The European Union’s competition authorities will reject this week a new system for trading diamonds proposed by De Beers, the Financial Times (FT) reported.

The European Commission is set to rule on two proposals from De Beers. One is its Supplier of Choice distribution program, over which the Commission has serious reservations, FT reported.

The other, an upmarket diamond retailing partnership between De Beers and LVMH, the world’s largest luxury goods group, has been approved, FT reported early this month.

However, because De Beers notified the Commission voluntarily about its new trading policy in early May, Brussels will not automatically prosecute the company in the event of a breach of EU regulations being found, FT reported. Instead, it would ask the group to halt those activities.

The Supplier of Choice shake-up was announced last July as a means to become more demand-driven, as well as to address legal issues.

De Beers, which supplies two-thirds of the world’s diamonds and produces 43% of world output, distributes its rough diamonds through a network of about 120 approved dealers or “sightholders,” and manufacturers worldwide.

These dealers had reservations about Supplier of Choice, as many of them are not manufacturers and were being asked to invest in making branded products at a time when demand was softening.

On Monday, the World Federation of Diamond Bourses (WFDB) expressed concern about the future of smaller diamond dealers as a result of Supplier of Choice.

The retail venture with LVMH has been the subject of an inquiry since mid-April, when the Commission voiced concerns that it would reinforce the dominant position of De Beers in the upstream market for the supply of rough diamonds.

JCK