Hong Kong is the main beneficiary of Thailand’s new value added tax when it comes to the diamond trades. For many diamond traders in Bangkok, there is no question whether it is better to pay a seven percent, refundable, VAT or a one to two percent markup for smuggled goods.

            From Israel, India and Belgium, diamonds move officially to Hong Kong, which enjoys free trade and operates a smooth-running diamond smuggling network. Dummy companies are set up in Hong Kong to receive the goods and then they are passes onto Thailand.

            As cheaper goods on the black market move into Bangkok via Hong Kong, legitimate suppliers must wait for an urgent demand which the black marketers cannot supply before they can sell their goods.

            Diamond merchants in Bangkok estimate that at least one third of the diamonds on the Thai market are smuggled. Statistics bear this out. The Israel Diamond Institute reports that its exports of polished diamonds to Thailand dropped almost in half from US$42 million in 1991 to $24 million in 1992. But for the same period, Israel’s exports to Hong Kong rose substantially, from $483 million in 1991 to $601 million in 1992.

            Statistics from Thai Customs also show a big drop in Thailand’s official diamond imports.