US-China rift over Hong Kong suits India's gems and jewellery sector; exports to see rise

KEY HIGHLIGHTS

• Indian gems and jewellers hope to gain from direct exports to the US, as US strips Hong Kong preferential treatment

• US has ended preferential trade treatment to Hong Kong and hiked import duty to 7.5% from 3.3% on gems and jewellery

• Hong Kong and China exported gems and jewellery worth US$ 980.85 million and US$ 2.63 billion to the US in 2019

• India exported mainly diamonds and gemstones worth $9.47 billion to Hong Kong and China in 2019

• Over 75% of this is re-exported to China and goes to the US as value added studded jewellery

Gems and jewellery exporters from India are hoping to consolidate their position in the US market with increased direct exports thanks to the mounting trade tensions between the US and China, and the deteriorating political relations following the COVID-19 outbreak.

After China decided to implement the national security law on Hong Kong, the US has imposed a 7.5% duty on imports from Hong Kong (HK). This was about 3.3% earlier, as part of the 'US-HK Policy Act' of 1992, a preferential economic trade deal of the US with Hong Kong. China was using this as a loophole and re-exporting many products. The incentives and less import duty to the US had made Hong Kong the top global trading hub in Asia for gems and jewellery, said sources.

After India, France and Italy, China & Hong Kong are the largest gold jewellery exporters to the US. The new developments in ties between US, Hong Kong and China will help India corner their market share. India, China and HK were the largest exporting destinations (27%) of gems and jewellery, worth $9.47 billion, in 2019. The exports are mainly diamonds and gemstones, which are used as raw materials for studded jewellery exports to the US.

The Indian exports are mainly to Hong Kong, where most of the Indian exporters have representatives or offices, including a 2,000 plus Indian contingent in the pre-COVID-19 days. From Hong Kong, much of the products (75 per cent) are exported to China for further value-addition. China, in turn, exports a large part of the finished goods to the US and other parts of the world.

Hong Kong  and China exported gems and jewellery worth $980.85 million and $2,622.19 million, respectively, to the US in 2019. The US move will negate the advantages China and Hong Kong had in exports, and India can reap the benefit by directly exporting value added products like studded jewellery to the US, said sources.

"India possesses natural benefit of ready availability of raw material, manpower and skillsets, a sector with five million workforce and an infrastructure to cater to the global demand. The Indian gem and jewellery sector  has an opportunity ahead to take a quantum leap to become the global leader and a trading hub," said Colin Shah, chairman, Gem and Jewellery Export Promotion Council (GJEPC).

According to GJEPC, India has exported gem and jewellery worth $10.48 billion in 2018-19 and $9.17 billion in 2019-20 to the US, which is 26% percent of overall gems and jewellery exports from India. This was upto 35% a few years ago, until countries like China increased their exports to the US. Compared to this, India's imports from China is very negligible, worth less than Rs 150 crore a year of pearls and costume jewellery.

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