Global Policy Forum

By Ruth Walker

Remember when animal-rights groups splashed fur-coat owners with red paint? The diamond industry is worried it may face a similar campaign against "blood diamonds" - gems mined in Africa to fund civil wars.

Diamonds may all too often be a guerrilla's best friend. But economic-development experts have long hoped that the gems also may be good to the Arctic Inuit - and to all Canadians. Canada, home to some of the most outspoken international human rights advocates, is expected to become the world's No. 3 diamond producer as new Arctic mines come into production in the next few years. As such, it offers a unique window on this emerging controversy.

Canadian mine owners have both a vulnerability - if the overall diamond market softens - and a potential edge if efforts to certify African gems as "conflict-free" fail. The entire industry is under intense pressure from the United Nations and human rights organizations to clean up its act.

At the World Diamond Congress now under way in Antwerp, Belgium, De Beers - the South African conglomerate that controls about two-thirds of the uncut diamond industry and has served since the 1930s as a buyer of last resort, propping up diamond prices - is trying to drum up support for its new system of certifying diamonds as conflict free. The system is intended to reassure consumers that the gems favored as a token of enduring love have not funded atrocities in Africa.

Canada's UN ambassador Robert Fowler, chairman of the world body's Angola sanctions committee, is scheduled to address the gathering today. For the industry, the nightmare scenario would be for advocacy groups to make diamond rings as socially frowned upon as fur coats have become in much of Europe and North America. For Canada, whose gems are vitally important to the development of Arctic regions otherwise crushingly dependent on financial support from Ottawa, concern about conflict diamonds "is a major, major consideration," says Bruce Boyd, an official with the Department of Natural Resources in Ottawa.

For Human Rights Watch, what will make or break the De Beers system's credibility is outside verification. For now, says Alex Vines, the group's London-based diamonds expert, De Beers intends to "police the new regime themselves, and one can't be sure, given their track record" that De Beers stones haven't come from guerrilla areas. In the past, De Beers has admitted buying stones from conflict zones in order to stabilize prices.

Ian Smillie, project coordinator for the Partnership Africa Canada report on Sierra Leone, says the diamond industry, "came around pretty quickly" once it saw the potential for damage. That his organization is making a presention at this week's diamond congress is a sign that the PAC report got traders' attention. Otherwise, he says, "They wouldn't invite us to the World Diamond Congress in a million years."

But efforts to certify diamonds as not coming from conflict areas face technological hurdles. The Royal Canadian Mounted Police is working on a technology for "diamond fingerprinting," Mr. Smillie says. This is a kind of forensic analysis that focuses on a diamond's flaws - the 0.05 percent that is not pure carbon but rather some trace element - to link stones with known geological formations. A mine would send samples to be entered into the database, and any diamond supposedly mined there could be checked.

This technology is "not quite ready for prime time yet," Smillie acknowledges. For diamonds from South Africa or Botswana, typically found in kimberlite "pipes," a credible "bag and tag" system for a mine database could be established, Smillie says. But such a system would be a problem in places such as Sierra Leone, where the diamonds turn up literally in river beds. Smillie is calling for authoritative mineralogical surveys of diamond regions so that governments can't continue to certify gems representing vastly more production than is geologically credible.

In 1999, he says, Antwerp bought 1.7 million carats from Liberia, whose actual production of its own stones should be more in the range of 100,000 to 150,000 carats. Liberia has an alleged role in "laundering" gems from rebels in Sierra Leone, which is under a diamond embargo.

In this troubled scene, is there an edge for Canadian producers? That's a question they approach with some care. "We're appalled at what has transpired in Angola, in Sierra Leone, and we concur with the approach that De Beers and other reputable companies are taking," says Caroline Glasbey, director of investor relations for Aber Resources in Toronto, a partner, with RTZ of Britain, in the Diavik Diamond Mine near Yellowknife in Canada's Northwest Territories. "But we don't want to take advantage of what's happening elsewhere. That would be abusing the sentiment out there."

There is, however, "a marketing edge with regard to their being high-quality diamonds - higher in color and clarity," she adds. Canada is expected to account, within a few years, for 15 percent of the world's diamond production by value thanks to two mines, Diavik and Ekati, because of their gems's high quality. They will be marketed primarily in the US, which consumes - if that's the right word for a commodity of such celebrated hardness - 54 percent of the world's diamonds.

"Over the next 18 to 20 years, the Ekati mine should generate $685 million [Canadian, $462 million US] in royalties to Canada," says Doug Paget, manager of special projects in the Department of Indian Affairs and Northern Development in Ottawa. The mine should generate $1 billion (Canadian) in federal corporate income tax, 400 to 500 jobs, and opportunities for local supply firms, he adds. "The spinoffs are massive ... this means an awful lot of money coming into the coffers."

The numbers for the Diavik mine are expected to be similar, Mr. Paget says. And he hopes that by the time production is under way, there will no longer be a need to think about a boycott.