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Japan Labs and Pave Way for Each Other
Feb 12, 1999 10:54 AM
By Kazuko Ito
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By Kazuko Ito
Japan Correspondent
The history of gemological laboratories is a relatively short one in Japan. They burgeoned during 60s and 70s when Japan's gemstone consumption was about to take off and the Ministry of Finance (MOF) released diamonds that it had hoarded as reserves. There were few among traders and consumers who knew anything about gems and diamonds. The need for a service to identify gemstones and grade diamonds paved the way for gemological laboratories to flourish.
Almost all gemstones sold to consumers today are accompanied by some sort of certificate. There are now about 30 independent gemological laboratories under the AGL (Association of Gemological Laboratories) auspices.
Although precise economic figures are not available, the certification market in Japan is estimated at Yen5 billion ($44 million).
"This is a phenomenon unique to Japan," says Yoshiki Kikuchi of Gem Science Laboratory. "But both the trade and consumers needed lab services. For the trade, the need was for a piece of paper to help sell gemstones, because they knew little about them. For the consumers, the need was for the peace of mind provided by a written description from an independent laboratory. You can say that the Japanese trade and laboratories have grown hand in hand."
Follow the Leaders
Most Japanese laboratories follow the lead of the world's major gemological institutions for their grading and educational systems. Some of them have affiliations with such institutions, exchanging information and business, and providing educational programs in the Japanese language that are originally developed by the institutions. Examples of such alliances are the GIA Japan (aka AGT) and Gemological Institute of America, GAAJ (aka Zenhokyo) and the Gemmological Association of Great Britain, and Central Gem Laboratory and Hoge Raad voor Diamant voor Diamant (HRD).
During the 80s and early 90s when the Japanese economy boomed and gemstone consumption peaked, massive amounts of gemstones came into Japan. Seeing this wave as an opportunity, a large number of laymen joined in the gem trade without the expertise acquired by trade professionals through their years of experience. But the laymen had labs on their side.
Japanese labs give sorting memos, or pre-grading, on small plastic pouches for a minimal fee. These save the Japanese traders from spending a lot of money on certificates before ascertaining what grades they are getting. Among the wholesalers, stones are seldom traded with full certificates; sorting memos suffice. But to the retailer, certification is a must.
As the market expanded, a number of Japanese labs opened satellite labs throughout the nation to serve growing local markets. They also opened foreign branches — Zenhokyo in Ramat Gan, Israel and Bangkok, Thailand, and CGL in Antwerp, Belgium — to facilitate Japanese buying at the cutting centers.
Growth vs. Quality Control
And as the number of satellite labs at different locations increased, it became inevitable that the grades tended to deviate from satellite to satellite even within the same laboratory, with larger discrepancies among different labs. Most labs hold graders' meeting regularly to eliminate such deviations, but since grading involves the human factor, deviation has been, so far, an unsolvable problem.
Traders wasted no time in taking advantage of the discrepancies. They bought diamonds with a stringent lab's grades, took them to lenient labs to get better grades, and made money on the grade differences. At one point, this practice became so common that traders complained to the labs if they did not get the grades they wanted, and demanded a change of grades. This led to growing concern from the trade as well as consumers, since the same grade stones were trading at huge price differentials.
In 1996, AGL implemented a new color grading system, in which AGL-certifiedcolor masterstones are assigned to its member laboratories. The AGL's rule is that when a member laboratory makes three mistakes in grading, the lab is expelled from AGL after investigation by AGL's gemological committee.
In the summer of 1997, CGL, the most dominant laboratory of the time, made the third mistake on a color call. Because of its dominance, the incident was reported in the public media. Fearing a loss of consumer confidence, reputable department stores reportedly demanded that suppliers switch to laboratories other than CGL for their certificates. Certain department stores designated Zenhokyo or DGL specifically. Today, the diamond grading business is evenly dispersed among Zenhokyo, DGL, CGL and GTC.
"But I am not sure how many engagement rings and diamond jewelry pieces are sold at department stores," says a wholesaler in Okachimachi. "Generally, expensive engagement rings and diamond jewelry are sold by jewelers, or at specialty stores."
The Exchange Rate Factor
He reports that he still fetches the highest prices on CGL-graded diamonds, followed by Zenhokyo, GTC and DGL, in order. He thinks the grading jobs are dispersed among a number of labs as a result of the changing dollar/yen exchange rates, in addition to the CGL dispute. Because of the strained supply in recent years, certain goods are dried up in the marketplace. Diamond buyers are tensely watching the moment when the exchange rate swings in their favor; ie., the stronger yen. When this happens, all the buyers go out to the cutting centers, importing all at once, flooding the labs. The importers' exchange watch continues until they send money to the cutters. "They cannot wait 10 days for the lab they like to finish sorting. They use a number of labs to have the stones sorted and sold as soon as possible before the exchange rates turn unfavorable."
After the color grading dispute between AGL and CGL, labs became more careful in calling grades, and grade calls by the member labs seem evened out. "Oh, there are differences," says a dealer. "At the moment, CGL makes the strictest color calls. AGT is a bit low on G and H colors, while GTC is stricter on clarity and cut grades. Zenhokyo is more lenient on clarity calls. But I still like CGL. CGL sorting is the most used among dealers and this brings better prices."
Prices Also Vary
While it is the propensity of the Japanese to standardize procedures such as grading systems, the fee structures are not quite as uniform. AGT (GIA Japan) charges Yen3,000 for color and clarity grading for a carat-size stone, and an extra Yen500 for cut grading. For a full certificate, AGT charges Yen7,000 on top of the above, plus Yen400. When it issues certificates as GIA Japan, it charges Yen14,000. The GIA Japan's grade is not necessarily honored by GIA USA.
At Zenhokyo, sorting (pre-grading) of carat-size diamonds costs Yen3,000 for members and Yen6,000 for nonmembers. For a full certificate for stones of that same size, it charges Yen5,500 for members and Yen11,000 for non members. Zenhokyo is known for its expertise in colored stone identification. "At the high end of colored stones, it is crucial to see if the stone is heat-treated or not. Our customers demand a thorough examination, and for this service, we charge Yen 35,000."
GTC specializes in diamond grading. It charges Yen3,000 for sorting and Yen10,000 for a full certificate of carat-size diamonds. "It takes a certain amount of time to do a good grading job. We believe this fee to be reasonable," says Yoshio Suzuki.
The smaller GSL differentiates its service by providing attractive photographs of gems and jewelry it identifies on the certificates. GSL charges only Yen1,000 for sorting and Yen4,000 for a full certificate. Although GSL is not affiliated with the major gemological institutions, it provides seminars targeted to store managers.
"I have observed a trend among the large-scale chain stores to offer their own house warranties instead of certificates from independent laboratories recently," commented Yoshiko Doi of AGT. "But they still call on professionals when there is a suspicion of treatment and enhancement."
Juel Verite Okubo is one chain store that provides house warranties. "But the grading jobs are done at the independent labs. All we do is print our store name on the lab's certificate," says Takayoshi Shoji of Juel Verite Okubo.
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Tags:
Belgium, Consumers, Economy, GIA, HRD, Israel, Japan, Jewelry, Laboratories, Labs
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