Have Sanity and Truth Become Victims of Kimberley?
December 26, 02Like migraines, Coca-Cola and income tax, the Kimberley scheme has now become a fact of life that may last as long as those other features we have learned to live with.
At the end, it didn’t matter that, as we wrote some time ago, some governments in the Kimberley Process had rather belatedly reached the conclusion that the “sanctions” element in the scheme was not legal and that in accordance with international trade law, no export authority in any country could refuse to facilitate trade in rough diamonds with a non-Kimberley participant country.
We observed that if there are “loopholes” in the system facilitating legal and legitimate rough trade outside the Kimberley process, this may well jeopardize the system as a whole.
Wow…. Did we get some angry reactions! “How do you dare to raise questions like this, creating doubts about the system? It is our joint responsibility to get the trade and industry to fully accept Kimberley and it doesn’t serve the industry’s interests to raise uncertainties.”
We strongly disagree. It is not in the interest of anyone to play games – and it is definitely our task to bring accurate facts and analyses to our readers. And, we should add, that shouldn’t make us “anti-Kimberley” or less supportive of this important scheme.
Since then more countries reached similar conclusions and have joined the efforts to make Kimberley more “legally robust”. Kimberley is being implemented because there is no other choice; not because of the strong conviction that it will change African realities – which should be the ONLY reason to implement Kimberley. Now there are further developments:
The United States is having second thoughts! I have reliably learned that the United States government has quietly provided instructions to its customs authorities not to refuse or disrupt rough diamond trade to non-Kimberley nations! (The U.S. is not going to risk trade wars with any of its partners on the diamond issue.)
The USA is not a major rough trading market but the U.S. is used as a “transfer center” for rough. This is certainly significant in the Kimberley Process context. Officially, the United States has also applied for a “waiver” of the World Trade Organization (WTO), just as the other countries, which recognized that they cannot legally intervene in the rough diamond trade (except for Liberia, Sierra Leone and Angola, which are under United Nations sanctions).
Israel, too, has joined the dozen or so nations requesting for a WTO waiver, thus de facto recognizing that it has currently no legal basis for implementing the prohibition on rough trade with non-Kimberley countries.
As Israel is a major player, its joining the countries which question the legality of aspects of Kimberley is also significant. These are serious matters and it may be helpful to focus again on the essence of the problem. In our initial report we wrote that three countries (Canada, Japan, Sierra Leone) had requested that the WTO grant a “waiver” to “provide the legal certainty necessary for the Scheme's effective implementation to support the humanitarian and security goals of the Kimberley Process.”
Just as a reminder: the trade prohibition in the Kimberley scheme, which we consistently have said are illegal and which are contained in Section III, paragraph c, reads as follows: “Each Participant should: (c) ensure that no shipment of rough diamonds is imported from or exported to a non-Participant…” By requesting a waiver from the WTO, a government acknowledges that it considers the trade sanction clause in its present form incompatible with international law. It recognizes that legitimate trade among countries cannot be arbitrarily stopped or prohibited.
Since our report, other nations have joined the WTO waiver request (United States, Israel, the Philippines, Thailand, United Arab Emirates, Australia, Brazil and others). In the transition period, the first few months in 2003, countries will have some leniency and implementation may not be perfect – and non-compliance will be tolerated. The question is: how will countries behave a few months from now? Will Israel, for example, refuse a shipment of diamonds to a factory in Rumania – a non-Kimberley country?
As Israel strongly favors trade liberalization, it probably will allow such a shipment – unless a WTO waiver is granted before such an event arises, which is a highly unlikely scenario. It has been pointed out to us that getting a waiver is a matter of 1-2 years, and maybe even more. The WTO may even refuse granting the waiver.
But the key is the United States. And here it is important to recognize what has happened. Conflict diamonds are not the issue any more: what counts is the war against terror, the war against money laundering, etc.
It is not generally realized that after the September 11 tragedy, the legislative process in getting a Clean Diamond Trade Act enacted in the United States virtually stopped. True, in March 2002, a bill was introduced in the U.S. Senate (S. 2027) and this bill went far beyond the original conflict diamond definition. It added a few more interpretations to conflict diamonds, including “diamonds that evidence shows fund the al-Qaeda international terrorist network and related groups designated under Executive Order No. 13224 of September 23, 2001 (66 Federal Register 49079).”
In February 2002, the U.S. Special Negotiator for Conflict Diamonds testified in the U.S. Senate extensively on the link between terrorism and diamonds – not with “conflict diamonds” but rather with “diamonds”.
The point is that the conflict diamonds bill still sits in a Committee and it is highly unlikely that it will ever be enacted. All legal authority to implement Kimberley is derived from the extensive anti-terrorist legislation in the USA, enacted after September 11, 2001. Interestingly, only the U.S. legislative proposals make reference to polished diamonds; there is no law that makes such reference and the Kimberley Process refers only to rough diamonds.
Those who wondered why there was a need to adopt the chain of warranties on polished diamonds must realize that this is an initiative taken by the industry itself (more or less dictated by U.S. industry leaders), but the inclusion of polished was not based on any legal imperative. But that’s a different issue altogether.
In a way, Kimberley has already triggered an interesting positive spillover effects, quite removed from its original purpose. To illustrate:
(1) The United States views the Kimberley Process as a mechanism to combat terrorism, to fight money laundering, to help it monitor the flow of funds around the world. The Kimberley Process has given it a scheme that will greatly assist in that effort.
(2) The European Commission views the Kimberley Process as a mechanism to turn the European diamond business from an Antwerp-dominated business to a European-wide business. The new “borders” are not Belgium’s borders, but rather the EU boundaries. (It will just be a matter of time for the fiscal and VAT issues to become EU-wide rather than specifically Belgian.) The argument that only Antwerp has the skills, experience and facilities to effectively check rough imports was considered irrelevant – the quality of controls was sacrificed for political reasons.
(3) Kimberley has enabled De Beers to position itself in a special niche. It now has been universally accepted that its behavior, its ethics, its trading practices are beyond reproach, also because its willingness to withdraw totally from the conflict countries. It has earned tremendous goodwill in the United States, opening doors that hitherto were hermetically closed. It has demonstrated leadership.
(4) The governments of the cutting centers have succeeded in forcing the diamond business to become far more transparent, far more orderly, placing a much higher threshold of fiscal and monetary accountability on all players. They have secured almost unprecedented willingness on behalf of industry to share business data and other confidential data with government.
(5) In the post-Seattle world, the NGO’s have again demonstrated how a few na?ve, earnest and devoted individuals have the ability to change an entire industry. In the end, industry leaders became eager to please the NGO’s. I salute these NGO’s. Now I expect that the NGO’s will also change their agenda: they will continue to press the diamond industry and in the near future issue reports on terrorism and diamonds!
It seems that we are all forgetting that the initial objective of Kimberley was the introduction of a “certificate of origin” only in the rough extracting countries. The introduction of certificates of re-exportation from the cutting centers was not introduced as a “requirement”, but rather to appease the political needs of those producers who felt that only they were burdened with the need to put their house in order and get their act together.
The question now is how the Kimberley Process will impact the business after the transition process. It’s our expectation that we shall see major changes in the statistics and movements of the official trade. The worldwide diamond business will realign itself accordingly.
The question nobody seems to ask is will it change anything in the conflict countries in Africa? If that answer isn’t clear, if there are even doubts on the answer to that question, it ought to make the governments of the Kimberley countries and the industry wonder what this is all about. A Happy New Year to you all.