Chairman CRANE. Thank you, Mr. Boyajian.

I apologize to all of you for the absence of our colleagues, but as I indicated earlier, we have the debate going on over on the floor to try and override the President's veto of the marriage penalty tax, and that marriage penalty tax in my district alone affects approximately over 140,000 of my constituents that are taking the hit because of that absurdity in our tax code. If we did not punish people for getting married with our tax code, that would translate into almost $100 million a year more to those individuals affected in my district. I suspect they would be buying more diamonds for their wives if we did not have that obscene code in place.

At any rate, we are going to be wrapping up after your panel, but I would like to ask just a few questions of you, if I may, before you depart.

Ms. Burkhalter, can you comment on whether the NGOs have any efforts underway to boycott diamonds?

Ms. BURKHALTER. The 70 humanitarian, human rights, and religious organizations that joined with Physicians for Human Rights in calling on the diamond industry to take action against specifically transshipment countries, as well as to implement the global scheme that they did, indeed, agree to, have never announced a boycott on diamonds, in large part because of our concern about the legitimate diamond producers that have been mentioned more than once in today's hearing.

I will say, however, that there is enough concern within this community, that without speaking for every group, if by, oh, I do not know, Valentine's Day there is no sign that either the Antwerp regimen is in place and moving or the producing countries, particularly those that are dragging their feet, such as Russia, are committed to moving very smartly forward, and if we are not seeing a diminution in the exports from known transshipping countries that have no productive capacity of their own, namely Liberia, I think there would be an interest in an education campaign. That campaign might urge the many hundreds of thousands of members of our many groups, particularly in the faith community, to educate our membership about the role of conflict diamonds in the situation. in particularly Sierra Leone. We would probably be eager to urge consumers and certainly our own membership to start asking questions at the retail level about whether this diamond can bewhether the diamond people are looking to purchase can be assuredly a conflict-free stone, or more specifically, whether the retailer can promise that this diamond did not transship through Liberia.

Now, of course, the retailer will not be able to do so, and whether that then translates into a boycott or a consumer's decision not to buy, I cannot say. I do not want to leave you with the impression that we are announcing a boycott, but I will leave you with the impression that the groups that have joined with my organization in pressing on the diamond industry are plenty agitated about this and only very fast action is going to, I think, relieve their anxieties about it.

Chairman CRANE. Mr. Fischer and Mr. Runci, if you would both comment, I understand that the largest selling company of rough stones has begun to market its diamonds as clean diamonds and that some U.S. retail stores have begun to advertise their diamonds as clean diamonds and are charging premium prices. Some people see this as a confirmation that legislation to control the flow of diamonds will result in tightened price controls, for the largest diamond dealers shut out smaller dealers and the consumers will end up paying higher prices for diamonds.

Would you please comment on this and whether you foresee higher diamond prices if legislation is enacted to control the flow of diamonds, and Mr. Fischer, you might go first and then Mr. Runci.

Mr. FISCHER. Thank you. DeBeers has, in fact, started labeling the boxes of rough diamonds that it sells as conflict-free. They have stopped buying diamonds on the markets, on the open markets in Africa, to assure that they are not buying conflict diamonds. They have made a kind of a unilateral decision to be careful that there is not an issue about transshipping and things like that during these times.

Ultimately, the issue about whether a market would be divided up into clean diamonds and non-clean diamonds certainly has several concerns. One is that we share a concern that controls be put into place that are effective so that when diamonds are labeled clean, and hopefully all diamonds under our system will be labeled clean, these labels will not be superficial but they will be real, that they will have reality behind them.

Regarding two different pricing systems, it is somewhat speculative how a market might develop, but if there were a system of clean and unclean diamonds, you can go ahead and do intellectual gyrations that the public would put more value on those that were labeled as conflict-free. The issue is that without a comprehensive program, that there will be clear labeling of the conflict-free diamonds versus other diamonds that are not labeled so, but there will not be in reality a clear distinction. That is why we want to put this safety net up as high as we can in the system where it can be filtered, where as difficult a challenge as it is, we believe that it is achievable. Anywhere lower down in the system where it is done closer to the consumer and the retail jeweler, it is just not workable. It is not going to accomplish what we all want.

Chairman CRANE. Mr. Runci?

Dr. RUNCI. Speaking from the position of retailers, Mr. Chairman, there is no way in the current regime for a retail jeweler to directly and absolutely certify that any diamond that he or she sells to a consumer is conflict-free. The most that retailers can do today and, in fact, the majority of retailers are doing today, is to assure consumers that they have made every effort in working with their diamond suppliers, be they jewelry manufacturers or dealers or traders in polished diamonds, which are the only kinds of diamonds that retailers buy, to require that they, in turn, have made every effort to ensure that the purchases they make from their suppliers are assured as being conflict-free. In other words, a chain of assurance as opposed to a chain of warrants. In order to institute a true chain of warrants to ensure that no conflict diamonds are

being sold, as I said in my testimony, we would require controls in place first in the countries of extraction.

As to the presence of claims by some jewelers that their stones are conflict-free, I believe those claims are now being made by some jewelers based on the assurances they have received from their suppliers. The irony here is that everyone, to my knowledge, in the industry in the United States is acting in good faith out of their, not only a desire to preserve their businesses, but out of true abhorrence to the connection that has, in fact, been established between four percent of the world's production of rough diamonds and these atrocities. Everyone wants that to end.

But the reality is that the retail jeweler, and the majority of retailer jewelers in this country, are small family-owned businesses. The retail jeweler is powerless to provide 100 percent assurance today. But they are making their best-faith effort. They are requiring similar assurances from their suppliers, and I am happy to say that the supply side of the industry in the United States has moved swiftly to offer those assurances and, in turn, to pass those requirements on up to their suppliers overseas. I believe the process is in motion.

