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Impacts of India-UAE CEPA on Thai Gem and Jewelry

Nov 1, 2023

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In February 2022, India and the United Arab Emirates (UAE) signed the Comprehensive Economic Partnership Agreement (CEPA) during the India-UAE Virtual Summit. With the agreement now in force, customs duties on imports between the two countries have been reduced and exempted since May 2022, providing India's gem and jewelry with an even greater advantage in the UAE. This positions India to utilize the UAE as a gateway to the Middle Eastern and North African markets. However, Thailand may face a disadvantage due to high import duty rates, when compared to India's leading products like gold jewelry, potentially impacting Thai gold jewelry's chances of gaining market share in the UAE. On the other hand, Thailand's prominent exports, colored stones, are expected to remain unaffected by the agreement, and the country's exports of colored stones to India and the UAE are likely to experience growth. Additionally, Thailand can benefit from increasing exports of raw materials and semi-processed materials to India for re-exporting and the manufacturing of jewelry intended for export to the UAE and the Middle Eastern market.

India-UAE CEPA

The India-UAE Comprehensive Economic Partnership Agreement (CEPA) primarily focuses on reducing and exempting import duties between the two countries, covering over 80% of all product trade. Over the course of the next decade, India has steadily decreased the import duty on gem and jewelry, eliminating the highest rate of 25% entirely. Meanwhile, the UAE has promptly eliminated the import duty on all gem and jewelry, previously capped at 5%, as soon as the agreement took effect. Furthermore, the UAE has removed non-tariff trade barriers, implemented precautionary measures for sudden import surges, outlined local content requirements of 40% and above for exports, and established regulations for the certificate of origin (CO). The agreement's objectives include boosting bilateral trade between India and the UAE to USD 100 billion, surpassing the pre-Covid-19 level of around USD 60 billion in 2019, and elevating the trade value of the service sector to USD 150 billion within the next five years.

"The goal of the India-UAE CEPA is to increase trade value, attract investment,

and create one million jobs in both India and the UAE."

India and the UAE Gem and Jewelry Import Duty Rates

Source: www.worldtariff.com and Department of Commerce, Ministry of Commerce and Industry (Government of India)

Data as of June 10, 2023

Apart from import duties, India and the UAE also impose value-added tax (VAT). In India, the goods and services tax (GST) system is utilized with rates ranging from 0.25% to 3%. Rough diamonds, rough gemstones, and synthetic gemstones have a 0.25% GST rate, and polished diamonds have a 1.5% GST rate. The remaining gem and jewelry goods incur a 3% GST rate. On the contrary, the UAE levies a consistent 5% VAT rate on all products.

Overview of Trade Between India and the UAE

According to Global Trade Atlas, trade between India and the UAE witnessed constant expansion from 2019 to 2022, with the bilateral trade value reaching USD 84,228 million in 2022. After the CEPA signing, bilateral trade in the second half of 2022 surged by about 13%, reaching USD 42,083 million from USD 37,212 million in the same period the previous year. The UAE stood as India's second most important export market, preceded by the US, while also being India's second-largest import source, after China. Conversely, India emerged as the largest export market for the UAE and the second most prominent import source, trailing China. Key exports from India to the UAE encompassed petroleum gas and hydrocarbon gas, gold jewelry, polished diamonds, and telephones. Notably, India's primary imports from the UAE consisted of petroleum oil, petroleum gas and hydrocarbon gas, rough diamonds, unwrought gold, and plastic. These findings highlight the robust and mutually beneficial trade relationship between India and the UAE.

India and the UAE Gem and Jewelry Trade

India

India, a significant player in the global gem and jewelry industry, held the distinction of being the UAE's top importer of such products in 2022. Switzerland, the US, Hong Kong, Belgium followed suit in the ranking. Notably, over 62% of India's imports from the UAE consisted of rough diamonds, with gold and platinum being subsequent in demand. Thailand was listed as India’s 14th largest import source. Around 70% of India’s imported diamonds were from Thailand. In addition, silver jewelry, silver, polished precious stones, rough gemstones, polished semi-precious stones were also imported from Thailand, in that order.

