All last year, the entire diamond industry was riveted to the scandal in the Kimberley Process (KP) - someone feeling indignation, some being puzzled, and some openly sympathizing. It was the first time in the history of the KP that it was declared a boycott by non-governmental organizations (NGOs) within the Civil Society Coalition (CSC). Disagreed with the chairmanship of Dubai in the KP, they put forward demands and did not stint on accusations. Against this background, various reflections on the activities and future of the Kimberley Process, which usually do not interest the average man in the street, once again hit the pages of international press.
I hope no one of the industry stakeholders will get hurt if I will voice the well-known truth: When the chairmanship of Dubai in the KP ceased and moved to Australia, the majority in the industry was relieved. It is not because the activities of the United Arab Emirates as Chairman of the KP was not appreciated (on the contrary, many considered this period of the KP existence to be one of the most effective), but simply because any conflict situation is exhausting and hampers constructive work in one way or another.
However, these hopes for a peaceful life were premature. At the end of last week, the CSC met for a regular closed meeting to discuss the KP’s complete inefficiency and raise the question of delivering new ultimatums or completely withdrawing from this organization.
We do not yet know what was the outcome of this meeting. But the fact is that this story seems less and less like an attempt to improve the activities of the KP or the situation in the diamond trade in the UAE, while it looks more and more like a banal massive PR-campaign organized to achieve quite other goals.
The Coalition announced its intention to boycott the KP as early as 2015. The CSC expressed its disagreement with the chairmanship of the United Arab Emirates, accusing Dubai of transfer pricing encouraging the penetration of conflict diamonds into the market. Then the Coalition put forward a number of demands, agreeing to return to dialogue after they would have been satisfied and citing among them the establishment of a system of internal controls to prevent undervaluation of diamonds; enforcement cooperation with trading partners; greater vigilance to prevent illicit diamonds from entering the supply chain; and engagement with watchdog groups.
Alan Martin, the head of the CSC interviewed by mass media has repeatedly said that none of the Coalition's requirements have ever been met. He says in the invitation to the above NGO meeting that “the disrespect shown by the UAE KP Chair to the KP coalition in 2016, and our unprecedented boycott of their Chairmanship, underlined how far respectful relations and standards have deteriorated within the KP.” It looks a bit strange, taking into consideration that in 2016 the KP was busily dealing with diamond evaluation issues and started to organize forums of observers and even proposed to establish an independent fund, which could finance the participation of NGOs in the KP activities, including an opportunity to fully participate in review missions. Actually, the fact that the requirements had been met was recognized even by the members of the Coalition - for example, by the representative of CENADEP, who was immediately suspended from work for 15 days after this statement by Alan Martin.
After these statements, there was a feeling that the issues of transfer pricing and better control in Dubai were of no great interest to the CSC from the very start. This feeling is only strengthened when you read the new list of demands to the KP, which the Coalition discussed last week - there is not a word about transfer pricing and the UAE, but instead they insist on:
- Participation (of NGOs) in decision-making;
- Broader definition of conflict diamonds;
- Clarity on the role of the KP in preventing / responding to systematic violence in the diamond supply;
- Revised minimum requirements and independent, third-party assessments of compliance with minimum requirements;
- Inclusion of polished diamonds in the KP mandate;
- Revised governance model;
- Multi donor trust fund (to finance NGOs within the KP).
All are equal, but some are more equal than others
Defending its position last year, Alan Martin repeatedly asserted that the UAE would attract friendly and “fake” NGOs to defend it and simulate an independent third-party view on the problem (which, incidentally, did not happen). However, a closer look at the CSC itself makes one ponder in earnest over what is to be considered “a fake.”
The CSC, consisting of 10 non-governmental organizations, conducts official meetings of its members and issues official statements. At the same time, the Coalition does not even have an official website, on which it could be possible to get acquainted with these statements, or at least with the participants of the Coalition - this information is available only on the Kimberley Process website. All the activities of the CSC are coordinated by one organization, which is Partnership Africa-Canada (PAC). Alan Martin is considered to be the leader of the whole Coalition, he makes statements on behalf of all its members and attends all the events of the KP solo.
It is not so simple to find information about the remaining 9 members of the CSC: three organizations out of total 10 have no own websites either, while another two allegedly have, but their websites are idle. As for the remaining four, it was possible to find out the following:
Network Movement for Justice and Development (NMJD) operating in Sierra Leone is mainly engaged in preventing Ebola, organizing volunteers and giving lectures on human rights to the local population. The 25-page report on the NMJD activities mentions the Kimberley Process and diamonds in just one paragraph.
