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EU annuls ruling barring De Beers from buying Alrosa rough

July 11, 2007

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Brussels, Belgium —In a ruling today, the European Union's (EU) Court of First Instance annulled an EU antitrust decision that had barred the diamond giant from purchasing rough diamonds from Russian rival Alrosa.

If the ruling stands, it could have an impact on the flow of rough supply from De Beers.

According to The Associated Press, the court said efforts by the European Commission (EC) to curb business between the two companies were "manifestly disproportionate," noting that EU regulators had not proven the two together held a "dominant position" in the EU market that could justify limiting their ability to conduct business.

Last year, De Beers had agreed on legally binding commitments to stop buying rough from Alrosa at the end of 2008. EU regulators had claimed De Beers had held an unrivaled position in the diamond market for much of the last century, and that the promise to stop buying from Alrosa in 2009 would open up new opportunities for competition in the world diamond market.

The agreement closed the antitrust probe investigating the deal between the two diamond powers.

Alrosa, however, called the De Beers deal with the EU unfair and challenged it in the EU court.

The ruling today said the EC was wrong to accept the commitments proposed by De Beers last year, "at face value, without looking for alternative solutions," that could have better respected the companies' right to do business, The Associated Press reported. It also said Alrosa had "a right to be heard" in the negotiations last year.

Under the deal, De Beers agreed to purchase $600 million in rough from Alrosa in 2006, $500 million in 2007 and $400 million in 2008, phasing out all purchases by 2009.

The lack of supply from Russia would have an impact on De Beers, which, while still the dominant player, is said to account for less than half of rough production today. Alrosa Vice President Sergey A. Oulin said last month that the company will have about 25 percent of rough production by 2009.

At the recent Presidents' Meeting of the World Federation of Diamond Bourses and the International Diamond Manufacturers Association in Amsterdam, the Netherlands, Diamond Trading Co. Managing Director Varda Shine noted the lower levels of supply expected, citing the lack of Alrosa goods as one element of this.

Oulin said a reversal of the EC ruling would not automatically mean the company would continue to sell rough diamonds to De Beers, but that Alrosa—which has plans to restructure its marketing strategy—had challenged the ruling in principle.

De Beers said it was reviewing the decision, but that it was too early to comment further at this stage.

Alrosa did not respond to a request for comment on the ruling at press time.
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EU Politics | Politics | World Politics

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