Rapaport Magazine

ALROSA Reversal Could Benefit Antwerp

Antwerp Market Report

By Marc Goldstein
RAPAPORT... The Antwerp diamond community is considering the possibility of reopening legal complaints challenging the De Beers Supplier of Choice (SOC) program. The suits, originally filed in July 2005, were never really addressed by the European Commission (EC) because De Beers and ALROSA submitted their own proposal to phase out rough shipments to De Beers by 2009. The rough shipments were at the heart of the SOC suits, which alleged De Beers abused its dominant market position to artificially control the availability of diamonds on the open market and prevent the market from operating freely and openly.

But that De Beers-ALROSA agreement, which had been accepted by the EC, was unexpectedly tossed out by the European Court of First Instance on July 11. The court ruled that “the complete prohibition of all commercial relations between the two parties with effect from 2009 is manifestly disproportionate and that only exceptional circumstances…would justify the extinction of the contractual freedom of the parties.”

In its ruling, the court also noted that it is the responsibility of the EC “to really look into the issue and make a decision” and that it is not up to the parties to the dispute to make the decision. The court also criticized the fact that “The commission has accepted De Beers commitment at ‘face value,’ without a thorough economic analysis of the market to find alternative solutions.”

What Happens to SOC?

Immediately after the ruling, members of the diamond community began questioning how the July 11 decision would affect the other claims pending before the Court of First Instance, especially those regarding SOC. The EC had dismissed the SOC complaints in January 2007, in the aftermath of accepting the De Beers-ALROSA phase-out plan. The EC determined that the termination of the De Beers-ALROSA relationship was a move that would sufficiently weaken De Beers market position and render void all complaints of unfair competition.

All SOC claimants, in particular the Belgian Polished Diamond Association (BVGD), which appealed the EC dismissal of its complaints in April 2007, may be correct in arguing that none of their allegations in the SOC case were ever decided by the EC. There is much discussion in Antwerp that the EC should reopen those cases, hear arguments on the merits of the complaints and issue a legal ruling.

The BVGD website confirms that “While our lawyers are examining in detail the consequences of the Court’s decision, we can reasonably assume that this decision will support our case, because the prevention of any purchases of rough by De Beers from ALROSA was the central and main argument by the Commission to decide not to act on our complaint. It seems safe to say that in light of this annulment, the Commission will need to reassess thoroughly both the De Beers and ALROSA relationship and SOC itself.”

Lynette Gould of De Beers said “De Beers position is that we will continue to purchase goods from ALROSA up to the agreed levels as set out in the existing trade agreement and per the Commitments, until we have had the opportunity to consider the detail of the judgment fully.”

Sergey Panchekhin of ALROSA’s Antwerp office said, “We have a legal department that deals with such matters and at this stage of the process, we can’t comment on the issue, at least until a final decision has been made.”

Consequences for Antwerp

Philip Claes of Antwerp World Diamond Council (AWDC) said “It is difficult to predict what the consequences for Antwerp will be. Regarding De Beers, we have to wait for the so-called SOC II to see if there will be any changes for Antwerp and its sightholders. Regarding ALROSA, it is clear that they have a very good relationship with AWDC and the Antwerp diamond industry, and that they have already expressed their willingness to send more goods to Antwerp.”

A new deadline of October 12 has been set, by which time the EC has to file its defense against the appeals filed by BVGD. The EC’s choices are either to annul its own earlier decision and reopen the SOC complaints, or to appeal the court’s July 11 ruling.

The fact is that either way, the BVGD may get its day in court. Should the EC not appeal the court’s ruling, BVGD would be free to argue its case since, as of July 11, DeBeers and ALROSA are once again free to do business with each other. On the other hand, should the EC appeal, the July 11 ruling would still be in force during the period of the appeal.

In preparing themselves for either option, BVGD sent a three-page letter in late August to the EC, urging it to reassess its case with a new eye in light of recent events.

André Gumuchdjian of BVGD commented that “We’re following the case closely, and have no comments at this stage.”

Article from the Rapaport Magazine - September 2007. To subscribe click here.

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