Costly letters of credit (L/Cs) feature in a range of circumstances forcing Bangladesh's jewellery makers to become heavily dependent on smuggled gold according to industry sources.

One retailer says that some 65-70 per cent of jewellery in his shop is made of smuggled gold.

Expensive L/Cs

Jewellery manufacturers cannot import gold legally using most payment mechanisms, though they do have an option to import gold by opening L/Cs.

But that requires the payment of a supplementary duty of around US$3,750 per kilogram of gold.

At current prices this equates to a premium of more than 10 per cent, which pushes the price of jewellery further up.

Baggage restrictions

This prompted most jewellery importers to rely on gold brought into the country by people in their baggage.

But the government has recently increased duty on gold brought in by individuals under its baggage rules and raised the duty-free import limit.

So Bangladesh's high import duty under its baggage rules and the absence of any formal mechanism to import gold or costly L/C charges have combined to prompt the country's jewellers to become heavily dependent on smuggled gold.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.