Kimberley Process On Eve Of Collapse?

There are unexpected “holes” in the Kimberley Process system, which will make the regime ineffective and almost devoid of meaning.

As of January 1, 2003, the United Kingdom (i.e. the DTC), Belgium and Israel will not be allowed to send any rough diamonds to Thailand, Ukraine, Rumania and a host of other cutting center nations in the Far East, which have not joined the Kimberley Process or are not ready to implement the process.

Consequently, the Kimberley Process countries will not be allowed to import rough from these nations. Diamond manufacturers in Thailand will not be able to get rough – at least not legally in compliance with the Kimberley Process. And any rough that somehow does get into the country, cannot be exported to a Kimberley Process country. 

What are the options of the owner of a Thai factory to protect his investment and business? He (probably) can go to court against his non-supplier and/or the country refusing the exports --- and, as it looks now, HE WOULD WIN. What if a rough supplier would deliver the rough elsewhere – and the Thai manufacturer would somehow get the rough into the country. Does that make the supplier an accomplice?

Just days away from the Kimberley Process implementation, it seems that the system is on the eve of collapse. Though the restrictions placed on the trade (i.e. one can only export/import rough with certificates) are apparently OK, the blanket refusal to trade rough (also non-conflict rough) with any country is seen as a “unilateral trade sanction”, something that is definitely prohibited under World Trade Organization (WTO) rules. 

So governments of all the diamond countries are looking at two set of documents: (1) the agreed upon Kimberley Process system; and (2) their obligations under the WTO. Who gets precedence over whom? What is the “more legally overriding” commitment? The position of Switzerland, the European Union (including Belgium and the United Kingdom) is that Kimberley is more important. These countries justify the imposition of trade sanctions on Articles XX and/or XXI of GATT 1994 (security clauses), provided that the sanctions ONLY APPLY TO CONFLICT DIAMONDS. 

The Kimberley Process would prohibit, for example, for the DTC to send a guaranteed certified non-conflict diamond box to a client in Thailand or other non-Kimberley “implementation-ready” or compliant or country. GATT rules don’t allow a prohibition or restriction on the regular clean (non-conflict) diamonds trade. The Kimberley Process authors specifically designed these sanctions to induce countries to join Kimberley. 

But, apparently, that is not legal. So some countries, among them Canada, Japan and (apparently) the United States, have woken up and have now decided to ask the WTO, which has the authority to do so, to provide a waiver of WTO rules to allow the implementation of the Kimberly Process. 

There is, however, ABSOLUTELY NO CERTAINTY that the WTO will agree – or consider the waiver request as a pretext to demand a quid pro quo on other outstanding issues. In international trade negotiations one usually does not get anything “for free”. So the chances to get such a waiver may be slim – opinions on this vary.

A number of yet “indecisive” Kimberley Process countries are contemplating joining the request for a WTO waiver and – in the meantime – they will implement the import/export certification regime but refrain from imposing trade sanctions. That means that rough diamonds (conflict and non-conflict) will continue to flow around the world – to and from the cutting centers as well. The Kimberley Process is only effective if “there are no holes” – certainly not with holes as large as entire nations! Without the WTO waiver – these holes will not be filled – and the Kimberley Process countries will have to get back to the drawing board.