Matthew A. Runci – Testimony Before Subcommittee on Trade

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Statement of Matthew A. Runci, Ph.D.,

President and Chief Executive Officer,

Jewelers of America, Inc.

and on behalf of World Diamond Council

Testimony Before the Subcommittee on Trade

of the House Committee on Ways and Means

Hearing on Trade in African Diamonds

September 13, 2000

The World Diamond Council (WDC) is the international body chartered in Antwerp in July by the World Federation of Diamond Bourses and the International Diamond Manufacturers Association, solely for the purpose of rapidly developing and implementing a comprehensive plan to curtail trade in conflict diamonds while minimizing impact on the legitimate diamond industry. Membership of the Council is comprised of all segments of the international diamond industry — producers, manufacturers, traders, and retailers — as well as financial institutions, governments and relevant international and civil society organizations.

The World Diamond Council is dedicated to the eradication of the trade in conflict diamonds, allowing the legitimate diamond industry – which handles 96% of world rough diamond production and gives employment to over 2 million people – to continue the promotion and sale of diamonds as the ultimate symbol of love and as an agent for economic growth and prosperity in stable African democracies such as Botswana, Namibia, and South Africa.

The Council held its inaugural meeting on Thursday, September 7, in Tel Aviv to begin implementation of its plan. The main features of the plan, detailed later in this testimony, include:

· Establishment of dedicated import/export offices for rough diamonds closely supervised by individual government authorities;

· Adoption of a uniform international certification system of sealing and authenticating each parcel of rough diamonds prior to export;

· Monitoring industry wide compliance with ethical codes of conduct that prohibit the trade in conflict diamonds;

· Obliging banks, insurance companies, shipping companies and other providers of auxiliary goods and services to cease business relations with any company or individual knowingly involved in dealing in conflict diamonds;

· The result of these steps will be to support a chain of assurance for traders of polished diamonds based on rough controls.

The WDC calls upon the governments of those countries involved in the diamond trade to enact and enforce the measures described above. The WDC offers its expertise and assistance to governments in drafting appropriate legislation.

In addition the WDC calls on all relevant governments, and the United Nations, to initiate with utmost urgency an international embargo on the trade in weapons that provides rebel forces in Africa with the means to wage war.

The WDC invites the UN, governments and NGO’s, in the pursuit of international peace and security, to examine the role of other natural resources and, most importantly, the arms trade, in perpetuating conflict in Africa.

Introduction

Mr. Chairman and members of the subcommittee, I am Matthew Runci. the President & CEO of Jewelers of America (JA), the national association of professional retail jewelers in the United States. Our membership of more than 12,000 stores encompasses large national chains such as the Zale Corporation and Sterling Jewelers, luxury brands such as Tiffany and Cartier, and nearly ten thousand independent family-owned retail jewelry stores in all fifty states.

I appear before you today on behalf of the newly formed World Diamond Council (WDC), an international body chartered in Antwerp in July, solely for the purpose of rapidly developing and implementing a comprehensive plan to curtail trade in conflict diamonds while minimizing impact on the legitimate diamond industry. Membership of the Council is comprised of all segments of the international diamond industry — producers, manufacturers, traders, and retailers — as well as financial institutions, governments and relevant international and civil society organizations.

The World Diamond Council is dedicated to the eradication of the trade in conflict diamonds, allowing the legitimate diamond industry – which handles 96% of world rough diamond production and gives employment to over 2 million people – to continue the promotion and sale of diamonds as a symbol of love and as an agent for economic growth and prosperity in stable African democracies such as Botswana, Namibia, and South Africa.

A list of Council members is appended to this statement as Attachment 1.

The Council held its inaugural meeting on Thursday, September 7, in Tel Aviv to begin implementation of its plan. The main features of the plan, detailed later in this testimony, include:

· Establishment of dedicated import/export offices for rough diamonds closely supervised by individual government authorities;

· Adoption of a uniform international certification system of sealing and authenticating each parcel of rough diamonds prior to export;

· Monitoring industry-wide compliance with ethical codes of conduct that prohibit the trade in conflict diamonds;

· Obliging banks, insurance companies, shipping companies and other providers of auxiliary goods and services to cease business relations with any company or individual knowingly involved in dealing in conflict diamonds;

· The result of these steps will be to support a chain of assurance for traders of polished diamonds based on rough diamond controls.

The WDC calls upon the governments of those countries involved in the diamond trade to enact and enforce the measures described above. The WDC offers its expertise and assistance to governments in drafting appropriate legislation.

In addition the WDC calls on all relevant governments, and the United Nations, to initiate with utmost urgency an international embargo on the trade in weapons that provides rebel forces in Africa with the means to wage war.

