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20 september 2018

Jewellers’ Guild of Russia sees its mission in creating highly developed national jewellery market

27 november 2017

eduard_utkin_xxb.jpgIn recent years, the Jewellers’ Guild of Russia has noticeably stepped up its activities. Eduard Utkin, General Manager of this Association told Rough & Polished about what is happening in the country’s jewellery sector, the tasks facing the community and commented on the latest developments in the industry.

What is characteristic of the current state of the jewellery industry?

If in one word, then the industry is in crisis. Speaking in detail, this is a sales crisis. The crisis is deep and protracted. It has been caused by a slump in the purchasing power of the population and a simultaneous rise in prices for raw materials used to produce jewellery due to the devaluation of the national currency.

Can we expect positive changes in the jewellery market, as well as in trade and exports?

Positive shifts were observed in the first half of this year. There was a slight increase in sales (+ 3-4% compared with the same period last year). There was also an increase in production, approximately by 15-18%. The latter was caused by the re-melting of illiquid jewellery stocks into more liquid ones. Of course, these can be considered as new goods. But for their production jewellers used raw materials consisting of ending inventories for which there was no demand. According to our estimates, jewellery production exceeded sales by 32% last year. Since July 2017, the decline in jewellery sales resumed. At the moment, the situation has not leveled off. The slump in sales is accelerating. As for exports, they were $ 178 million in 2015 and reached $ 118 million in 2016. Our forecast for this year is $ 80 million.

And what happens in the sphere of state regulation related to the jewellery industry and trade? Is there any hope for state support to jewellery manufacturers and merchants in the future?

There is a definite shift in terms of state support. The Russian Export Center has started a program of subsidizing part of the expenses incurred by Russian jewellers to participate in jewellery exhibitions abroad. But this is not enough. It is necessary to change the regulatory framework that regulates export operations. The process is going on, but it is rather viscous.

As for the domestic market, the main measures to stimulate the industry would be:

- to cancel the VAT on refined precious metals;

- to abolish import duties on gemstones that are not mined or cut in Russia;

- to eliminate excessive measures of state regulation to counter money laundering of proceeds from crime.

What are the main issues on the agenda of the Jewellers’ Guild?

Our goals are set out in the Guild’s guidelines and they are as follows:

• Protecting the Russian jewellery market from smuggled precious metals and precious stones, illegal imports of jewellery and imported jewellery goods with underdeclared value.

• Creating equal competitive conditions for conscientious, efficient and civilized business activities in jewellery production and trade, as well as increasing the competitiveness of Russian jewellery companies.

• Creating favorable conditions for the export of Russian-made jewellery to international markets.

• Shaping a qualified consumer demand for home-made jewellery in the Russian market.

• Eliminating excessive measures of state regulation, control and supervision, which entail an unjustified increase in the costs of their administration.

We see our mission in creating a highly developed national jewellery market and its integration into the global jewellery community.

In its activities the Jewellers’ Guild of Russia is concentrated on harmonizing the relationship between the Russian jewellery market stakeholders, ensuring their effective interaction to create a highly developed national jewellery market, as well as on strengthening international ties and consistent integration into the global jewellery community. Particular importance is attached to the interaction and constructive cooperation with government agencies that regulate the circulation of precious metals and precious stones.

As for specific tasks, in the near future they will be focused on:

1. Excluding jewellery from the category of goods controlled under the Law on Countering the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism (Federal Law No. 115).

2. Establishing zero import duties on all colored stones (precious and non-precious) coming in as processed or unprocessed goods.

3. Mutual recognition of the hallmarks put by the Eurasian Economic Union member states only after adopting an agreement on the unification of procedures for state control over the circulation of precious metals, precious stones and state assay supervision.

4. Mandatory marking of jewellery produced in Russia or imported into Russia with identification marks.

5. Mandatory indicating the country of jewellery origin on price tags.

6. Replacing the current administrative order and establishing a list of refining enterprises for licensing this type of activity.

7. Introducing a zero VAT rate for refined precious metals.

8. Establishing voluntary hallmarking of jewellery intended for export.

9. Expanding the list of jewellery purity grades.

10. Establishing a Single Window System for submitting documents for state control and customs clearance procedures.

11. Introducing a procedure permitting to remotely change the temporary export arrangements to export arrangements.

12. Introducing changes into the currency control legislation allowing retail sales of jewellery for cash at international exhibitions.

13. Eliminating restrictions for remote jewellery sales.

14. Organizing and holding the Best Supplier and Best Partner industry contests on a permanent basis.

15. Organizing and holding the National Award in Jewellery Art contest on a permanent basis.

16. Organizing a consolidated industry advertising company.

17. Implementing the project on consolidated jewellery export and consolidated wholesale and retail jewellery trade in international markets.

How is the self-regulation mechanism in the jewellery industry being implemented? What are the prospects for introducing IT control in this industry?

Not very long ago, we discussed the need for self-regulation at the Guild’s general meeting and just began to take the first steps in this direction. This process will not be swift.

As for IT control, it is an initiative of the state. We share the need for solving the problems, which it can solve. However, there are questions regarding the success of its implementation. The very introduction of QR-codes and putting them on jewellery tags do not cause any difficulties. But the idea of ​​applying laser barcodes to the products themselves raises more questions than gives answers. After the grading and marking procedure, which includes the application of a laser barcode, the product undergoes additional processing operations: bracing, straightening, barrel finishing, polishing and cladding. Laser barcodes can be damaged during these operations. And most importantly, the laser code will be machine-readable, i.e. not seen by the eye. Also, we do not know how the task of combining QR-codes with laser barcodes on jewellery tags will be solved.

What was the reaction of the jewellery community to the proposal to consider the use of precious metals in jewellery manufacturing as production of precious metals? What does this mean for jewellery market stakeholders?

We have strongly opposed this proposal. This proposal came from refining enterprises, and it really expands the concept of "precious metals production." Today, precious metals production is understood as an operation to extract pure metals from waste and scrap alloys. Refineries propose to include all preliminary processing (recycling) operations involving scrap and waste into the concept of "production." We believe that this is contrary to the basics of the law on precious metals and precious stones.

What was the reaction of the Jewelers’ Guild to the recent court rulings to close online stores?

We helped to solve these problems as much as possible. We provided the necessary legal assistance and advice to interested parties in order to eliminate the negative consequences of the ambiguous interpretation of our legislation. It can be said that to date the severity of this problem has been eased.

And what is your comment on the notorious events related to the Yashma and Topaz companies?

As for claims to Topaz, we do not yet have complete information on the essence of these claims. And it is premature to draw conclusions based on conjectures. I can only note that Topaz is known in the market as one of the most law-abiding companies.

The problems of Yashma are caused by the crisis that has arisen. The chain is no stronger than its weakest link. They entered the crisis with a very heavy credit burden, plus a load of problems due to the claims from tax authorities. Perhaps they could solve their problems if the market continued to grow, as it was observed before the end of 2014. But the market started to fall only aggravating the company’s problems and bringing about this result.

Galina Semyonova for Rough&Polished