Research Paper Final

The Clean Diamond Process: Kimberley Process
Introduction

The most peculiar feature of the jewelry industry is exclusiveness, especially in the diamond trade. Consumers have only vague ideas of the origins of the dazzling diamonds on their fingers and the distribution of diamonds to the market. In September 2006, the Hollywood movie Blood Diamond, from Warner Brothers, highlighted the critical issue of “conflict diamonds,” and brought public attention to the trade of smuggled diamonds. The timing of the movie release concerned the whole jewelry industry, because the negative publicity could have disturbed the holiday shopping season critically (Kavilanz, 2006). Consumers became confused about the difference between good diamonds and “conflict diamonds,” which funded rebel violence in some regions in Africa, and associated all diamond transactions to illegitimate exchanges in the black market.

The negative publicity naturally shifted the public attention to the international rough diamond certification system known as the Kimberley Process. It was designed to prevent the illegal trade of diamonds and to facilitate the legitimate trade of rough diamonds. Since 2003, this program has made it possible to track the origins of rough diamonds using certificates. The object of this research is to explore the background of the Kimberley Process, its constituencies and its achievements in the international trade of rough diamonds. This paper also projects the current problems and the future of the Kimberley Process as a clean diamond act.

Background

According to Smillie (2005), “conflict diamonds” are from a few Central and West African nations, where large deposits of alluvial diamonds exist. Alluvial diamonds, different from the deep kimberlite pipes in Canada, Russia and Botswana, are mined from only a few inches or a foot below the surface of the earth.

These alluvial diamonds are relatively easier to mine and smuggle than other diamonds because of the easy access and the high value-to-weight ratio of the diamonds. Historically alluvial diamonds have been difficult to manage and regulate, they have also been used to launder money and finance drugs and other illicit goods (Smillie, 2005).

Therefore, diamonds were used by rebels to finance the arms trade in Sierra Leone, Angola, Liberia, the Democratic Republic of Congo and the Ivory Coast in Africa during the 1990s (Clean Diamond Trade, n.d.). As a result, as much as 15% of world’s annual diamond production was connected with “conflict diamonds” in that period, and 50,000 innocent people were killed during the nine year civil war in Sierra Leone alone (Walt, 2006). Some Non Governmental Organizations (NGOs) argued that more than four million civilian deaths were associated with the trade of conflict diamonds (Walt, 2006).

Smillie (2005) indicates that the issue of “conflict diamonds” was first raised in 1998 by a British NGO and reported to the United Nations Security Council. In 2000, a Canadian NGO published a report saying that the rough diamonds had fueled Sierra Leone’s civil war. Until then, the problems of the diamond industry were totally ignored. The release of the movie Blood Diamond made a huge contribution to the start of an international debate and resumed the urgent need of a proper campaign to avoid the trade of “conflict diamonds” in the future.

Constituencies

There are only two narrow channels in distributing rough diamonds to the market. One is De Beers, the biggest diamond company, which controls 80% of the rough diamonds in the world. De Beers is the most vulnerable party who would be affected directly by the campaign to ban “conflict diamonds,” because De Beers has manipulated the high market prices of diamonds and has spent a lot of money on advertising. The other is Antwerp, Belgium, which has served as an intersection for almost 90% of the world’s rough diamonds for two centuries. Historically, the government of South Africa also has been highly involved in the diamond industry, and it called the first meeting to discuss the issues related to the illegal export of rough diamonds (Smillie, 2005).

Even though the Belgian customs data started recording the origin of diamonds in 1998, the system was ineffective because the origins of smuggled diamonds could easily be counterfeited (Smillie, 2005). Therefore, the certification system was needed to prove the origin of a diamond, whether it came from a conflict-free zone or not. With the help of industry leaders, governments and NGOs, the first meeting was held in Kimberley, South Africa, where the first diamond was discovered in the 19th century (Smillie, 2005).

The Kimberley Process

The United Nations General Assembly (UNGA) adopted the agenda to create an international certification scheme for rough diamonds and formed the Kimberley Process Certification Scheme (KPCS) as a regulator among countries, rough diamond entities, and regional economic integration organizations in May 2000. KPCS was finally launched in January 2003 with the cooperation of Amnesty International and other NGOs (Background, n.d.).
The KPCS prerequisite was that all members trade only with other participants who fulfill minimum requirements which KPCS designated. Participants were expected to work as groups in Monitoring, Statistics, Diamond Experts, and participation & selection committees. So far 71 governments are contributing in the process to ensure the integrity of the certification (Kimberley Process, 2007).

