers will be hurt by a new duty.

The duty’s lifting “created a whole segment of the market,” notes Basant Johari, a past president of IDCA. “If a duty is imposed, those costs will be passed on to the consumer, so something that was sold for $99 will be sold for $130. That segment of the business could go away, and people will go out and buy electronics.”

Even those in favor of GSP’s extension agree with MJSA that India should not have duties on U.S. products, and they hope to get those tariffs lifted. But Laura Baughman, executive director of the Coalition for GSP, argues that not renewing GSP won’t help that case.

“The U.S. slapping India won’t lower Indian tariffs any faster, and in fact it will probably have the opposite effect,” she says. “It will embolden those elements in the Indian government—namely the Communists—who don’t want to see India snuggle up to the United States.”

And if India is hurt, GSP proponents say, jewelry manufacturing won’t migrate to the United States, but to China. “China is nipping at India’s heels and China will use this against India,” says Elizabeth Chatelain of the Indo-Argyle Diamond Council. “At a time when India is growing healthy and democratic, this is not really the country we should be penalizing.”

Golden also feels targeting India could depress Indian investment in the U.S. industry. “Look at all the American manufacturers who have Indian partners,” he says. “The Indian community has played a large role in financing our industry over the last few years.”

Chatelain calls it “ironic” that MJSA is opposing reauthorization, since “most of their bigger members have joint ventures in India. They are going to be hurt by this.”

Dallahan says: “I have had one phone call on the matter from a member who has factories in India, and when I explained the circumstances and the amount of the [Indian] duty, he said, ‘Your position is perfectly reasonable.’”

While Congress did not take any action on GSP before it adjourned in September, it may tackle the issue if it decides to convene a lame-duck session later this year, according to Tim Haake, senior partner in Haake & Associates, JA’s legislative counsel.