After the recent announcement concerning the ending of the De Beers-Alrosa Trade Agreement, the BVGD wishes to inform its members of a few facts.
It is announced that De Beers agrees to buy from Alrosa the following maximum amounts: $600million in 2006; $500 million in 2007; $400 million in 2008; nothing in 2009 and thereafter.
1. By comparing the 2005 estimated sales numbers of $695 million with the amount allowed in 2006. The extra rough available to the market is $95 million. Compared with a worldwide yearly mining output of $12 billion, it represents 0.08 percent. Hardly ‘an opportunity for genuine competition…’ as the Commission claims.
2. Even when taking into account the situation in 2009, it will represent less than 4% of global output, as one would need to factor in the growth of the diamond mining by then. By any standards, adding 4 % of rough - in four years – to the market (against De Beers’ airtight control of 55%) is not providing for ‘... a viable alternative source for supply of rough diamonds.’ Certainly not, if the aim is to introduce genuine competition in the world of diamonds.
3. More importantly, if De Beers were to manufacture themselves the Russian rough, there could be truth in the increased competition statements above. However, De Beers merely sold these goods to their sightholder. If nothing is done concerning Supplier of Choice, the same goods, bought directly by the sightholders. will enter the SoC system and nothing will have been accomplished.
The small percentage of merchandise concerned by this recent agreement does not change the basic fact: De Beers has a dominant position in the rough diamond market. It abuses its dominant position through its policy of Supplier of Choice.
The Commission did indeed marginally limit De Beers’ dominant position by preventing (in a regrettably far future), De Beers’ purchase of rough from Alrosa and should be commended for doing so but it has done nothing so far to eradicate the wrong and unlawful behaviors rooted in SoC which are the main cause of the diamond industry woes.
Supplier of Choice is still our primary complaint and we ask the commission to dismantle it now.
To understand the problem of SoC, one needs to understand the following question:
How De Beers does exercises its control of the diamond market?
De Beers doesn’t officially impose anything directly to its sightholders. De Beers has cunningly deflected such accusations. The wrongdoing happens in the selection process and the regular review of the existing sightholders.
The questionnaires and the scoring system are the essential tools.
Through its questionnaires De Beers garners every last bit of information on its customer’s activity and business strategy. Then, by assigning a higher grade to the answers that conforms best De Beers’ strategy, it forces its customers to behave in De Beers’ expected way. As all sightholders know and fear that De Beers could strip them away of their much needed supply, they are following De Beers’ expectation with incredible zeal.
As a first step, De Beers eliminated, in 2002, all sightholders dealers in rough. Indeed, this was an essential step in the SoC strategy; as the rough dealers were reselling rough diamonds to independent manufacturers without making any demands as to their business strategy, this diluted De Beers’ control of the market.
The SoC system perverts to a very high degree the freedom of choice of De Beers’ customers to conduct their business in their own best economic interests. On one hand unrealistic demands are being made, on the other, alternative supply of rough are cut off.
We ask the Commission to take urgent steps to remedy this situation by ordering De Beers to:
- Scrap the subjective and leading questions of SoC.
- Reinstate rough wholesalers as sightholders. This is the best way to guarantee adequate supply of rough that eschew any form of obligations.
We hope that the Commission will continue the work started in view of reinstating genuine competition in the diamond industry.
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