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Brussels, 31st January 2007

Competition: Commission closes investigation in rough diamonds sector following improvements to De Beers' distribution system

The European Commission has closed an investigation into the rough diamond market, on the basis of increased transparency in De Beers' distribution arrangements, known as Supplier of Choice (SOC). At the Commission's request, De Beers, the world's largest rough diamond producer, has revised the mandate for the Supplier of Choice Ombudsman, who safeguards the objectivity of the SOC distribution system. The revised mandate of the Ombudsman will allow enhanced transparency in the selection of De Beers' customers ("sightholders") and in the allocation of diamonds and will therefore enhance competition on the worldwide rough diamond market. This complements an earlier decision addressed to De Beers in 2006 (see IP/06/204) to end rough diamond purchases from its principal competitor ALROSA by the end of 2008.

Competition Commissioner Neelie Kroes said: "The combination of more diamonds coming onto the open market from alternative sources of supply, together with the improvements to the way De Beers' Supplier of Choice scheme works, means that there is now more competition on the rough diamonds market as a result of the Commission's intervention".

De Beers, based in South Africa and with a registered office in Luxembourg, is a global operator primarily active in the production and supply of rough diamonds.

The Supplier of Choice rough diamond distribution system ("SOC") formalised the legal relationships between De Beers and its clients. The Supplier of Choice Ombudsman, an independent and Commission-approved supervisor, is an integral part of the SOC system. The SOC system received Commission approval in 2003 (see IP/03/64). However, a number of complaints were lodged with the Commission alleging in particular that the SOC would allow De Beers to gather excessive sensitive commercial information from its clients, which could ultimately lead to arbitrary supply decisions and indirectly aggravate non-clients' access to raw materials.

In the light of the investigation based on these complaints, the Commission requested De Beers to improve the transparency and the checks and balances of the SOC selection process. In response De Beers has significantly revised the Ombudsman's mandate on 21 December 2006. Most notably, the Ombudsman will filter all the information De Beers collects for the purpose of admitting sightholders and allocating rough diamonds. This should enhance the existing measures in place to ensure that De Beers' distribution decisions will not be based on any extraneous information, whether submitted on request or voluntarily. Other improvements include enhanced transparency of the SOC criteria through the publication of their weightings, the possibility for the Ombudsman to apply in certain circumstances compensation for incorrect supply decisions, the possibility for the Ombudsman to conduct investigations at the Commission's request or on his own initiative and more detailed rules on conflicts of interest.

The Commission considers that the revised Ombudsman mandate enhances the level playing field for supplies of De Beers' rough diamonds. Moreover, with his wider powers of investigation, the Ombudsman, who will closely cooperate with the Commission, is well equipped to safeguard the correct implementation of the SOC scheme.

The Commission also considered the existence of alternative sources of rough diamond supply outside the SOC scheme, which were, in addition, the subject of a separate complaint against De Beers. In this context, the Commission relied considerably on its earlier decision, adopted in February 2006, making De Beers' commitments to phase out its purchases from ALROSA by the end of 2008 legally binding. These commitments effectively bar De Beers from controlling a considerable part of its largest rival's output and enable ALROSA to become fully competitive with De Beers (see IP/06/204).

In view of its actions in relation to the issues of De Beers' purchases from ALROSA and to SOC, the Commission has therefore reached the conclusion that the main competition concerns of the complaints have been addressed. It will, however, continue to monitor the implementation of De Beers' commitments and the SOC scheme.

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