HRD’s Choice: Globalization versus Nationalism

A coin has two sides that never meet but are connected by a rim. Since the coin won’t allow just one of its sides to move, the fate of both sides is permanently linked.  This axiomatic analogy can be applied to the Belgian Diamond High Council (HRD), which seems to defy any laws of logic and – we hope only temporarily – seems to be rolling in the direction of self-destruction.

Lately, internal strife regarding policies and representation have greatly hampered the HRD board and its ability to function effectively. These issues, it seems, have now reached their climax. Many members of large companies who sit on the board of directors have resigned; only one Sightholder remains on the board - Chairman Jacky Roth.

Due to the general anger and frustration of those involved, attempts are now underway to negatively impact the financial resources of the HRD. Such action may lead to the marginalization of the institution, which employs some 350 workers.

Claiming that the HRD was no longer representative of the local diamond trade and industry, the local government representatives on the Board also tendered their resignations. Camille Paulus, governor of the province of Antwerp, Patrick Janssens, mayor of the city of Antwerp, Leo Delwaide, the alderman for diamonds, and Luc Van Den Brande, former prime minister of Flanders, all resigned.

They followed in the footsteps of Chaim Pluczenik, Vice President of the HRD and long-time board member. In his resignation letter, Pluczenik noted that he is “very sorry to say that after the events of the past weeks, and especially the hostile climate against DTC Sightholders and large players in Antwerp, I am no longer interested in maintaining a function at the HRD. I have always tried, during my 26 years on the Board, to promote Antwerp as the world’s number one centre for diamonds.”

Dilip Mehta also resigned as a member of the board of directors. “I decided not to apply for a new mandate as director of HRD. I cannot recognize myself anymore in the HRD that we have seen recently in which large players are apparently not welcome anymore,” said Mehta. “One should not close his eyes to the economic realities and the market powers of today. The Antwerp diamond sector needs an organization that looks ahead and sees the opportunities in new trends instead of an organization that keeps on dreaming of the past. When the wind changes, some look for shelters, others build windmills.”

In the meantime, the HRD general assembly elected five new trader representatives: Daniel Van Dievoet, Daniel Horowitz, Ziv Knoll, Kurt Einhorn and Bharat Shah. Out of the 20 board members, five are allocated to traders, five to bourse members, five to the industry, and five to government, banks, producers, and so on. Some insiders tell us that the seats of the manufacturers on the board may also be challenged in the months ahead.

The local diamond trading sector is frustrated that the HRD has not paid enough attention to its economic plight; the sector has suffered as a result of stiff competition from overseas and the effects of Supplier of Choice. Many middlemen are finding it increasingly difficult to be economically successful.

Observers note that the 'two sides' of the coin represent two avenues for the HRD’s future. Either the council embraces the idea of globalization by opening HRD offices and laboratories all around the world and accepting that manufacturing will take place in low labor-cost countries, or follow a more parochial path by trying to preserve the status quo and attempting to strengthen the small traders at any price.

There are a number of question marks regarding the ability of the HRD to go against worldwide trends. From an outsider’s perspective, it also seems that some groups may have an unrealistic appreciation of what the HRD can and cannot accomplish.

Drying up the HRD’s Financial Resources
What is worrying is the presence of “disappointed parties” who apparently believe that weakening the financial base of the HRD is in their best interests. Sources among the large players point out that they are paying huge amounts of money (through import levies) to the Diamond Office of the HRD for services that don’t actually require from the HRD. These sources are calling on traders to avoid using the HRD’s Diamond Office for internal EU transactions.

In respect to rough and polished diamonds, Belgian law does not require goods originating from a European member state be cleared through the HRD’s Diamond Office. For practical purposes, the rough from the DTC - close to $4 billion a year - or from Rio Tinto and BHP Billiton originates from the United Kingdom, negating the need to pass through the Diamond Office.

The same applies to polished diamonds. Polished can be imported or exported through any point of entry or exit in Europe without going through the Diamond Office. There is a feeling among diamond industry players that the Diamond Office is needed for VAT purposes. However, a legal opinion circulating in Antwerp states this is not so.

No Need for Valuation or Declaration of European Trade
This legal opinion also says that any goods entering or leaving Belgium via another European entity don’t need the expertise of valuation, which is now extended by the Diamond Office. Of course, diamond trade with countries outside the EU does need Kimberley certification and customs services. In theory, though, these can be provided in any nation that organizes a contractor to provide the services.

We are reporting these economic issues because it shows the depths of the schism in the diamond market around the HRD issue. From an outsider’s perspective, it seems that after many small battles, a major clash has now erupted, which leaves the basic ‘war’ unsolved.

Trade unions such as ACV-Transcom note that it was wrong of the politicians to step down. ACV-Transcom’s chairman Michael Bovy and the representative of the diamond sector Myriam Dillen expected that the politicians “would act to restore the representative nature of the HRD and to take other measures to assure the continuity of the organization.”  Incidentally, the unions are also worried about the future of the HRD employees.

It is like a pendulum swinging from one extreme to the other. But there is a reason - many of the small players in Antwerp are frustrated. Companies feel they are being marginalized and squeezed out; they see the business escaping and moving to low-cost countries or to trading places (tax havens and other off-shores) far away from Antwerp.

Actually, this is a result of the globalization of the industry, and one can raise serious questions about whether the trend can be stopped or reversed. Or, to quote one source, “This is a battle of globalization against parochialism. It is a battle of whether we should grow outside or protect ourselves inwards.”

It seems to us that, in a way, too much credit is being given to the HRD. Even with a balanced board, without infighting, and with huge financial resources, there is a limit to what the representative body can do. And the expectations are probably too high in any event.

If, however, as part of the battles being waged, the economic resources of the HRD are negatively affected, the organization may fade into oblivion. If companies get used to trading outside the channels of the Diamond Office, it is hard to believe that they will resume channeling their business through it, even after a different Board is elected.

What is needed is sanity, and lots of it. That will not solve the problem, but it will be a good beginning. The two-sided coin that is rolling off a cliff must be stopped and the direction reversed.

This may seem like a 'mission impossible', but it must be done anyway…

Have a nice weekend.