Contents - AL-Tax

72 5 Intercompany Sale of Diamondsalso recently announced that it was establishing a new distribution channel that willlikewise be modeled after the DTC’s sightholder system.Lastly, rough diamonds can be sold through agents or dealers on a commissionbasis. Angola has utilized this system in the past, selling primarily throughfour agents (Jack Lunzer’s IDC in London, and George Evens, Beny Steinmetzand Arslanian Brothers in Antwerp). On these transactions, Angola’s run-of-mineproduction was sorted into a number of categories and valued by an Angolan governmentdiamond valuator; each category was divided into four equal parcels, andsold to the four dealers at the previously established price, which was paid up-front.Dealers were compensated on the following basis 12 : Premiums of up to 4.0% accrued to the dealer; Incremental premiums between 4.0% and 7.0% were split equally between thedealer and the Angolan government; Incremental premiums above 7.0% were split 75%/25% between the Angolangovernment and the dealer.Because these dealers were privately held businesses, there is no public data ontheir realized commission fees. However, “there is some anecdotal evidence that theagents/dealers seldom earned more than 4.0%.” 135.1.3 Producers’ and Sightholders’ Branding and DesignDevelopment InitiativesIn marked contrast to most other luxury goods markets, branding and other forms ofproduct differentiation are relatively new to the diamond industry, largely becausethey have been unnecessary given the DTC’s historic near-monopoly over the supplyof rough stones. 14 Product differentiation also serves several diverse purposes inthe diamond industry, whereas in many other luxury goods markets, such as highendapparel and perfume, its function is more limited. More particularly, brandingand the use of proprietary designs in the diamond industry further the followingobjectives:1. The identification and authentication of mine origin (to diminish or eliminatetrade in conflict diamonds).12 Even-Zohar, Chaim, “Sierra Leone Diamond Sector Financial Policy Constraints,” ManagementSystems International (under USAID Cooperative Agreement No. 636-A-00-03-00003), June2003.13 Ibid.14 Stated differently, given the DTC’s ability to exercise virtual monopoly control on the supplyside, there has been little or no incremental gain to be had through product differentiation from theconsumer’s standpoint: Consumer loyalty is unnecessary if the only option is to purchase stonessupplied by the DTC.