Please type your name here
Please type your instructor name here
Exports and Import of Rough Diamonds Regulations
Introduction
The Kimberly Process Certification Scheme (KPCS) was created by the United Nations General Assembly (UNGA) through which it imposes wide-ranging requirements on all its members to empower them to attest shipments of rough diamonds as ‘conflict-free’, thereby preventing ‘conflict-diamonds’ from flowing into the legal trade of diamonds globally.
The Kimberley Process, led by South Africa since the year 2000, has its roots in the decision of all the Southern African nations to take action to put an end to the flow of "conflict" diamonds to the marketplaces, while simultaneously protecting the genuine and legal diamond industry. The Kimberley Process comprises of more than 50 global governments, the European Union, the diamond industry at large, and the civil society. This process has essentially established a set of minimum adequate global standards for the domestic certification schemes in relation to the trade of rough diamonds. The certification scheme is highly helpful to curtail the drift of rough diamonds from rebellious conflict areas, in preservation of the current UN Security Council authorizations, thus contributing considerably to all the efforts for peace amid the various nations involved in this process.
In the December of 2000, the UNGA implemented a breakthrough resolution in support of the formation of a global certification scheme for the trade of rough diamonds. By 2002 November, dialogues between governments, the global diamond industry and various civil society organisations led to the creation of KPCS. The KPCS document lays out the various requirements for monitoring rough diamond manufacture as well as trade. The KPCS came into force in the year 2003, when all the participating nations commence implementation of the rules set out by KPCS.
The KP is open to all that nations that are keen and capable to implement the requirements that are set out. The KP has 54 participants currently who represent 81 global nations, including the European Union and all of its member states as a single member. All these various members of KP account for roughly 99.8% of the international rough diamond production. Moreover, the World Diamond Council, which represents the global diamond industry, and various civil society organizations, like the Partnership-Africa Canada, take part in the KP and have played key roles since its onset.
On the basis of the requirements and standards set out by the KPCS, participating members and nations are required to meet the ‘minimum requirements,' and are mandated to implement the national legislature and establishments; export, import as well as internal controls; and also pledge to transparency and the interchange of the pertinent statistical data. Participants can only trade legally with other members of the KP who also have met the ‘minimum requirements’ set out by the KPCS, and global shipments of rough diamonds must go together with a KP certificate certifying that they are conflict-free.
In order to fortify and toughen the credibility of the KPCS, and also to offer the much required means through which consumers might more commendably be sure of the origin of the diamonds the purchase, the World Diamond Council suggested that, the global diamond industry create and put in place, a Warranties System for the trade of diamonds. According to the System of Warranties that has been validated by all the member countries and participants of the KP, all the buyers and sellers of both rough and polished diamonds are supposed to issue a confirmatory declaration on all their invoices, as stated below:
The diamonds bought herein are acquired from legal sources and do not involve any kind of conflict in terms of funding, while they are also in complete conformity with the resolutions of the United Nations. The seller hereby assures that, these diamonds are free from any kind of conflict, as for the complete personal knowledge and/or written assurances offered by the supplier of these diamonds.
Furthermore, every company involved in the trade of both rough and polished diamonds is mandated to maintain records of the warranty invoices as acquired during the process of the diamond trade. This flow of both in and out warranties are required to be thoroughly audited and reconciled year on year by the internal auditors of the company. If queried for by a duly accredited government institution, these records should be able to substantiate that, the company involved in the diamond trade is in complete adherence and conformity to the Kimberley Process.
The European Union (EU) is a prime hub for the trade of diamonds– “cities such as Amsterdam, Antwerp and London attract buyers and sellers from across the globe.” Within the EU, a set of regulations is set out which delineates the criteria that everyone willing to import or export rough diamonds need to conform. It also crafts a uniform European Community KPC that is to be mandatorily used for all shipments that come into and go out of the EU, and also sets out specific provisions for self-regulation by the diamond industry of the EU.
With respect to the international trade of diamonds, the EU is regarded as a sole entity that has no internal borders for trade. The eradication of the internal borders within the EU permitted the free movement of goods, services, people and investment between the member states of the EU. Thus, any product that has been imported to the EU, there are no trade limitations of diamonds between the member states of the EU.
However, the EU has levied a few constraints on the trade of diamonds between the member states of the EU and the third countries. Apart from these restrictions, according to the EU law, its member states may also levy restrictions on the third countries with respect to diamond trade, based on their domestic laws. Thus, the restrictions and regulations for the diamond trade with nations outside the EU may vary per individual member state.
Normally, restrictive measures are aimed to bring about a change in the activities or the policies like violations of global law or the issues pertaining to human rights, or guidelines that do not respect the rule of law or autonomous principles.
The European Union has an extensive range of preventive measures that can be imposed. Preventive measures might encompass measures such as “arms embargoes, other specific or general trade restrictions (import and export bans), financial restrictions (freezing of funds or economic resources, prohibition on making funds and economic resources available, restrictions on export credits or investments), restrictions on admission (visa or travel bans), or other measures, as appropriate.” The EU might also levy a ban on the provision of particular services in relation to a few certain goods and technology.
