OPEN LETTER TO DIAMANTAIRES AND TO THE DIRECTORS OF DIAMOND ORGANISATIONS AND BOURSES
Antwerp, May 11th, 2005
Dear Colleague,
Recently a respectable diamond dealer, Mr. Marcel Zalc came to see me regarding a difficult situation he was facing.
For 35 years, our colleague, a trader in polished diamonds had built a solid business by being like many of us, a buying agent for important customers, in Spain and Switzerland. Thanks to the specific services he offers his clients, his managerial skills and his natural good nature, he has, as his customers, the first and third largest jewelers in Spain.
Recently, he was surprised and shocked to discover that a representative from DTC had visited his customers and offered them 4% and 7 % in advertising support if they bought respectively $1 million and $2 million yearly worth of diamonds. To receive this deal, they would of course have to buy their merchandise directly from sightholders. The representative went on to show them a list of the recommended firms which included: Bornstein, Rosy Blue, Pluczenik, etc.
Alarmed at the thought of losing his two best customers, Mr Zalc also discovered that De Beers’ publicity (see attached) doesn’t simply advertise diamonds from DTC but suggests that diamonds not bought from DTC are simply not worthy of the consumer’s trust.
Mr. Zalc then went to the HRD, the representative organization of the sector, to ask for help. After being told to wait in the hall for some time, he was told that they were unable to help him. Mr. Zalc then calmly responded that in that case he would take his case to the European Commission.
He then lodged a complaint against De Beers with Mrs Neelie Kroes, European Commissioner for Competition.
He also turned to the BVGD, professional organization which is the sole legal representative under Belgian law to speak on behalf of traders in polished diamonds.
I admit that we at the BVGD, have been slow to react to the Supplier of Choice (SOC) strategy from De Beers. After all, we support fair and healthy competition and after 100 years of relationship with De Beers, it was hard to predict these changes. It is now clear that because of its size and dominant position, De Beers will never be a competitor like any other.
After hearing Mr. Zalc’s story and getting more information from other diamond traders, it appeared that DTC is launching similar programs and actions in other markets.
The situation is clear now: De Beers is looking to eliminate independent diamond companies - sources of competition on the market, by actively enticing the jeweler-customers to source their diamonds directly from sightholders. Furthermore DTC is starting an advertising campaign aiming at discrediting non-DTC diamonds with the consumer. In other words, it is being implied to the jewelers and the consumers that the non-sightholder suppliers and diamond jewelry that do not have the tag “DTC” are simply not trustworthy and of dubious origin.
No doubt that with De Beers’ power of communication, such a campaign will be devastating for the industry.
What can be done?
First of all, we have to send a clear message to De Beers as well as to the Government, the European Commission, the HRD and our representatives. Under normal circumstances, the HRD should have taken this matter into its own hands, but the large representation of sightholders (4) on the Board of Directors of HRD has become contradictory to the general principle of fairly defending our trade. In addition, as both the President and Vice-president of HRD are sightholders, the HRD is not in a position to defend the interests of the market. To top it all off, some sightholders are proposing to give a seat on the Board of Directors of HRD to De Beers!
The President and the Vice-president are both charming men and we respect them as people but they need to recognize that their status has become incompatible with the function they hold: that of defending the interests of all Antwerp diamond dealers.
They should either completely reject the policies of SOC and the actions of De Beers by complying with this letter, by refusing to accept customers ‘stolen’ from other colleagues and by demanding that De Beers immediately ceases the deceitful disinformation campaign that is being put in place, or they must accept the consequences of their “choice” of supplier.
We are convinced that they will understand the seriousness of these issues and that they will make the right decision with regard to their colleagues and their community.
We live in a democratic country where one man equals one vote. It is not the HRD’s role to defend the interests of the 12 sightholders of Antwerp but to defend these of the 1200 companies that are working here!
We have to fight now to maintain legal competition in the diamond market which has to remain open to everyone. The issues are simply about our incomes and our right and wish to continue our trade in order to support our families and the people for whom we are responsible.
Of course, De Beers and the sightholders will minimize the problem. They will sugarcoat their speeches with reassuring words aimed only at putting us to sleep, and make us hesitate to act. Let us not be fooled, it has become very clear that the actions of DTC and its “SOC” are aimed not only against the independent diamond traders, but against the market.
Concerning De Beers
This letter is a call to unite and defend ourselves in order to safeguard an open and competitive market. It is time to clarify the choices we are facing.