The WDC invites the UN, governments and NGO’s, in the pursuit of international peace and security, to examine the role of other natural resources and, most importantly, the arms trade, in perpetuating conflict in Africa.

The Situation

Legitimate and socially responsible businesses in the diamond and jewelry industries deplore the fact that even a very small portion of the world’s annual rough diamond production is being used to fuel conflict in Sierra Leone, Angola, and Congo.

Diamonds are a symbol of love and purity, and most definitely should not be exploited as a means to commit violence. Diamonds stand as timeless symbols of romance, mystery, eternity, beauty, prestige, tradition, purity and rarity. That diamonds have been exploited to enable the purchase of weapons that serve to brutally extend the suffering of people in parts of Africa is truly appalling to socially responsible business people in this industry.

We must keep in mind that informed estimates today agree that 96% of the world’s rough diamonds come from legitimate sources — that is from mines certified by local authorities. Conflict diamonds — that is rough diamonds illicitly seized and sold by representatives of rebel movements for the purpose of buying weapons — constitute an estimated 4% of the world’s annual gem production-a share believed to be still declining. See Attachment 2 – Conflict Diamonds Estimate Against Total World Production, 1999.

We must remember too that natural resources like diamonds are in fact morally neutral. Thus legitimate diamonds – that is 96% 0f the world’s annual diamond production – are an important source of economic vitality worldwide. Nowhere is this more apparent than in southern Africa, where in the economies of Botswana, Namibia and South Africa, diamonds have fueled economic growth and prosperity. Take Botswana, for example, a country that serves as a model not only for Africa but also for all developing countries. As reported in Time Magazine Europe (July 10, 2000), since the discovery of its diamond deposits, Botswana has achieved record economic growth. Last year it was again one of the fastest growing economies of the world with real GDP growth of 9%. Diamonds provide 75% of foreign exchange earnings, 65% of government revenue, and 33% of GDP. Today Botswana stands as a model of the way mineral wealth, in this case diamonds, can be deployed for the benefit of a country as a whole.

Similarly, in Namibia, where the organized diamond industry dates back to the beginning of the 20th century, diamonds today account for 40% of the country’s foreign exchange earnings. In South Africa, the diamond industry as a whole gives employment to 30,000 people and is vitally important to the country as a whole.

Clearly, a solution to curtailing world trade must not come at the expense of the remarkable positive achievements that diamonds have brought to this region.

At a conference in Kimberley in May, Inge Zaamwani, a Namibian, spoke on behalf of all three southern African countries when she said:

The linkage of civil strife with the diamonds industry threatens our economic livelihood in a very serious way…Realism demands that we put the conflict diamonds issue in perspective.

Diamonds are not the principal source of all too numerous armed conflicts on this and other continents. The principal blame must lie with those who started the wars and the arms merchants who supplied them with the weapons. The manufacturers and suppliers of automatic weapons, landmines, missiles and other essentials of modern bush warfare are not Africans. Diamonds must not become the scapegoat for the world’s failure to stop atrocities or rebellions or the arms that abet such rebellions. Long after the question of conflict diamonds has faded from political or press attention we on the ground in Africa will be left to grapple with the challenges of war and peace, justice and injustice, poverty and prosperity, and the complex role that resources of every kind should play in contributing to one or the other.

Current Industry Actions

The world diamond industry is currently doing everything possible to address this problem in a timely, responsible and effective manner. Leading producers, such as DeBeers, have been working in close collaboration with the governments of southern Africa, the U.S. Department of State, the United Nations, and the British Foreign Office, as well as NGO’s such as Global Witness, and diamond industry associations, to advance workable and practical solutions that could be applied immediately.

Leading diamond industry associations, the International Diamond Manufacturers Association (IDMA) and the World Federation of Diamond Bourses (WFDB), representing all principal diamond manufacturing and trading centers of the world, adopted an historic joint resolution at the World Diamond Congress in Antwerp in July. This document, now known as the Antwerp Resolution, laid out a plan to curtail world trade in conflict diamonds and established a new permanent body, the World Diamond Council (WDC), comprised of producers, manufacturers, traders, retailers, banks, and relevant international and civil society organizations, to monitor compliance with the plan. See Attachment 3 – The Antwerp Resolution.

In the United States, which today accounts for approximately half of the $56 billion in diamond and diamond jewelry retail sales in the world annually, diamond and jewelry trade organizations formed a working group almost one year ago to share information and coordinate industry action in support of curtailing the trade in conflict diamonds.

