Contents - AL-Tax

76 5 Intercompany Sale of Diamondswill yield; (c) perceived demand for each category of stones at particular pointsin time; and (d) the crystalline structure of rough diamonds (octahedron-sawables,flats, wholes and macles), which in turn determines their yield. Moreover, many ofthese criteria are not susceptible of precise measurement.The secondary market for rough diamonds has long been centered in Antwerp(although Dubai has become an important trading center as well). It is suppliedby mines that have not fully committed their run-of-mine production to specificbuyers, and by sightholders that are either pure dealers which perform financing,handling and sorting functions or manufacturers whose allotment exceeds theirrequirements. In Belgium, diamonds can only be traded legally by members ofthe Hoge Raad Voor Diamant (“HRD”) Diamond Office, and only Belgian andLuxembourg-registered companies can become registered members of the HRD.Many of the DTC’s sightholders are based in Antwerp. Most major producers eitherhave their own sales offices in Antwerp or employ independent agents and brokerswho are members of the HRD.In this context, the term “secondary market” does not refer to a competitive andtransparent auction market where the same rough stones are concurrently offered forsale to a number of buyers, each of which is capable of assessing their value withsome degree of certainty and is privvy to the offers made by other parties. Rather,as with primary market transactions, prices in the secondary market are determinedlargely by negotiation between individual pairs of dealers, wholesalers and manufacturers.For this reason, and because the assessment of rough stone values issubjective to some degree, as noted, secondary market prices for similar-qualityrough stones may also vary fairly widely.In addition to the official secondary market in Antwerp, there are also “grey”and “black” markets, so named because participants are not members of an officialexchange and transactions are not officially monitored. A number of producers supplythe grey market through independent dealers, among them Namco, Diamond-Works, Southern Era and MIBA (a government agency of the Democratic Republicof Congo). Diamonds are sold or bartered from one dealer to another, or from amanufacturer to a retailer, with little or no accompanying paperwork. 24 Black markettransactions are further removed from officially sanctioned markets and mayinvolve conflict diamonds.Wholesale and retail trades in polished diamonds also tend to be bilaterally negotiated,reflecting the often-exclusive supply arrangements among manufacturers,wholesalers and retailers. While retail polished prices are published on a monthlybasis in the Rapaport Diamond Report, these prices are high cash-asking prices typicallyused as a starting point in negotiations, rather than actual transactions prices.As with rough diamonds, polished diamond prices can vary significantly acrosstransactions in similar-quality stones. Additionally, the prices of polished diamondsof a certain cut vary with the crown angle, table percentage, florescence in fine24 See Smillie, Ian, Lansana Gberie and Ralph Hazleton, “The Heart of the Matter: Sierra Leone,Diamonds & Human Security,” Partnership Canada Africa, January 2000.