Figure 1: India’s Gem and Jewelry Import Sources 2020 – 2022

Source: Global Trade Atlas

In terms of exports, the UAE holds the position of India's third-largest export market, following the US and Hong Kong. India's primary exports to the UAE account for over 56% which are gold jewelry, followed by polished diamonds and synthetic gemstones. The gold jewelry exported to the UAE primarily consisted of 21K and 22K pieces, catering to the preferences of Arab and South Asian consumers residing or visiting the UAE. Additionally, 18K gold jewelry, with and without gemstones, gained popularity among younger generations and Western consumers in the UAE.

Thailand ranks as India's sixth-largest export market. Polished diamonds account for almost 90% of India's exports to Thailand, followed by polished precious stones (around 80% being emeralds), synthetic gemstones, and polished semi-precious stones, respectively.

Figure 2: India’s Gem and Jewelry Export Markets 2020 – 2022

Source: Global Trade Atlas

The UAE

The UAE, known for its affluent consumer base and its role as a gateway to the Middle East and Northern Africa, stands as one of the world's largest markets for gem and jewelry. In 2022, India emerged as the primary import source of gem and jewelry for the UAE, with gold jewelry comprising over 50% of the imports, followed by polished diamonds and synthetic gemstones. The UK, Switzerland, Belgium, and Hong Kong followed India in the import rankings. Thailand held the 24th position as an important import source for the UAE. Of the products imported from Thailand, over 54% is gold jewelry, followed by polished diamonds, gold, rough gemstones, respectively.

Figure 3: The UAE’s Gem and Jewelry Import Sources 2020 – 2022

Source: Global Trade Atlas

India emerged as the UAE's primary export market, surpassing Switzerland, Hong Kong, Turkey, Belgium, in that order. Thailand held the 14th position as an important export market for the UAE. The UAE's major export product to Thailand was gold, accounting for over 80% of the total export share. The remaining exports included rough diamonds, polished precious stones, gold jewelry, polished diamonds, respectively.

Figure 4: The UAE’s Gem and Jewelry Export Markets 2020 – 2022

Source: Global Trade Atlas

India-UAE CEPA: Impacts on Thai Gem and Jewelry

The implementation of the CEPA in May 2022 led to an immediate removal of import duties on gem and jewelry from India in the UAE, providing a significant advantage to Indian products in the market. According to Global Trade Atlas, in the second half of 2022, following the signing of the CEPA, India's exports to the UAE witnessed a notable 13.59% increase compared to the same period in 2021. Key products such as gold jewelry and polished diamonds experienced export growth rates of 7.97% and 17.79%, respectively. Conversely, the UAE's exports to India declined by 11.53% due to a sharp decrease of over 67.46% in gold exports, the dominant product. However, the export of rough diamonds and platinum witnessed positive growth rates of 7.60% and 336.32%, respectively. As a leading global producer of gem and jewelry, the India-UAE CEPA has provided Indian products with a competitive edge in the UAE market, while also serving as a significant opportunity to utilize the UAE as a gateway to expand trade value in the Middle East and North Africa.

Thailand's competitive edge in the UAE may be overshadowed by India, primarily due to higher costs resulting from regular import duty rates. This situation is particularly impactful on certain Thai exports to the UAE, specifically gold jewelry. India's gold jewelry, known for their advanced designs and comparatively lower costs, have gained prominence in the UAE market since the elimination of customs duties. As a result, the prices of Indian gold jewelry have significantly decreased, leading to increased imports from India. Conversely, it has become increasingly challenging for Thai gold jewelry to expand its market share in the UAE.

Mr. Jarudol Tulyagijja, an experienced entrepreneur specializing in the Middle East market, noted that although Thailand boasts skilled artisans capable of creating customized gold jewelry, the production of luxurious 21K and 22K Arabian-style jewelry necessitates substantial investment. Moreover, there is only a limited number of Thai entrepreneurs engaged in the production of 18K gold jewelry, and Thailand's manufacturing costs are remarkably high. To sustain their competitiveness, Thai entrepreneurs must prioritize the rapid development of product designs while reducing costs to attract Western consumers residing or traveling in the UAE. They must protect their market share in the UAE and explore expansion into other Gulf Cooperation Council (GCC) countries. Presently, Indian companies based in Thailand dominate the export of polished diamonds to the UAE. However, the utilization of an indirect export route via India, leveraging the CEPA benefits, may eventually diminish the direct export of polished diamonds from Thailand to the UAE.