The Jewelers of America (JA) have prioritized this matter for the past year, issuing a continuing series of communications to the trade to inform and sensitize retail jewelers to the vital importance of this issue; developed and issued a guidance agreement for use by all retail jewelers with their diamond vendors; and established training programs for deployment in stores and for presentations to trade audiences at industry events. As signatories to a code of ethics as a requirement of membership in the association, all members of the Jewelers of America have pledged to their customers that they will not knowingly sell these illicit diamonds and will undertake reasonable measures to help prevent the sale of such diamonds in the U.S. Most importantly retail jewelers are requiring the explicit commitment of their diamond vendors (diamond wholesalers, diamond taders, and jewelry manufacturers) not to knowingly sell illicit diamonds and to undertake reasonable measures to help prevent the sale of such diamonds in the U.S. In turn, their vendors are requiring identical assurances from their suppliers as well.

Demontrated responsible behavior by ethical and socially responsible members of the U.S. retail jewelry community, together with the demonstrated commitments and actions of diamond producers, manufacturers and traders alike worldwide, have begun the process by which trade in conflict diamonds will be effectively curtailed.

The International Framework for Curtailing Trade in Conflict Diamonds

Any effective framework intended to curtail conflict diamond trade without adversely impacting legitimate businesses must, in our view, adhere to six principles:

1) While industry efforts already underway are making a difference, industry efforts alone will not be sufficient to end the trade in these products completely. Cooperative and coordinated initiatives between industry, governments, international organizations, and civil society organizations will greatly improve the prospects for curtailing the illicit trade.

2) Scientific expertise tells us that origin of individual diamonds cannot be reliably determined by non-destructive analytical means. Diamonds do not present useful evidence for this diagnostic purpose. Contrary to misunderstandings that have been circulating, it is not a question of devising or perfecting a tool for diagnostic measurement. Scientists advise us that the necessary distinguishing properties are not present in the stone to begin with. This is critical because, when retail jewelers purchase diamonds –polished diamonds–from their trade vendors, neither they nor their vendors can determine through any type of examination from what source of mining or extraction those diamonds originated. Any attempt to impose upon the industry a requirement to identify the specific country of origin of a polished diamond at the retail counter is doomed to fail and will cause unnecessary hardship on an industry comprised almost entirely of small businesses.

3) Certifying that an individual diamond’s origin is conflict free may, therefore, only be determined through the systematic tracking of shipments with controls extending from the country of rough extraction forward through the diamond pipeline. Unless rough diamonds can first be certified as conflict-free in origin at the time they are exported from the country of mining or extraction, there is no method by which to verify their origin as conflict free afterward.

4) A system of tracking rough diamond shipments from mining sources through cutting centers is a huge undertaking, but is at least feasible, because while the volume of stones produced annually is large, the number of export and import control points that would be required is limited. Gem quality diamonds are mined in twenty-two countries and the bulk of manufacturing (i.e., cutting and polishing) takes place in seven countries. This point is illustrated in the Table of Diamond Mine Production (Attachment 4) and diagram of The Diamond Pipeline (Attachment 5).

5) From that point onward, however, the task of tracking is simply not feasible. Transactions involving commercial quantites of polished diamonds from the cutting centers onward do not routinely occur in a linear sequence from producers to manufacturers to traders to retailers. In fact the pattern is quite irregular, with manufacturers and traders routinely selling back up, across, as well as down, the pipeline. Parcels of stones are routinely sorted, mixed, and repackaged as economics drives selection and supply is adjusted to meet demand in a way that yields profit. Thus, diamonds often pass through as many as a dozen hands before they ultimately reach the retail counter. Given the characteristics of the pipeline as described above, it is easy to understand why most diamonds are sold in an undifferentiated manner in the marketplace.

6) Formal branding of diamonds is a new phenomenon and represents only a small fraction of the market today. The current trend toward identifying diamonds by a brand name should not be confused with a system of market controls such as would be required to establish a chain of assurance certifying that diamonds are conflict-free in origin. At this time only one or two companies in the world possess the wherewithal to establish and maintain the requisite system of controls from the mining source onward, as well as the trade distribution network required to validate the chain of warrants through the pipeline, with marketing programs to support the product through to the consumer. Thus, any effort to impose requirements on the industry through legislation that cannot be achieved will not only fail to curtail conflict diamond trade, but will almost certainly bring considerable advantage to the one or two producers in the world who possess that capacity .

In light of the above, the Council has proposed that an effective worldwide framework to control trade in rough diamonds must contain the following elements:

1. All countries that export rough diamonds should have official dedicated import/export offices for rough and/or polished diamonds closely supervised by government authorities that register data on export shipments in an international diamond database (IDD). Furthermore, the diamonds are to be sealed in standardized tamperproof containers, which will include an officially signed document capturing all the information entered into the IDD and thereby certify the origin of the contents of the shipment.