Two years ago, I tried to understand where this need to create “SOC” came from? Maybe part of the reason was De Beers’ frustration at spending $200 million a year on diamond advertising while new producers where coming on the market benefiting freely from this generic publicity. If this was the case, then creating SOC was not the right answer. A better solution could have been to create a guild like the platinum mining companies did. The “Platinum Guild” successfully takes care of the generic promotion of platinum.
The reality is unfortunately quite different.
Like any monopoly, De Beers, by using its dominant position is only looking to increase its profits and market share.
Since the introduction of SOC, De Beers has drastically limited access to rough diamonds for non-sightholder manufacturers by eliminating the sightholder-traders in rough diamonds who use to supply them.
This artificial shortage of rough and polished diamonds created by DTC since the introduction of SOC has caused an increase in prices of more than 40 percent without any corresponding increase in demand from consumers.
All our members are or will be affected by these actions initiated by De Beers. They are illegal from a competition standpoint.
Illegal?
We need to understand one thing very clearly: if each one of us has the right to choose to whom and how we conduct business, with a monopoly this is not the case.
A monopoly per se is not necessarily bad or forbidden. What is illegal is the abuse of power that comes from the dominant position of the monopoly. For example, imposing on customers, specific sale obligations or dictating the general conduct of their businesses.
De Beers aims, with SOC and the obligations that come with it, to restrict the number of its sightholders. By imposing abusive controls and illicitly limiting sales, non-sightholders are blocked from access to polished and rough diamonds. This leads to a total control of the market all the way down to the jewelers and thus to a dramatic reduction of competition. In essence, the free choice (of price and supplier) for the consumer is reduced. That is what is illegal.
Likewise, BVGD denounces the project of alliance or cooperation between De Beers and Alrosa (producers of diamonds from Russia) that is on the verge of taking place. The most significant outcome of this will be to further reinforce De Beers’ monopoly. Other traders will only be deprived from access to a source of distribution that is not under De Beers’ control.
The issue of alluvial diamond has also been raised by some members. Rough diamond found on riverbeds escapes the control of big groups. One should not, under false pretences, discredit all alluvial diamonds. Recently, De Beers has engaged in flagrant disinformation by organizing a symposium in London inviting a large number of NGOs but excluding diamond traders. At this symposium, they brought into disrepute all sources of diamonds not under their control, and predominantly alluvial diamonds.
In summary
The time has come to talk to all our leaders as well to the authorities.
We must obtain a ruling from the European Commission that it abolishes SOC and all the obligations imposed by De Beers, because it is an anti-competitive system that only serves De Beers’ interests, to the detriment of all others.
We must obtain a ruling from the European Commission that it prevents any alliance between De Beers and Alrosa or other independent producers. This will allow diamond manufacturers the greatest possible choice of suppliers, which is the best guarantee of choice for the consumer.
Furthermore, BVGD is officially calling for De Beers and the mining companies as well as the professional organizations, the World Federation of Diamond Bourses and the World Diamond Council, to meet in order to create a “Diamond Guild” to which all mining companies would contribute proportionately to their production so as to ensure an efficient and united marketing of our product.
We are convinced that these actions are the best solutions to protect the interests of everyone including those of De Beers.
We need to act now.
It is our duty to inform and warn you: You, as a diamond merchant are being directly threatened with extinction! Do not allow it! Actions have started and the BVGD is determined to support them.
It is easy to show the public and the European Commission the fallacies behind ‘DTC diamond’ as sightholders themselves buy non-DTC diamonds which they mix with their DTC diamonds. Invoices are there to prove it.
But to begin with, we need a clear signal for De Beers as well as for the market and the authorities, one that should be easy to implement: We need to appoint people who are representative of the market, to the Board of Directors of HRD so that they can initiate the action necessary for the competitiveness of the market and the survival of our trade.
It is not enough to witness illegal actions and hope for the good will of the culprit. One also needs to alert the appropriate authorities which have the power to enforce the law.
We encourage you to write and lodge a complaint with the European Commission asking that SOC and its abuses be stopped along with the accord between De Beers and Alrosa. If you would like your remarks and your identity be treated confidentially, print the word, ‘CONFIDENTIAL’ on the first page of your letter as well as on all documents that you send. You can write to:
Mr. Ewoud Sakkers
European Commission, DG Competition
Directorate E2
1049 Brussels
Now it is our turn to act!
André Gumuchdjian
President
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