Less than a fortnight before the deadline to weed out Russian diamonds from the world’s affluent markets, a confused, volatile trade is feeling the pulls and pressures: a rigid rule pushed by Europe to probably regain its waning influence; the emerging voices of Africa and India opposing it; and, a new, different plan mooted last week in America, the largest market, which could make life easier for the trade amid the chaos of geopolitics.
Trade sources told ET there was a glimmer of hope following a meeting last week between a US government official and the country’s leading jewellers who import diamonds mined across the world and polished in India and other countries.
“It was indicated at the meeting that America could accept `self-certification’ from its jewellers that the diamonds imported into the country have no Russian links. Here, the process could be similar to the one applicable for American firms importing fish and seafood,” said a senior industry person.
These businesses, according to the US customs regulation in the wake of sanctions against imports from Russia, must self-certify that fish, seafood and seafood containing products imported into the US do not contain any inputs originating from Russia.
“A self-certification system would be different from, and therefore more acceptable than, what the European Union is insisting on,” said the person. The EU wants a central body in Belgium to have the sole authority to certify that a diamond, which may have been polished in Surat, was not mined in Russia. The regulation has been questioned by African countries and India which feel that a system of first funneling stones into Belgium before moving them to final consumption centres would push up cost, delay deals and disrupt the age-old trade. India has recently expressed its views to G7 on the issue.
The virtual meeting on February 15 with the US official (who is a senior advisor in the office of the sanctions coordinator in the US department of state) assumes significance in the light of the reinforced sanctions which would come into effect from March 1, 2024. The measures (following the war against Ukraine) are aimed to cut the flow of money to the Russian government from the sale of rough diamonds mined by companies controlled by the Russian state. Beginning March 1, non-industrial Russian diamonds of 1 carat or more would be banned from G7 markets even if the stones mined in Russia are “substantially transformed into other products outside Russia”. The size threshold would be lowered to 0.5 carat from September 1, 2024 (when India would feel the impact more). This was announced on February 8 by the US government’s Office of Foreign Assets Control (OFAC).However, even weeks before the deadline, diamantaires and traders are unclear about the details of the proposed certification process. Some feel that the idea of a centralized certification hub is being pushed by the EU to preserve Antwerp’s presence in the diamond trade at a time when diamond houses are relocating to jurisdictions like Dubai.
“Given the uncertainty, last week’s meeting with the US official was welcomed by most. The impression we got was that the proposed self-certification rule could be similar to, though not exactly the same as, that for seafood imports into the US. The US may be working on it, and we expect it to release the guidelines soon,” said another person. However, under such a framework, US diamond importers would need to do their bit by conducting due diligence over their supply chains to ensure that the stones are not sourced from Russian mines.
Some of the top trade analysts have also questioned the proposed centralised certification system in Belgium. “They are asking why can’t the EU share the same technology, probably blockchain based, with customs authorities in different markets to trace the origin of a stone,” said a trade source.
Russia is the world’s largest rough diamond producer by volume with its state-owned diamond mining conglomerate Alrosa accounting for 95% of the country’s diamond production. Indian diamond firms are hoping that a standard operating procedure would be in place well before September 1, 2024 so that it could deal with the impact of the G7 measures.
G7 leaders had committed in February, May and December 2023 to work together to reduce the revenue Russia uses from the diamond trade to finance what they described as its “illegal war”. Chatting on the complex impact of the Ukraine war, one of the analysts recently said unsold Russian rough stocks could be seen as a supply overhang.
