Tariffs: Why Routing Indian Diamonds through Dubai Won't Work
August 11, 25
(IDEX Online) - Manufacturers in Surat, India, are reported to be considering rerouting their polished goods through UAE to avoid the punitive 50 per cent tariffs imposed by the US from last Thursday (7 August).
But such a move would fall foul of US customs rules, which are applied on the country in which goods are made or substantially transformed - in this case where the diamonds are cut and polished - rather than the country from which they are exported.
Nonetheless, an unnamed source at India's Gem and Jewellery Export Promotion Council (GJEPC) is quoted by The Blunt Times, a Surat-based news website as saying: "The cost of direct exports to the US has gone up significantly.
"Dubai offers a neutral and tax-efficient base to reroute goods, maintain profit margins, and protect global competitiveness."
Dubai, as part of the UAE, is subject to a 10 per cent tariff, the lowest level of all. As such it would make it an attractive hub for rerouting.
But the latest White House executive order modifying reciprocal tariff rates, published on 31 July, again makes it clear that the country of origin determines the rate of tariff, not the country of export.
Not only that, but it also warns that goods deemed to have been "transshipped to evade applicable duties" will be subject to an additional 40 per cent tariff".
The Blunt Times describes rerouting through Dubai as a simple yet effective strategy.
"Diamonds are polished in Surat, shipped to Dubai, invoiced through DMCC-based offices, and then forwarded to the US," it claims.
"This not only helps skirt higher tariff thresholds but also provides flexibility in complying with shifting US rules of origin, especially amid increased scrutiny over transshipment practices across Asia."
File pic of Dubai.