Photo by flickr/No One Nels

Resources

Key documents

• Full case study (PDF, 691kb)
• VERIFOR Briefing Paper 1 - Designing Verification Systems for the Timber Trade: Learning from International Processes (PDF, 621kb)

Also on this site

• IFM Bibliography - The Kimberley Process

The diamond industry, alongside tropical timber and minerals such as coltan, has been widely cited as a major source of conflict and misery in some of the most luckless states of the developing world. The institutions and methods being developed to improve its governance are therefore of immediate relevance to the tropical forest sector. The Kimberley Process provides an interesting example of concerted NGO action, on an international scale, contributing significantly to a major change in public perceptions of an industry and the level of responsibility accepted by its major operators. As with nuclear safeguards, international advocacy was greatly aided by the ability to mobilise the international public around a clear cause. The ‘humanitarian imperative’ has been an important driver of the process, and one that is so unequivocally moral as to brook little opposition, rhetorically at least, from the key players in the industry.

This case study has been prepared by Ian Smillie, Research Coordinator at Partnership Africa Canada, who has worked on conflict diamonds since 1999. He has been an active participant in the Kimberley Process, and served on the UN Security Council Expert Panel on Sierra Leone in 2000.

Overview - comparison with the forest sector

Similarities

• Both industries are extractive and closely associated with conflict and weak governance.
• Both mobilise a range of international actors.
• The demand-pull influence is sizeable in each case.

Differences

• The commodities differ considerably in terms of handling, use values and amenability to controls.
• The diamond industry is much more centralised (and centralisable) than that of timber; it has a much smaller number of major players who are more vulnerable to reputational risk.
• Timber has a diverse market profile, while diamonds are limited to the international prestige market.
• Pro-poor benefits can be sizeable in the forest sector but are limited in the case of alluvial diamonds.

Points to Note

• The role of NGOs in creating international standards, and encouraging compliance with international commitments.
• Monitoring and peer review mechanisms; PRM as a means of generating legitimacy without recourse to fully independent monitors.
• External monitors which function mainly as advocacy groups, outside the monitoring system.
• Recruitment and funding of inspectors.
• Institutional dynamics (the involvement of industry, states, UN/UNSG, NGOs).
• Links to national legislation and other areas of governance reform.
• Strategic issues: good performers and their ability to lead the field.
• The challenge of reconciling and harmonising information flows.

Nature of the commodity and industry
The characteristics of diamonds influence their amenability to monitoring and contrast notably with those of timber. Their small size can facilitate smuggling and illegality, but also increases technological possibilities for secure handling (for example through tamper–proof packaging). The possibilities for rigorous and effective consignment-based controls on shipments of such small, high value commodities are greater than in many other industries, timber included.

The structure of the industry also has both promising and problematic features with respect to ease and effectiveness of monitoring. The core industry is well integrated and the few players which dominate the market (chiefly the De Beers Company) are very protective of their image. The diamonds market is highly centralised and trade is restricted to registered traders, facilitating regulation. The alluvial diamonds industry, however, is far more dispersed and harder to regulate and may be driven underground by tighter controls.

This structure means that actions at the commercial centre exert a strong influence over supply at the periphery (See section 2). The main player has withdrawn from the alluvial diamonds market in recent years, no doubt increasing the incentive to sanitise the commodity chain.

Governance Issues
The involvement of the United Nations is a notable feature of the process, placing the debate at a high diplomatic level and increasing the authority of proponents of regulation. Some key players, including South Africa and Israel, entered the process for their own political reasons. Equally valuable were the complementarities between the Kimberley Process and other governance reforms such as the international anti-money laundering initiative (See section 6.1). However, the main strength of the Kimberley Process lies in its effective integration into national legislation.

The strategies used to advance the advocacy agenda are also of interest. Negotiations have always been conducted on an international basis, through a UN-sponsored forum, which created effective pressure and group solidarity. The decision to focus on lesson-learning, not just denounce and punish wrong-doers, seems to have reaped rewards. There is much to be learnt from the way in which agreements which are ostensibly voluntary have become effectively compulsory, by virtue of the rules for market access.

The Verification Regime
Concerns about commercial confidentiality and security are widespread among dealers and can limit enthusiasm for governance reforms. Some fear that greater transparency of transactions will increase personal risk, and some would have preferred De Beers to operate on a near-monopoly basis in Africa restricting the opportunities for small, unregulated players. They worry that the Kimberley Process will undermine the De Beers empire, threaten their own security and drive trade further underground. The near-monopoly situation did exert strong control over the movement of information, and would-be NGO monitors reputedly had to be careful about the nature and reliability of the information they shared. High standards of evidence also had to be applied (probably much higher than those demanded in the timber industry).

Despite these concerns, a strong monitoring system seems to be developing, with the confidence of its quite disparate players. The emergence of a peer review mechanism, drawing on the willingness of members to volunteer for review visits, is an interesting development, and the threat of a good example from better players seems to encourage improvement in others. This may relate to the confidence issues which surround monitoring in this high-risk industry. But in any event, a situation where the USA diamonds industry is peer-reviewed by a team led by Russia and with such diverse members, is surely impressive by any standard.

Smillie discusses the strengths and weaknesses of a scheme with minimal central coordination and no central funding. It remains to be seen whether the dependence on voluntarism at a national level will eventually undermine the legitimacy of the system, as it did with UNSCOM (see case study on nuclear safeguards).

Comparisons with the Forest Sector
Various features of the Kimberley Process have relevance for the forest sector. The use of a peer-review mechanism in the context of low producer confidence, and the way in which the market can make voluntary measures effectively compulsory, are very interesting. The new demands for harmonisation of information flows are complex in both sectors, given the need to coordinate a variety of actors. Hanging over policy development in both cases is the WTO, where actions brought on humanitarian or environmental grounds may be deemed non-tariff based restrictions on free trade.

At the same time, the significant disparities between the diamond and timber industries have implications for regulation. It is notable that the introduction of timber certification did not draw in poorer peformers by the threat of a good example (as the KPCS did), but rather further bifurcated the market (Upton and Bass, 1995). While global values do serve to mobilise international interest in the forest sector, the humanitarian dimension is less prominent (because the uses of the commodity are much more diverse) and virtuous positions less easy to define. The interest of the UN is much less evident, and attempts to promote international regulation of sovereign resources (through the UN Forum on Forests, for example) have generally met with suspicion from producer states, particularly where national policies do not require forest conservation. The Security Council’s moratorium on timber trade with Liberia is a notable exception.

Timber also benefits from a much wider and more dispersed market than gemstones. Diamonds are luxury goods with little functional utility, and there are no substantial alternatives to the elite market. Tropical timbers are not restricted to the luxury goods market; a decline could easily be compensated by growth in other areas. This increases the danger that tightening regulation of trade will produce perverse effects. There are frequent complaints that very little of the industry’s profit reaches those in closest contact with the forests; centralised control is therefore difficult, and heavy-handed attempts at control may hit the resource-dependent poor. On the other hand, both industries suffer from abuses (including pollution from mining activities and depletion of the forest resource) which have very adverse effects on the poor. Both are low-wage industries, with considerable scope for pro-poor benefits if profits were more fairly divided.

Still, this case study does offer a model of effective collaboration between industry, producer states and civil society. Its institutional dynamics are therefore of great interest, despite the differences between the commodities. The greatest encouragement may be the fact that Sierra Leone’s income and revenues from legitimate diamond exports have increased five-fold in three years (see section 7), thanks largely to the effects of the Kimberley initiative.