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. Last Updated: 07/27/2016

Nations Strike 'Blood Diamond' Deal

Envoys from 40 nations on Thursday hammered out the basic parameters of a certification scheme to stem the trade in the so-called "blood diamonds" that finance wars.

The summit of national envoys and industry executives, held at Moscow's President Hotel, is part of a series of meetings that will culminate later this year in London, where a final plan is expected to be drafted and sent to the United Nations' General Assembly for consideration. Previous meetings were held in South Africa, Namibia and Belgium.

"We agreed on the basic elements of certification," said South Africa's Nchaka Moloi, chairman of the meeting held within the framework of what is called the Kimberly Process, initiated by 36 countries in 1999 to discuss ways to fight the illegal diamond trade.

"Conflict diamonds" make up roughly 4 percent of the $6 billion-a- year uncut diamond industry and have been used to fund rebel wars in Sierra Leone, Angola and other hot spots around the globe.

Sergei Ulin, vice president of Russia's state-owned diamond monopoly, Alrosa, which accounts for about 25 percent of the global market, said in an interview after the meeting that participants agreed to certify diamonds on several levels, including production and re-export.

Deputy Foreign Minister Ivan Ivanov said that, contrary to earlier proposals to set up an international body to monitor diamond trading, the certification scheme would be based on a national system of control.

No other details of the agreement were made available this week, so it remains to be seen how far apart participants are regarding the various details.

But although diamond producers are working under the auspices of the United Nations to eliminate war mafias financed by illegal diamond sales, the certification agreement would also bolster their bottom line, Ulin said.

"Given that a one-channel marketing system is gradually being dismantled, diamond producers should think of dividing the market," Ulin said. "The first step is to eliminate illegal diamond producers.

"I hope that in one or two years the fundamentals will be created for upward price dynamics in the market," he added.

But weeding out illegal dealers is just the first step. Just as important is the global coordination of players in the industry, which is undergoing a restructuring as new producers arrive and supplies grow, Ulin said.

Since the 1830s, South Africa's De Beers has controlled the bulk of the global diamond trade, buying out oversupplied diamonds and selling the stock when demand picked up.

The underlying idea was to keep diamond prices growing at a rate of 3 percent above global inflation, making diamonds an attractive store of value over a long period of time.

For a long time De Beers compared the dynamics of the industry with those of the commodity markets, until it realized that its products should be matched against other luxury goods like watches and perfumes.

"The whole industry should focus on marketing the product," Ulin said. "It is clear now that one cannot live at the expense of De Beers, which doesn't have the resources to prop-up the market on its own."

Until now producers have done little to defend their market share — spending six or even seven times less on advertising than watchmakers, for example, and 10 times less than perfume makers.

Adding fuel to the fire, new producers from Canada have recently tapped the market, while Australia and Zaire bailed out of their agreements with De Beers.

Now the market is gradually transforming into a more competitive one, which could have a major impact on the industry's future profits.

"If the market becomes a field of furious competition and prices drop significantly even once, the faith in this product will be dented forever," Ulin said.

The diamond industry should become a playground for global alliances and vertical integration, a path on which Alrosa embarked in the 1990s, he added.

De Beers mapped out the details of its new sales strategy in 2000, more than a year before its agreement with Alrosa expires at the end of 2001.

Ulin said Alrosa continues to work on a new agreement that may be signed before the New Year.