The EU was the largest destination for the imports of rough diamond in the year 2005, thus accumulating approximately 39 per cent of the total of legally produced diamonds in terms of the value. Most of these imported rough diamonds were ordained for cutting in Antwerp, diamond capital of Europe and also the leading trading destination for rough and uncut diamonds, with roughly 70 per cent of the EU imports transiting through the Belgian seaport.
While the KP that was backed by UNGA had literally removed the trade in conflict diamonds, there still exist a few nations that suffer from what the European Commission defines as "serious difficulties of implementation."
Ghana, the Ivory Coast, Venezuela and Zimbabwe are a few nations that still function outside Kimberley, and their diamonds are still traded in the global market without any kind of conformity to the KPCS. The trace from these nations has led many detectives to Europe, and thus the same had become a serious concern to the European Union and many other individual European nations where the trade of diamond is a crucial economic activity.
A few experts contend that irrespective of a screening system that has been set in place by the Antwerp World Diamond Center, a large proportion of rough diamonds are continuously being traded outside of the conflict zones and are reaching Europe via Antwerp and other European centers that trade diamonds.
According to a study conducted by the Partnership Africa Canada NGO the Partnership Africa Canada NGO on diamonds and conflict in Sierra Leone, it has been discovered that Antwerp dealers regularly resolve multi-million dollar transactions in the form of cash, and receipts are hardly generated or provided to the parties involved in the trade. While illegitimate operations have their role in maintaining the trade of diamonds alive in Europe, even legal entities might be unintentionally involved in this gamble.
Import and Export of Rough Diamonds into the EU
The applicable rules for import of rough diamonds in the EU as described by the Council Regulation (EC) No 2368/2002 are as described below:
According to Article 3, the import of rough diamonds into EU shall be restricted unless all of the requirements given below are duly met:
“The rough diamonds are accompanied by a certificate validated by the competent authority of a participant (i.e. of the Kimberley Process);
The rough diamonds are contained in tamper-resistant containers, and the seals applied at export by that participant are not broken;
The certificate clearly identifies the consignment to which it refers.”
Apart from the above guidelines, there are also a few additional conditions that are applicable to the imports of rough diamonds into the EU. The same are listed below:
- Both Importers, as well as economic operators, are free to select an entry point at any EU external border for importing rough diamonds.
- But, each and every single import of rough diamonds is mandated to be verified in the first place by a Union authority.
- “Acceptance of a customs declaration for release for free circulation of rough diamonds pursuant to Council Regulation (EEC) No 2913/92 can only happen after the containers and certificates had been verified by a Union authority.”
There are about six Union authorities at present, and they are:
- Antwerp (Belgium),
- London (United Kingdom),
- Idar-Oberstein (Germany),
- Prague (Czech Republic),
- Bucharest (Romania)
- Sofia (Bulgaria)
In order to facilitate uniform application of the customs and tariffs laws of the EU by the individual custom services of all the member states, the EU has established and entity named TARIC (Tarif Integré de la Communauté). This entity is the Integrated Tariff of the Community. The TARIC is an electronic system that specifies all levy duties or saleable policy procedures as might be applicable to any specific product. Its use is mandatory in customs declarations in all trade relations with the third countries. Prior to being able to export rough diamonds into the EU, the interested exporter must first obtain an EU KP certificate as this would enable the exporter to export rough diamonds into the EU. However, for obtaining the EU KP certificate, the exporter should first submit a conclusive documentary proof that the diamonds being exported have been legally imported into the EU. This process might also involve export declaration or offering invoices of the original import certificates.
According to Article 13 of the Council Regulation (EC) No 2368/2002, the EU authority may consent as conclusive evidence of legal import into the EU. Within the legitimacy period of the KP Certificate, economic operators are free to select the time and locations for the customs formalities, as well as the actual export from the EU, are to happen. Verification of the actual export of the shipment is undertaken by control of import receipts from the receiving participant.
Import and Export regulations for Rough Diamonds in Africa
There are a few nations that depend on arbitration when there is a breach of trust. In countries like Belgium and Israel, diamond trading can happen only through Diamond Bourse or Exchange, and in case of a disagreement, arbitration hits in, which is an integral part of the Bourse or the Exchange. Also, the decision of such arbitration is binding on the parties involved. Non-compliance of such arbitration rulings can result in severe penalties like withdrawal of the membership and resulting in suspension of business. However, in South Africa there is no such similar system in vogue. Membership to the Exchange is purely voluntary and as such the exchange or any other body in the industry is not empowered to arbitrate.
The control function in the South African diamond industry is rested with the South African Diamonds and Precious Metals Regulator (SADPMR). The function of SADPMR includes issuing and withdrawal of beneficiation licenses. SADPMR merely functions to the legislative requirements and makes no effort to the preservation of “mazal u’ bracha”, which is the core of the diamond business. Hence, the trust factor between the trading parties is not as strong as in other countries, and thus making it necessary for the trader to define the terms to which the clients have to oblige to comply while conducting their business.
