Dear member,
The struggle for a free market continues. We have sent the following letter yesterday to Neelie Kroes. We have the support now of a few Members of the European Parliament.
Mrs Neelie Kroes
European Commissioner
200 rue de la Loi
1049 Brussels
Antwerp, December 5th 2006
Case filed against abuse of dominant position by De Beers (violation of Art 81& 82)
Dear Mrs Commissioner,
It has been 16 months now that the Association of Polished Diamond Traders of Belgium (BVGD) has filed an official complaint against the implementation of the Supplier of Choice (SoC) distribution system by De Beers.
De Beers controls around 70% of the worldwide rough diamond supplies (through its own mines, joint ventures mines, and purchases from third party competitors).
We have submitted many letters, documents and published articles proving the abuse of dominant position by De Beers.
Other individual companies have filed complaints as early as 2003.
Yet, the Commission has still not taken any action concerning this case although it is fully aware of the abuse of dominant position by De Beers and of the damage that is being done in our industry and to the consumer.
The situation in the diamond industry is becoming everyday more dramatic, with lower sales, huge bank indebtedness, bankruptcies and layoffs. We are on the verge of a major collapse in our industry if the Commission does not act soon.
We hereby request a personal appointment with you in order to inform you further of the situation and to expose remedies that should be put immediately in place.
Allow us to draw your attention on some important parts of our complaint:
Supplier of Choice
De Beers has misled the European Commission, by claiming to introduce a ¡¥demand driven¡¦ program supposedly designed to encourage its exclusive customers, called ¡¥sightholders,¡¦ to generate more sales by engaging more aggressively in marketing and going downstream by vertical integration.
The truth is that they are not free to choose their own economic behavior and are coerced by De Beers to act against their own economic interest.
As an integral part of the system De Beers has introduced an incredibly intrusive system of questionnaires and verification (e.g. hiring for this sole purpose private detectives that have full power to examine all the activities and documents of the sightholders) in order to control the behavior of its sightholders, hence the industry.
If any of them is deemed not to obey the rules dictated by De Beers, they are irreversibly rejected as customers.
By doing so, De Beers has abused its dominant position and has consequently artificially limited the availability of diamonds on the open market. Furthermore, by installing obscure selection and allocation criteria independent traders are barred from access to adequate quantities of diamonds. Liquidity of diamonds in the market has disappeared.
We ask you, Madame Commissioner, three fundamental questions that the Commission has so far failed to answer:
„X How can a dominant company be allowed to set secret criteria and grading scales for evaluating a candidate and accept or reject same candidate without revealing its score? It is a fundamental right and duty, in the case of dominant company, that each candidate should receive a detailed result of its scoring and individual ranking.
„X How can a dominant company be allowed to set subjective criteria to select its customers? Even if the issue of secrecy is resolved, that still does not give a dominant company the right to set criteria which cannot be objectively assessed.
„X How can a dominant company be allowed to ¡§steer¡¨ and control the economic projects of its customers? By approving a program such as SOC, the Commission allows a dominant company to select and reject candidates based on their behavior toward a specific type of economic activity. This inherently flaws the functioning of a free market and is contrary to the main purpose of competition regulations of the European Union.
Because the market is artificially prevented from functioning freely, thus efficiently, all that the SOC Program has been able to achieve is to create a disastrous impact on the polished diamond market.
Prices have artificially skyrocketed because goods are being diverted into (largely inefficient) De Beers¡¦ controlled vertical channels while consumer demand has not increased. Because of high prices AND inefficient downstream distribution channels imposed by SOC, goods are not being sold. Companies have indebted themselves beyond reasonable economic justification to finance expensive and ineffective marketing and vertical integration investments. SOC is causing wealth destructions. Companies and jobs are disappearing.
De Beers - Alrosa
The only action the Commission has taken is to sign an Agreement on February 22nd, 2006 with De Beers. The Commission¡¦s decision prohibits purchases (in 2009) by De Beers, the number 1 producer (55% share of world diamond mining) from ALROSA, the number 2 producer (20% of world diamond production).
Although it appears to be a positive measure, we have shown in filed written responses that it is useless to resolve the huge problems caused by SoC.
- It concerns only 4% of word diamond production.
- Sightholders are still able to buy from ALROSA and because sightholders are bound to De Beers through SOC, goods purchased by sightholders from ALROSA become part of the SOC system.
- De Beers still prevents, through SOC, the efficient functioning of the market.
September 6th 2006
On that day De Beers and ALROSA published an official joint declaration announcing their intention to do ¡§joint diamond prospecting and exploration activities in Russia and, in due course, other regions of the world, including Africa.¡¨
It should be clear to anyone that this will allow De Beers to lay its hands on ALROSA diamonds with even greater scope than before. Indeed who will be able to tell which rough diamonds come from the new joint venture or from ALROSA alone? Isn¡¦t it obvious that De Beers is trying to find a way around the Commission¡¦s decision of February 22nd 2006?
This begs, Madame Commissioner, the following questions:
- What is the position of the Commission concerning this announcement?
- Does the Commission now see that De Beers and ALROSA are openly and brazenly ridiculing the Commission by showing no interest to respect the agreement signed on February 22nd 2006.
- Does the Commission now see that De Beers does not have, nor never had, the intention of respecting a free, fair, open and competitive market?
- Does the Commission now see that - because any scheme that seeks to impose an economic behavior only distorts market forces - the only way to restore a free, fair, open and competitive market is by ordering a stop to SOC and establishing a transparent distribution of rough diamonds?
The SOC system must be declared illegal and abolished by the European Commission¡¦s competition authorities. De Beers must finally sell diamonds in a transparent manner, to any customers that fulfill clear and objective criteria.
This case is crucially important not only for the independent polished diamond traders of Belgium which we represent, but also for the worldwide jewellery industry market.
Indeed, there are some 29,000 jewellery retailers in the US alone, 20,000 in Italy, 15,000 in Spain, 10,000 in France, etc. To service these sometimes extremely small commercial enterprises there need to be an extensive network of wholesalers, traders, brokers, etc. in short: an open market. While SOC leads to the disappearance of ¡¥only¡¦ a few hundred traders in Antwerp and other diamond trading centers, the worldwide consequences on local wholesalers and retailers is that many thousands are disappearing and with it the healthy competition that they were providing to offer the many varied products to the consumer.
No company holding a dominant position can be trusted to respect free and open markets on their own, the Commission is the only protector that guarantees a vibrant market for the benefit of the many economic operators, the consumer and society in general.
In the hope of meeting you shortly to discuss this urgent matter, we remain,
Yours sincerely,
Andre Gumuchdjian
Cc: - Richard Corbett, MEP
- Bart Staes, MEP
- Werner Langen, MEP
- Giuletto Chiesa MEP
- Sophia in ¡¥t Veld, MEP
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