Global Policy Forum

By Yevgenia Borisova

As the world diamond industry has been scrambling in recent weeks to shed its image as a secretive cartel that funds African civil wars, a top Russian diamond executive took exception Tuesday to proposals to clamp down on the trade in "blood diamonds." Speaking at an industry conference in Antwerp - the Belgian port city that is the world's diamond-trading center - Sergei Ulin, vice president of Almazy Rossii-Sakha, challenged proposals to cut off the diamond businesses of groups such as Angola's Unita or Sierra Leone's Revolutionary United Front.

He warned that efforts to keep "dirty diamonds" off of world markets could go too far if they hindered Russia from selling diamonds. Ulin also said that such efforts should not interfere in other countries' internal affairs - a phrase Russian officials often invoke when rejecting foreign criticism of their own civil war, the one in Chechnya.

Such talk aside, there has been no casual link drawn between diamond sales and the conflict in Chechnya similar to the ones that have been drawn by the United Nations and others to wars in Congo, Angola and Sierra Leone - or to the links drawn between the war in Chechnya and loans from the International Monetary Fund and the World Bank. But the talk does reflect the tension inherent in a De Beers-dominated world diamond industry that this month announced it would try to remake itself overnight - from a price-fixing cartel to a consumer-pleaser.

Most Russian diamonds make it to world markets through De Beers, a South African company that controls more than two-thirds of world sales of raw diamonds. For more than 70 years, De Beers has manipulated world prices by hoarding diamonds - a practice it announced last week it would change by focusing less on creating scarcity via its monopoly power and more on creating demand by marketing diamonds as a luxury good.

The radical new De Beers approach was not entirely unexpected: Diamonds from Canada and Angola have tended to slip through De Beers' grasp to reach world markets on their own. But the announced change nevertheless means seismic changes for the industry, including domestically. Russian diamonds - almost all of them from Alrosa - account for 26 percent of De Beers' global sales.

Under an agreement that runs until the end of 2001, Alrosa sells De Beers at least $ 550 million worth of diamonds annually. Last year, Alrosa sold far more to De Beers - $ 900 million, according to the newspaper Vedomosti. That makes diamonds one of the country's biggest businesses. Alrosa, for example, paid 15.8 billion rubles ($ 560 million) to state and regional coffers last year - or 0.3 percent of all state revenues that year - and its agreements with De Beers are always brokered by top Cabinet officials.

Now, however, De Beers and Alrosa have announced they will not renew their existing sales agreements, and each is trying to feel out a new strategy. Alrosa and the government are still discussing various options. But De Beers has already announced its plans: It intends to sell off part of its massive $ 3.9 billion stockpile of uncut diamonds - built up over decades - to reduce its holdings to about $ 2.5 billion. The money raised from such sales will be thrown instead into an advertising campaign for diamonds. De Beers has set about remaking itself in part because diamond sales have not grown as robustly over the past several decades as have advertising-driven sales of other prestige and luxury goods.

But it has also acted out of fears that talk of "blood diamonds" or "conflict diamonds" - diamonds sold to buy arms or other material for civil war or terrorism - threaten to ruin a luxury business built so heavily on image. That danger was articulated eloquently Tuesday in Antwerp by Canadian diplomat Robert Fowler, who is chairman of the UN Security Council's Angola sanctions committee. Fowler drew a parallel between the diamond industry today and the Canadian fur industry in the 1970s, when it first came under attack by animal rights activists.

"A vibrant, 400-year-old (fur) industry was all but annihilated by an extremely deft manipulation of consumer consciousness," Fowler said in remarks reported by Reuters. "Many do not like this parallel, but it is germane to your discussions this week. "Diamonds will not be forever unless you are able to demonstrate to governments and, above all, to consumers worldwide that your product in no way contributes to misery and death in Africa." This month, the Security Council imposed a global ban on diamond sales from Sierra Leone, similar to one imposed in 1998 on Angola.

But there are no sanctions on sales from Congo, where diamond revenues sustain a war involving rebels, the government and armies from six other African nations. And as human rights groups have stepped up criticisms, governments and industry leaders have been scrambling to respond.

This week in Antwerp, the International Diamond Manufacturers' Association proposed export and import certification processes to keep smuggled diamonds off of world markets. And the topic will come up again this weekend at a meeting in Okinawa, Japan, when foreign ministers from Russia and the Group of Seven leading industrial nations will discuss ways to curb the "conflict diamonds" trade.