Green Advocates Liberia, the official name of which is the Association of Environmental Lawyers of Liberia, handles cases related to environmental protection and also is engaged in protecting the rights of local tribes over natural resources (for example, it deals with attempts to challenge mining concessions). You will never see the word "diamond" on the entire website of Green Advocates.
RELUFA Cameroon implements many social initiatives: it organizes micro-credits for citizens, public banks of grain, and projects to support farmers. However, once again the list of programs implemented by RELUFA does not contain a single word about diamonds. Although the Kimberley Process is mentioned on the website – due to the recent reports about Cameroon being involved in the export of conflict diamonds from the Central African Republic.
Actually, there are only two out of ten organizations officially dealing with diamonds and these are PAC and the Zimbabwe Environmental Law Association (ZELA), the latter historically insisting that the money gained from mining operations in Zimbabwe should remain in the country.
I do not want to diminish the activity of the other eight organizations in any way. In my opinion, they are doing very important work, trying to make people's lives better in their countries and protect their rights. But the fact remains that diamonds and the Kimberley Process for the majority of the Coalition members are far from being a priority.
In his recent review, “PAC Unpacked,” Chaim Even-Zohar argued that the PAC has a priority (if not the only) voting right in the CSC, because it has the ability to financially help the African NGOs. The African NGOs have practically no money even for their core activities - not to mention the fact that they, for example, cannot pay for a trip to join a the KP review mission. If this is the case, then there is no one to lose: small NGOs receive additional funds for social programs, while the CSC achieves an illusion of numerous representation.
But PAC’s activities are also financed by some source (and this was disclosed by Chaim Even-Zohar, as well as by the recently released annual report of PAC). PAC - and therefore the entire CSC - lives at the expense of government money from other countries. In 2015, one third of the PAC budget was financed by the European Union, one third by the US government (through USAID), and 20% through Australia (AusAid). At one time, Chaim Even-Zohar had expressed the hope that Canada would renew its funding of Partnership Africa Canada - and Canada did it in 2016, after which the annual budget of PAC almost doubled.
As is known, he who pays the piper calls the tune. But what kind of tune?
The claim, which vanished into thin air
In 2015, the CSC was pro-actively advocating for Australia to chair the KP instead of the Emirates. In 2016, it was pro-actively trying to deprive the UAE of its chairmanship accusing Dubai of transfer pricing. In 2017, after Australia assumed office, the CSC suddenly excluded transfer pricing and diamond valuation from its demands, as if these issues had never existed. Although it would seem that the new chairman has no "conflict of interest" and could solve this problem!
You can even guess why this happened in this way.
Any transaction always involves at least two parties - a seller and a buyer. If we are talking about the practice of transfer pricing, then it means that someone has imported diamonds from one party at a low price and sold them to the other party at a high price. In a series of mutual accusations market stakeholders are discussing the fact that diamond prices in Dubai go up, but somehow omitting one important detail - Who are these mysterious traders?
By far not all diamond hubs publish trade statistics for rough diamonds. And even more so, they avoid giving a breakdown of importing and exporting countries in such statistics. However, some information can be found even in public sources. For example, in the annual report of the European Union on the KPCS implementation in 2015, officially published on the KP website.
Number of KP certificates for rough imports into the EU in 2015 (by countries that issued certificates):
Source – KPCS EU Annual Report 2015
Speaking about the EU, it should be understood that it is Antwerp, which counts in the first place. If we compare the trade statistics of the EU and that of AWDC published on their official website, it becomes obvious that Antwerp accounts for about 90% of the EU's diamond trade.
Thus, by the number of registered certificates Dubai is a major importer of diamonds to Belgium, accounting for 23% of the total imports. Israel and the Russian Federation (the latter being traditionally called "the main trading partner of Antwerp") account for lesser and roughly equal shares - about 16%.
However, the real magnitude becomes clear when you look at the volume of trade. According to the KP statistics, the EU has significantly reduced its export of diamonds to China, India and Israel over the last five years and significantly increased such export to Dubai. A similar situation exists with the import of rough diamonds.
If you know these details, the situation looks quite different. When someone tries to unseat the unwanted Chairman of the Kimberley Process accusing him of transfer pricing and blood diamond encouragement, it is one thing. Although, strictly speaking, free trade zones have been in use from the middle of the 20th century, today there are thousands of them across the world, and they are dealing with quite a variety of goods and services, not only with rough and polished diamonds. Duty-free trade and low tax rates are sometimes subject to criticism, but nevertheless they are practiced worldwide, and nowhere legally prohibited.