Achievement

According to Lustgarten, (2006) a senior writer for Fortune magazine, the Kimberley Certification Process has attributed to a decrease in the rate of “conflict diamonds” from 4 % to 1 % after the regulation was launched. Governments are also working on making regulation stronger under KPCS, not only with penalties, but also with incentives to change the informal system of the current black market. It helps to systemize the transparent trades and force each member-nation to trade among them.
According to Walt (2006), Sierra Leone is one of the successful regions under KPCS. There was no formal export of diamonds in Sierra Leone in 1999, and it jumped up to $142 million in 2005. Even though there was tension among the members who disagreed with some parts of the process when KPCS was starting (Smillie, 2005), all of the members finally agreed on the amendments for improving the effectiveness and transparency of the world diamond trade in Brussels, Belgium in June 2006 (Kimberley Process, n.d).

Criticism around KPCS

However, there are still many weak links remaining in the monitoring of KPCS. The main reasons of the weakness are capacity, technological shortcomings, and corruption. For example, several African countries and Brazil are under extremely weak controls, and smuggling diamonds from those regions is comparatively easy (Smillie, 2005).
Collecting consistent and comparable statistical data is another concern for KPCS (Smillie, 2005). Most countries submit data based on inconsistent formulae, diverse valuation techniques and different time lags. In addition, there are also remaining problems in the submission of annual reports, follow-ups on review visits and effective application of internal control in each country (Smillie, 2005).

Conclusion

The Kimberley Process was firstly negotiated by United Nations, NGOs, and the diamond industry in 2000 banning illegal diamond exports, which fueled civil wars in Africa in the 1990s. In January 2003, the Kimberley Process Certification Scheme became the international guideline to track the origins of rough diamonds to safeguard people from inhuman conflicts related diamonds trade. Even though the system was very uneven at the initial point, it started working effectively after 2003. From 2005, KPCS has been operating fully and the achievements exceeded expectations (Smillie, 2005).
Mordechai Rapaport, the originator of the Rapaport Group who reports the annual diamond price to the industry, said "Diamonds are essentially worth nothing" (Walt 2006). He indicated that the important feature of the diamond is not its price but its signification as a present (Walt, 2006). If anyone realizes that somebody was killed for the stone, it will lose its dignity and become meaningless.

Protecting workers and ensuring safe and healthy working environments is one of the millennium goals stated by UN. The bright future of KPCS toward the goal will be achieved only by a strong will aimed at a world free of “conflict diamonds” among governments, industry leaders and civil society representatives in the world. Without cooperative and constant efforts among them, it would be hard to reach the goal.

Reference

Back Ground. (n. d). Kimberley Process. Retrieved September 22, 2007, from http://www.kimberleyprocess.com/index.php?option=com_content&task=blogcategory&id=18&Itemid=35

Clean Diamond Trade, (n. d.). Fancy diamond . Retrieved September 22, 2007, from http://www.fancydiamonds.net/Info_Center/Articles/_Clean__Diamond_Trade_and_the_Kimberley_Process.htm

Kavilanz, P. B. (2006, September 11). Jewelers sweat a 'Blood Diamond' holiday.
CNN Money on the Web. Retrieved September 22, 2007, from http://money.cnn.com/2006/09/11/news/companies/diamondjewelry_movie/index.htm

Kimberley Process: key players meet to strengthen efforts against conflict diamonds.
(2007) Kimberley Process. Retrieved October 17, 2007, from http://www.kimberleyprocess.com/images/stories/docs/press1/press%20releases%20ec/i07_791.en.pdf

Lustgarten, A. (2006, October 2 ). Diamond mines are forever. Fortune.
Retrieved September 22, 2007, from
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Smillie, I. (2005). The Kimberley Process Certification Scheme for Rough
Diamonds. Comparative Case Study 1. Verifor, Retrieved September 22, 2007, from http://www.verifor.org/case_studies/KimberleyProcess.pdf

Walt, V. (2006, December 7). Diamonds aren't forever. Fortune. Retrieved September
22, 2007 From http://money.cnn.com/magazines/fortune/fortune_ archive/2006/12/11/ 8395442/index.htm