Is EU Having Second Thoughts About DeBeers?

In late September 2004, a Belgian court dealt the De Beers' diamond monopoly a severe blow to its future and riled its plans to concentrate control of rough into fewer and fewer hands.

The case involved a suit brought by an Antwerp diamond cutting firm against DeBeers after it was cut from the company's list of customers, known as sightholders, in June 2003. The company, which had depended on DeBeers for 95% of its rough, was given six months to find alternate sources of supply before being dropped as a client.

In protest, the Belgian company filed a brief with the Antwerp Court of Commerce charging that it was the victim of DeBeers' controversial Supplier of Choice (SoC) program announced in 2003 and approved by the European Union Commission. Under this plan, DeBeers would reduce its sightholders from around 120 to 80 based, in large part, on their readiness to commit to extensive and expensive global marketing (shorthand for branding campaigns).

DeBeers was given support by the EU's Competition Authorities which issued a "comfort Letter" declaring the SoC in harmony with European fair trade laws. DeBeers used this letter in defense of its right to have stopped doing business with the Belgian sightholder. But the Belgian court of Commerce saw little of comfort to the cutter in this letter and ruled in his favor.

When DeBeers appealed the ruling, again citing the "comfort letter," the appeals court affirmed the lower court's decision against DeBeers'and ruled that the company must keep the cutter as a customer for another 9 months.

In the mean time, the EU Commission has sent a questionnaire to every European sightholder and reopened its investigation of the SoC plan. If it has second thoughts and rules the plan anticompetitive, DeBeers will be dealt a severe setback in its monopolistic control of the rough diamond market. The turmoil comes just when American courts are faced with two suits against the SoC plan. Will they be influenced by a European backlash against DeBeers? A lot is at stake. Whiteflash will continue to monitor this situation and give updates at regular intervals.