But it is quite another thing, when the European Union is financing a NGO, which is accusing of transfer pricing the Dubai Exchange, whose main trading partner is the European Union... If transfer pricing is a horrible, unacceptable act that encourages conflicts, then the European Union should have first punished itself in an attempt to punish businesspersons involved in this practice.
But this, of course, only if it really had to punish anyone. However, a ban on trade in the free zone of Dubai is disadvantageous primarily to European diamantaires. The AWDC management itself declared that Antwerp now has to compete with other trading platforms (Dubai, India, Israel, Hong Kong) as they practice free trade, far more lenient taxation and regulation. For example, the corporate tax in Antwerp was 33.9% before 2017, whereas Dubai and Hong Kong residents have to pay significantly less - 16.5%.
Therefore, if last year the attempt to evict the UAE from the KP chairmanship failed, there is no use to take pains this year. Any further debating of the subject is completely useless for the countries, which are donors to the CSC. And the claim advanced by PAC dissolves in the air as quickly as it emerged.
Self-harm
We cannot blame PAC in lobbying for the interests of individual countries. Any independent activities are possible only if you have your own money. But if someone pays you, you will have to do what you are ordered. In this regard, PAC is no different from any office clerk.
But the actions of all other participants in this story cause some confusion.
First of all, the actions of the countries that finance the activities of the CSC – the European Union, USA, Canada and Australia. If last year the CSC found it enough to boycott the KP, this year it is already busily discussing the possibility of exiting from this organization. The Kimberley Process is based on the cooperting triumvirate of diamond mining countries, diamond business and civil society. The exit of NGOs will automatically mean the loss of confidence towards the Kimberley Process, and hence to its certificates. Do we understand it correctly that four members of the Kimberley Process are financing the collapse of the Kimberley Process?
In what way exactly is the esteemed public in these countries going to sell diamonds, if the Kimberley Process will lose public trust and its certificate will cease to be a guarantee of origin for the user? It is possible, of course, to assume that the law on conflict minerals will be broadened to embrace diamonds. But to perceive the new law, consumers need time. Instead, they may prefer synthetics guaranteed to be conflict-free, rather than try to understand what happened to the KP and why it is now replaced by some other system.
The actions undertaken by the Coalition – including all the African NGOs, except PAC - are puzzling. There is a feeling that they do not fully understand what kind of demands they are supporting putting their signatures under them and what kind of consequences this may have.
The demand to expand the definition of conflict diamonds to include human rights violations will primarily hit African countries themselves. Diamond-mining companies and dealers are used to mix diamonds coming in different parcels and then keep them in their inventories for a long time, releasing for sale in sync with market trends, rather than the date of their production. If today, some dealer sells a parcel of diamonds from Zimbabwe, it does not mean that it was produced this year and not ten years ago.
Africa is a continent known in the mass consciousness as a place of multiple civil wars and peoples’ oppression. If necessary, it will be possible to recall the civil war in Angola, and the apartheid regime in South Africa – Were human rights not violated there in those periods?
What is most interesting – and it seems that the CSC members do not understand this either – is that expanding the definition of conflict diamonds will not lead to an improvement in the human rights situation. The KP does not have and will never have the right to carry out reforms in a given country (because it is the prerogative of the authorities of that country) or make judicial verdicts and prosecute by any means other than embargos (because it is the prerogative of national or international courts). The only thing which will result from the expansion of the definition will be a total ban on diamond exports from those countries, where respect for human rights is today questionable. If desired, signs of such violations can be found absolutely in any African country, where the NGOs are now trying to expand the mandate of the Kimberley Process. And then what? If now these countries do not have enough money for economic development, they will even more so fall short of funds if diamond mining and diamond export are stopped.
The demand to expand the definition of conflict diamonds set forth by the African NGOs may be compared with an obsessive desire to shoot oneself in the foot. The desire to provoke collapse of the Kimberley Process is also, to put it mildly, too far from being constructive. Well, self-harm is a fairly common phenomenon in psychology. It usually ends in adolescence, but it can happen to an adult as a result of stress and social pressure. It is hoped that all the participants of this story will have enough self-control and patience to overcome this and avoid steps, which may be regretted later.
Elena Levina for Rough&Polished
