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Apr 2, 2002 1:12 PM   By Martin Rapaport
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Progress does not come about easily. It requires the acceptance of new ideas and the implementation of new methods. Progress is a process of change that slowly gains momentum until new and better realities are achieved. Most often, great progress encounters great challenges and fierce opposition.

The diamond industry has come a long way since December 1998 when Global Witness first published “A Rough Trade” documenting the fact that diamond sales were used to fund war in Africa. Our own editorial “Blood Money” in November 1999 was not well received as many in the trade felt that little if anything could be done to stop the flow of conflict diamonds. By July 2000, the leadership of the diamond industry agreed to do everything they could to help eradicate the problem of conflict diamonds.

The establishment of the World Diamond Council (WDC) and the intergovernmental Kimberley Process forum provided government, trade and nongovernmental organizations (NGOs) an opportunity to exchange ideas and develop consensus about solutions to the problem of conflict diamonds. The process of defining the problem and discussing it from multiple perspectives created a synergy between the trade, government and NGOs. Initially, the situation looked bleak. NGOs were demonstrating, congressional legislation was delayed and the only thing that governments could agree on was where to hold the next meeting. But the process of change had begun and the need to provide practical solutions for serious problems overcame parochial interests and concerns. Everyone realized there was no going back — a solution had to be found and implemented.

Kimberley Consensus

To the credit of everyone involved, the Kimberley Process has borne fruit. Consensus has been reached ensuring the establishment of a global certification system for rough diamonds that will exclude conflict diamonds from the legitimate diamond distribution pipeline. While the system may not be perfect and the arduous task of implementation remains before us, the fact is that government and trade are now committed to taking clear and enforceable action no later than January 2003.

Thirty-seven governments and the European Community have agreed on a system that will require the sealing and government documentation of all rough exports and imports. Rough diamonds will only be imported from countries that implement Kimberley Process procedures. Rough diamonds of unknown origin will no longer move freely across borders, thereby assuring that conflict and illicit diamonds are not allowed to enter the legitimate diamond distribution system.

The diamond trade has agreed to implement a system of voluntary self-regulation that will support standards for regulating the movement of rough diamonds within national borders. An auditable system of warranties will be established. Rough sellers will be required to maintain documentation establishing the legitimacy of the rough they sell. A written affirmative statement guaranteeing the legitimacy of the rough diamonds will be included on the invoice. The system of warranties is designed to assure all buyers of rough and subsequent polished that the diamonds being sold are conflict free.

Undoubtedly, the new regulatory environment will raise the ire of seasoned traders. One cannot deny the fact that demand for diamonds as a store of value is enhanced by the secretive, private and undocumented ownership of the precious stones. To some degree, the proposed regulations governing the trade in rough diamonds will force greater transparency on downstream diamond transactions, and this may have a negative impact on demand for diamonds as a store of value. Such is the price of progress.

Oppenheimer’s View

Consider the words of Nicky Oppenheimer at the recent WDC meeting in Milan:

“Each of us has differing needs and priorities, but we all now share the same objectives: an end to the trade in conflict diamonds, the protection of the legitimate diamond industry, the preservation of the integrity of our beautiful product and, above all, the retention of consumer confidence.

“So it is time for our industry to finish the job, to capitalize on the progress we have made to date. Time to turn words into action, our proposals into binding and effective self-regulation. Never was there a time when the world’s attention has been so focused on the activities of the diamond industry. We are clearly in the spotlight and we must not flinch or turn away. Above and beyond the measures contained in the Kimberley Process, the international community demands, quite rightly, that the diamond industry takes more responsibility for itself. Credible and effective self-regulation is what is required. No gimmicks, no empty gestures.

“The system of warranties, as proposed by the WDC and now enshrined in the Kimberley Process document to be placed before the United Nations, meets that requirement. It complements and strengthens the international certification regime that awaits ratification by the General Assembly. It is a fair, equitable and transparent form of self-regulation that will not place undue burden on the industry. It will not only provide assurance to members of the industry about the integrity of rough diamond supplies, but it will, most importantly, significantly increase consumers’ confidence that the diamonds they buy have come from non-conflict sources. Some might think that the tentative peace in Sierra Leone, or recent developments in Angola, mean that we can relax, slow the pace a little, or even go back to ‘how it always used to be.’

“They must think again, because there is no going back.

“There can be no going back to the days when rebel movements, malicious criminal organizations and individuals were able to become parasites on our industry and, through the lack of simple but effective controls, able to fund their ruinous activities with impunity. I very much hope that other mineral resource and extractive industries will follow the example of the Kimberley Process and act to protect their businesses from this menace.

“Courage and vision has brought us this far. We must now go that extra mile if we are not to waste the opportunity to demonstrate that gathered here today are leaders of an industry who wish to embrace the challenges and values of the twenty-first century, and to establish a modern, transparent diamond industry, robust in its ethical practices.”

Challenges to the Free Market

While Oppenheimer’s words are correct and ring true, we must recognize that free market traders of outside rough are going to have a difficult time implementing a new system of documented warranties for all their rough transactions. There is serious concern that the new regulatory environment will favor large mining companies that directly market rough to large diamond manufacturers over smaller rough traders who buy diamonds in Africa and sell relatively small, mixed parcels through a complicated distribution system. Will the new regulations be the final nail in the coffin for the many smaller diamond manufacturers who rely on open market supplies of rough diamonds? Will the new regulations enhance De Beers’ market power and force smaller cutters that do not have access to legitimate rough out of business?

It is important for De Beers and the other diamond mining companies to recognize the needs of the smaller manufacturers. If the large mining companies are serious about promoting the legitimization of the diamond industry, they must see to it that there is a sufficient supply of legitimate diamonds available to replace supplies of illicit diamonds. If the mining companies overly restrict supplies of rough, they will be driving smaller diamond manufacturers into the arms of the smugglers and illicit rough diamond traders.

Kimberley Process controls and industry self-regulation are prerequisites for the elimination of the supply side of the trade in conflict diamonds. Responsible allocations of rough are a prerequisite for the elimination of the demand side of the trade in conflict diamonds. Legitimate sellers of rough diamonds must carefully consider how and to whom they allocate rough diamonds.

Mining companies must not lower their prices to compete against conflict diamonds. They have the right to demand that everyone in the trade reject illicit diamonds and resist the temptation of higher profits from illegal activities.

No one must be allowed to poison the well. We must, however, ensure that all have an equally fair opportunity to drink from the well.

Development Issue

In a future issue we will consider the issue of development diamonds. While the Kimberley Process addresses the problem of conflict diamonds and the need of the trade to maintain consumer confidence in diamonds, much more must be done to solve the serious development problems created by diamonds in Africa.

All must have an equally fair opportunity to drink from the well, including the local black population in countries like Sierra Leone, where diggers work for two cups of rice a day. Let us celebrate the great progress we have made, but let us not grow complacent, for much more remains to be accomplished.
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Tags: Conflict Diamonds, Fair Trade
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