Mazal u’ bracha is nothing but a Jewish expression meaning luck and blessing, and this is used typically on conclusion of a business agreement of transacting diamonds. It is usually accompanied with shaking hands. It simply implies that the seller wishes the buyer good luck, thus preserving a sense of continuity as well as a sense of commitment to business ethics. Mazal is used in the complete international diamond trading community as an acceptance and completion of the deal, including agreement on price. Violation of Mazal is a serious breakdown of trust.
The 2005 amendments brought into the Diamonds Act are the Diamonds Amendment Act 2005 and the Diamonds Second Amendment Act 2005, 2007 and 2008. Objectives of the Diamonds Act 1986, amended till date are:
- Having compliance with the KPCS
The Regulator’s functions with regard to diamonds include:“ (a) implementing, administering and controlling all matters relating to the purchase, sale, beneficiation, import and export of diamonds; and(b) establishing diamond exchange and export centers, which shall facilitate the buying, selling, export and import of diamonds and matters connected therewith.”
The two regulatory authorities, the South African Diamond Board and SADPMR have different roles to play. The South African Diamond Board is a regulatory body, while SADPMR also has a promotional role. While SADPMR hands out licenses and export approvals, it also protects supply to the local demand of diamonds and precious metals, and that there is constant growth in beneficiation of diamonds and precious metals.
The KPCS apparently safeguards Africa from diamonds mined by the culprits of the noxious wars in West Africa which were described by sexual harassments, defacements, dislocation and utter slaughter carried out over the past two to three decades or so. Currently, diamonds from the African soil are worth a few billion dollars, and the diamond wealth that is concerted mostly in the nations like the United States, Europe, Israel, and also with the white population living in South Africa. While the African population on their own motherland struggling in the mines under extreme conditions of slavery just to earn a few pennies a day, have zero control over the trade of diamonds whatever and they no kind of advantages that they could enjoy from the profits of this trade.
In order to make sure that the South African government gets the rightful share of the revenues from the diamond extraction within the South African land, the government of South Africa depends on a domestic agency named the Government Diamond Valuator (G.D.V.) that is endowed with shaping the quality, and eventually even worth of the diamonds extracted in that nation. However, according to a few confidential sources of the diamond industry, it is claimed that G.D.V. issues independent assessments of the nation’s diamonds very rarely, thus choosing instead to voice the valuations as put forth by De Beers in the price lists of the company.
Conclusion
Diamond business is an extremely lucrative and good business. The industry is known for its simplicity and verbal agreements. There is an immense measure of the underlying trust in each of these agreements. The entire global diamond trade works on the simple principle of mazal u’barucha. In the earlier days of diamond trade, when the trade was in its nascent stages, almost all aspects of diamond business were mafia driven. As time progressed, it has now changed and has transformed into a highly professional business. Countries like Belgium, Israel, and South Africa have brought in their own perspectives into the diamond trade, and have created systems and legislative procedures to suit their perspectives. The legislative efforts in South Africa have created protocol that definitely makes the government look over the shoulders of the trades, but allowing them ample freedom to operate their trade. The fundamental concept of the same is being beneficiation to the local population and community. The South African legislation and the legislative processes are extremely suited to promote the trade as well as protect the interests of the traders, trade, and the local community. It is highly appropriate to say Mazal to conclude this paper.
Works Cited
Antwerp World Diamond Center. Import and Export of Diamonds. 29 September 2014. 2014 September 2014.
ANTWERP World Diamond Center. Rough diamonds - Kimberley Process Certification Scheme. 2014. 28 September 2014. <https://www.awdc.be/en/rough-diamonds-kimberley-process-certification-scheme-0>.
Deutsche Welle. Decimated Conflict Diamond Trade Survives in Europe. 15 November 2007. 29 September 2014. <http://www.dw.de/decimated-conflict-diamond-trade-survives-in-europe/a-2902231>.
European Commission. "Guidelines on Trading with the European Union (EU)." January 2014. European Commission. 30 September 2014.
European Union External Action. The EU and the Kimberly Process. 23 November 2013. 29 September 2014. <http://eeas.europa.eu/blood_diamonds/index_en.htm>.
International Relations and Cooperation - Republic of South Africa. South Africa's Role in the Kimberley Process (Import and Export of Rough Diamonds). 19 February 2004. 28 September 2014. <http://www.dfa.gov.za/foreign/Multilateral/profiles/kimberly.htm>.
Kimberley Process. KP Basics. 2013. 28 September 2014. <http://www.kimberleyprocess.com/en/about>.
South African Diamond and Precious Metals Regulator (SADPMR). "Overview of the SADPMR." May 2014. South African Diamond and Precious Metals Regulator (SADPMR). 29 September 2014. <http://www.sadpmr.co.za/content_seo_friendly_url>.
World Diamond Council. The Essential Guide to Implementing the Kimberly Process. Instructions Guide. NY: World Diamond Council, 2008.
