The Russian Jewellery Guild has called on the government to introduce legislation to end a variety of market controls which, according to the Guild, put domestic jewellery manufacturers at a disadvantage, compared to smuggled imports.

The rate of growth of jewellery imports is running faster than domestic jewellery production, V.B. Radashevich, head of the Guild told the Russian Jeweller Network, the industry monitor which is published in Moscow.

"In Russia there are hardly any goods for which the market is so rigidly regulated as jewellery," Radashevich said.

"When we speak of regulation, what we mean is that it is necessary for the buyers of jewels to get protection for the quality of their purchases; for the [domestic] manufacturers to be protected from unfair competition; and for the state to receive the maximum of budget receipts from the fiscal operations of the manufacturing and selling organizations."

The principal legislation regulating the Russian jewellery market dates from 1999.

"Unfortunately", according to the Guild, this cannot stop a "flood of illicit and illegally made products", principally originating in Thailand or China, and finding its way into Russia, often through Dubai and Turkey.

Guild data suggest that in 2003-2004 the Russian jewellery market was worth $1.7 billion – 60% domestic jewellery, and 40% imports. Assuming growth of 30% in 2005, the market is approaching $2.3 billion this year. Jewellery retailers in Moscow estimate that about 40% of that market value, or about $900 million, comprises diamond jewellery.

There is a predictably high degree of concentration of jewellery sales in the wealthiest regions of the country, starting with Moscow. Roughly 60% of domestic jewellery is produced in Moscow; about 70% of jewellery sold is bought by or in Moscow.

Although the federal government has cut income taxes for consumers, freeing demand for luxury goods, business taxes remain so heavy, the Jewellery Guild complains, that they are crushing the jewellers.

"Out of each million roubles worth of jewellery produced," a Guild report of 1999 claimed, "the producers pay Rb500,000 to 550,000 in taxes and excises. After payments for precious metals and stones, the producer gets just Rb100,000 to 15,000, just 10% to 15%. By selling precious metals to the jewellery producers, the state in the long run gets almost three times more than it would for selling gold ingots on the world market. In other countries, the added value of jewellery compared to the cost of precious metals and stones in jewellery is 30%. But in Russia the price of the jewellery is 250% to 300% compared to the cost of metal and stones."

In reaction, the extent of the black and gray markets in jewellery, including diamonds, is so great, virtually all the leading jewellery retailers in Russia, notably Tsentr Yuvelir and Adamas, the Moscow retail leaders, refuse to provide year to year sales results.

In a rare presentation, Tsentr Yuvelir told Italian jewellers in Vicenza two years ago, that the average price of a piece of diamond jewellery across its retail network was $400, with more than 50% of item sales comprising diamond jewellery. Revenue from sales in 2002, the group claimed, was $43 million, with average turnover of $12,700 per square metre of retail space. The group has made no trade disclosures since January 2004.

Radashevich has called on the government to lift most regulatory requirements on silver jewellery, and to improve customs operations against contraband.

He also said that the Guild is opposed to the currently legal practice of tolling.

According to this scheme, Russian jewellery retailers are permitted to export precious metal and gemstones abroad, where they are fabricated into jewellery, and imported back into Russia, without paying value added or import taxes. Tsentr Yuvelir is one of the groups licensed to conduct tolling operations.

Source: PolishedPrices.Com.