2. All countries that import rough diamonds should have official dedicated import/export offices for rough and/or polished diamonds closely supervised by government authorities that register import shipments in the IDD. No rough diamonds are to be imported unless they are in a standardized sealed tamperproof container from the country of export and the export shipment information in the international diamond database corresponds to the enclosed official documentation. The importing country will enter date and country of importation in the IDD.

3. All countries that import commercial quantities of polished diamonds should adopt legislative programs requiring certification that imports of commercial quantities of polished diamonds may come only from countries that have implemented rough controls, as defined in #1 and #2 above, and allowing criminal prosecution of those who are found to be knowingly dealing in conflict diamonds.

The Need for U.S. Legislation

Statutory authority possibly will be required in the United States to implement those controls that would be required to bring this market into compliance with an international framework such as the one proposed. We believe that a well-timed and properly focused legislative initiative in the United States could influence positively the actions of other countries in connection with this matter and help drive worldwide compliance, and thereby further curtail the trade in conflict diamonds.

However, it is imperative that if the US is to lead constructively in this process, the provisions of US legislation should be fully consistent with an international framework of rough diamond controls. On this point, we understand that ministers from more than thirty countries are scheduled to convene in London next month, consistent with the decision of the G-8 in July, to coordinate national legislative efforts. The agenda for this meeting includes:

· Planning legislative programs in each country, requiring certification of rough diamond imports and exports and enacting laws to allow seizure and/or criminal prosecution of those who are found to be dealing conflict diamonds;

· Establishing a regime to back such laws and regulations by monitoring the flow of rough diamonds and the documentation that goes with them;

· Getting key countries to agree to co-sponsor a UN resolution on conflict diamonds at the upcoming General Assembly session.

We would therefore strongly urge those in Congress who currently advocate specific legislative proposals to address the conflict diamond situation to recognze that it is simply not possible to legislate a national solution to the conflict diamond problem in the US market alone, without inflicting significant economic damage on the diamond and jewelry industries of the US, Israel, India, Belgium, Botswana, South Africa Namibia and Russia. A transnational problem requires an international solution.

For this reason we respectfully request that Congress defer action on pending legislation until the results of the upcoming London ministerial meeting have been assessed..

At the same time we recommend that future US legislation, if required, be structured in accordance with the following points:

1) All polished diamond imports entering the U.S. in commercial quantities would be required to originate in countries with rough diamond controls in place;

2) Rough diamond controls to be defined in terms of strict adherence by each country to an international regime comprised of:

· All countries that export rough diamonds should have official dedicated import/export offices for rough and/or polished diamonds closely supervised by government authorities that register data on export shipments in an international diamond database (IDD). Furthermore, the diamonds are to be sealed in standardized tamperproof containers, which will include an officially signed document capturing all the information entered into the IDD and thereby certify the origin of the contents of the shipment;

· All countries that import rough diamonds should have official dedicated import/export offices for rough and/or polished diamonds closely supervised by government authorities that register import shipments in the IDD. No rough diamonds are to be imported unless they are in a standardized sealed tamperproof container from the country of export and the export shipment information in the international diamond database corresponds to the enclosed official documentation. The importing country will enter date and country of importation in the IDD;

· All countries that import commercial quantities of polished diamonds should adopt legislative programs requiring certification that imports of commercial quantities of polished diamonds may come only from countries that have implemented rough controls, as above, and allowing criminal prosecution of those who are found to be knowingly dealing in conflict diamonds.

· The Administration could certify annually compliance by countries with the provisions for rough diamond controls specified above, and upon the determination that all countries were in compliance, disband the controls once the trade in conflict diamonds has ceased (sunset provision)

We applaud the efforts of those in Congress who have stepped forward in an effort to stop the trade in conflict diamonds. Because we too deplore the link between diamonds and acts of violence, we strongly urge those in Congress who currently advocate specific legislative proposals in an effort to curtail trade in conflict diamonds that, in taking the lead with legislation, it is imperative that the US coordinate its efforts with industry, the UN, NGO’s and the ministries of other key governments around the world. This is the only way to ensure that our shared goal will be achieved. Premature or uncoordinated efforts will not achieve the desired outcome and may instead adversely impact legitimate diamond economies all over the world and tens of thousands of small businesses throughout the United States, while perhaps benefiting only one or two large diamond producers who possess the internal capacity to self-guarantee the origin of their products.

Mr. Chairman, the planets are moving into alignment in a way that will enable all of us to accomplish our common goal – to stop the terrible trade in conflict diamonds. The timing and coordination of our respective efforts are now critical to success in this mission.

Let us work together.

Thank you.

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