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De Beers gets EU backing for diamond sale overhaul

The European Commission on Monday approved a plan by De Beers to overhaul its distribution system of more than $4-billion of rough diamonds a year to help drive demand for the precious stones.

It is part of a plan by De Beers to rejuvenate demand for diamonds by streamlining distribution and creating the designer branding that already exists in other luxury goods, experts say.

Tentative approval by one of the world’s two big antitrust authorities is a triumph for De Beers, which had for decades been branded as a cartel.

Final Commission approval next month is likely to be little more than a formality, because the Commission is satisfied De Beers will give customers enough flexibility to meet requirements of antitrust law.

”This is not a cartel,” said representative Amelia Torres of the firm, which is 45%-owned by Anglo-American. Anglo American’s stock was down 1,56% to 854,5 pence in midday trading in London.

She said that even when a company is in a dominant position it is entitled to choose what it considers the most efficient distribution channels.

Although the decision is all but a done deal, the public is free to raise any objections over the next month.

”This is an indication that the commission has almost completed its inquiry into supplier of choice and that it is likely to take a positive view,” said De Beers representative Tom Tweedy in South Africa.

Supplier of choice is De Beers’s name for its distribution system.

De Beers now sells to an exclusive group of about 120 customers, who are traders or cutters located in diamond cutting centres around the world including New York, Antwerp, Johannesburg, Tel Aviv and Mumbai, India.

De Beers invites customers to London to buy stones 10 times a year. The customers do not know in advance how many stones they will be told to buy or what the assortment will include. Customers who do not like the system are cut off.

Now the Commission and De Beers have agreed to a number of approaches designed to increase the rights of its customers, including an ombudsman to settle disputes.

If De Beers does not follow the agreed procedures, the ombudsman will recommend it reconsider its decision. The ombudsman’s decision may be appealed in court by either party.

In addition, De Beers must give customers six months notice if it wants to cancel a contract, up from three months now.

Instead of finding out the quantities of stones they will be getting on the day they receive them, customers will be notified six months in advance, Torres said.

By notifying the Commission and getting approval for a marketing deal, De Beers has the imprimatur of one of the two top competition bodies in the world. The other is the United States, which has a long history of disputes with the firm.

De Beers once held a monopoly and still controls well over half of the world’s diamond production of roughly $8-billion annually, which translates into about $55-billion of jewellery.

The Commission said that during the 20th century De Beers controlled more than 80% of the supply of rough diamonds around the world.

In addition to its own mines in South Africa, De Beers has entered into joint ventures with governments in Botswana, Namibia and Tanzania, the Commission said.

The Commission is still looking at one other plan affecting De Beers, but there is no indication when it will rule.

Russian diamond producer Alrosa wants to sell a large part of its production to De Beers. It said earlier this year that it expects to have to cut the percentage it wants to sell before winning approval. – Reuters

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