Source: https://gulfnews.com

Thailand, renowned as a global center for gem production, stands to benefit from the growing trade between India and the UAE. This is evident in Thailand exporting raw materials and semi-processed goods to India, which are then used for reexport and manufacturing of finished products for the UAE and other Middle Eastern and North African countries. The Thai Customs Department's statistics for the second half of 2022 highlight this trend, revealing a 25.56% increase in India's import of Thai gem and jewelry compared to the same period the previous year. Polished diamonds, silver jewelry, gold jewelry, rough gemstones, polished precious stones, and polished semi-precious stones were among the key Thai exports to India, experiencing import growth rates of 12.22%, 81.66%, 1,537%, 47.72%, 166.84%, and 389.27%, respectively.

Thailand's renowned expertise in colored stone production positions certain products to remain unaffected by the India-UAE CEPA. Despite the agreement, Thailand's export of colored stones to the UAE continues to grow and is projected to expand further, driven by the rising popularity of colored stones and gemset jewelry among Arab and South Asian consumers in the UAE. Thai entrepreneurs can seize this opportunity by increasing production of silver or gold jewelry adorned with colored stones and exporting them to penetrate the UAE market. Trade statistics from the Thai Customs Department for the second half of 2022 demonstrate significant growth in Thailand's export of colored stones to the UAE, with rough gemstones, polished precious stones, and polished semi-precious stones witnessing remarkable growth rates of 3,620.26%, 67.09%, and 241%, respectively.

The Thailand-UAE Comprehensive Economic Partnership Agreement (CEPA), approved on February 28, 2023, aims to promote sustainable trade and investment. Removing import duties on Thai gem and jewelry in the UAE, through successful negotiations, will greatly enhance their competitiveness in the UAE market. The UAE's status as a global importer and trading hub generates significant demand for these products, both for local consumption and reexport to the Arabian Gulf and North Africa. This agreement presents new opportunities for Thailand's gem and jewelry exports, particularly in the popular category of gold jewelry among UAE and Arab consumers. Thailand's expertise in diamond and colored stone cutting and polishing further strengthens its potential for exporting to the UAE and onward distribution to other Middle Eastern and North African countries.

In conclusion, the Thai gem and jewelry industry shows great promise in both the Indian and UAE markets. To seize these opportunities, Thai entrepreneurs must focus on innovation and the creation of distinctive products. Adapting strategies to suit the specific demands of each market is crucial, as is establishing robust trading networks built on shared interests. By embracing these approaches, they can pave the way to success and growth in these lucrative markets.

written by Wasana Somnate

The Gem and Jewelry Institute of Thailand (Public Organization)

June 2023

References

1) India-UAE CEPA: 1,157 products including dairy, fruits, vegetables & nuts kept in exclusion list. [Online]. Available at https://www.livemint.com/news/india/indiauae-cepa-1-157-products-including-dairy-fruits-vegetables-nuts-kept-in-exclusion-list-11651681115107.html. (Retrieved May 9, 2023)
2) Comprehensive Economic Partnership Agreement (CEPA) between the Government of the Republic of India and the Government of the United Arab Emirates (UAE). [Online]. Available at https://commerce.gov.in/international-trade/trade-agreements/comprehensive-economic-partnership-agreement-between-the-government-of-the-republic-of-india-and-the-government-of-the-united-arab-emirates-uae/. (Retrieved May 9, 2023)
3) A year after signing India-UAE Comprehensive Economic Partnership Agreement, bilateral trade grew by 27.5%. [Online]. Available at https://economictimes.indiatimes.com/news/economy/foreign-trade/a-year-after-signing-india-uae-comprehensive-economic-partnership-agreement-bilateral-trade-grew-by-27-5/articleshow/98041509.cms