Chairman CRANE. Mr. Runci, the retailers are at the far end of the diamond pipeline and they have little control, if any, over the diamonds they import and they have to rely on what rough diamond dealers tell them is the source of their diamond imports. What steps can retailers take to accurately ascertain the mining source of imported diamonds?

Dr. RUNCI. Retailers typically purchase their diamonds, Mr. Chairman, from traders or diamond wholesalers here in the United States. Large retailers may purchase their diamonds from diamond traders or wholesalers outside the United States. Retailers have been enlightened on this issue for the past year as a result of a continuing series of information bulletins that we have issued because this was an issue, quite frankly, that, with all due respect to the civil society community, they were on top of much earlier than the jewelry industry here in the United States. Jewelers have no conception, nor have they ever had to be concerned with the ultimate origin in terms of extraction of the diamonds that they buy and that they sell to consumers.

The very last thing that a jeweler wants is for a consumer to say, "how can you assure to me that this stone is not tainted?" No such absolute assurance could be given. The chain of assurances that has been put in place for the past nine months through our repeated communications to our members and their use of those communications with their vendors, the so-called Vendor Guidance Agreement that the Jewelers of America developed, seems to be working in terms of elevating the level of awareness up within the trade and increasing the level of assurance that any retailer can, in fact, offer their consumer.

We look forward to the day when simple international controls have been put in place, starting in the countries of extraction. That ultimately ensures that the flow of diamonds forward is, in fact, untainted and that if, sadly, there are still conflict diamonds, they are, in fact, being diverted to those markets that have not instituted those controls.

I think the United States and Congress can play an important leadership role in this effort, but hopefully it will be in concert with the international community, through leading the international community, but not with a gun to the retail jeweler's head that he simply cannot accept without his business being on the line. Thank you.

Chairman CRANE. Mr. Boyajian, do you foresee the possibility of practical technology in the near future to determine the country of mining of a cut and polished diamond?

Mr. BOYAJIAN. I do not. As I mentioned in my testimony, we have never been asked, nor have we even contemplated the idea of origin of country of polished diamonds. We ourselves are not experts in rough. We are experts in polished. We grade most of the major diamonds that are bought and sold around the world, especially the larger, more important diamonds. We put quality analyses on them with color grade and clarity grade and cut.

But I just do not see the technology developing to be able to implement a system of being able to identify country of origin, and again, as I mentioned in my testimony, in my written testimony and also my oral testimony, it is extraordinarily difficult to know where the diamond has actually come from. Where it was mined from may not be where it originated.

The sources that have been identified in previous reports that have been submitted perhaps to this group, perhaps to your committee, have identified sources of scientific data back to the beginning part of the 20th century. It is important to remember that when goods were only coming from South Africa, for example, it was much easier to study one mine's production and be able to determine certain chemical or physical characteristics of diamonds that might lead you to be able to determine origin. Such cases have been cited many times in these reports.

My concern is that diamonds are found all over the world today. Russia is a major producer of diamonds, as is Australia and now Canada, all of Southern Africa. It is extraordinarily difficult to distinguish between primary and secondary sources. I just do not see the technical feasibility. I would not know, sir, where to start.

Chairman CRANE. I want to express appreciation to all of you for your testimony this morning. Again, I apologize for the absence of my colleagues, but your written testimony and your response to questions will be made a part of the record and so they will have access to what you said.

I would appreciate it if you would stay in touch with us, though, on an ongoing basis. This is an issue obviously of concern and concern to some of our colleagues who have already attempted to approach it legislatively. I am not sure exactly yet what the answer is, but we appreciate all the help we can get from you.

With that, the committee stands adjourned.

[Whereupon, at 11:54 a.m., the hearing was adjourned.] [Submissions for the record follow:]

Statement of Elly Rosen, Founder and President, Appraisal Information Services, on behalf of Gems and Jewelry Reference, and Appraiser's Information Network

Mr. Chairman and members of the subcommittee, my name is Elly Rosen and I am founder of Appraisal Information Services (AIS), an online reference resource

and networking forum for members of the gems and jewelry and other personal property trades, as well as for practitioners in the personal property appraisal profession.

I would first like to commend this subcommittee and the various members of congress who have been working towards finding a solution to the problems inherent in the sale of African diamonds whose proceeds are used to fuel the fires of war. I also commend you for providing this opportunity for trade leaders to present the perspective of an industry whose members are generally honest hard working merchants who should not become further innocent victims of these terrible conflicts. America and its citizenry have a moral obligation to enter into the international dialogue being conducted on this issue and we all owe a debt of gratitude to those members of Congress who are trying to assure such entry at an early stage.

For context of your considering my brief comment, I should add that sections within our site include the Appraisers' Information NetWork (AIN), the Gems & Jewelry Reference (GJR), the Guide for Personalty Expert Witnesses & Trial Consultants, and the Appraisal Information ClientCenter (AIC). Our membership includes appraisers from the most recognized professional personal property appraisal organizations and practitioners from all segments of the gems and jewelry trade, including wholesale suppliers, retail jewelers, artisans, gemologists,labs, and appraisers. Our forums and reference areas are currently accessed in 5 countries on 4 continents and in 31 U.S. States.

I appreciate the opportunity to submit this statement for the record of your most important subcommittee hearings on "Trade in African Diamonds" and I am submitting it to urge you to support current efforts by the international diamond and jewelry communities to develop meaningful procedures and safeguards as might be needed to resolve the problem of that small portion of mined diamonds being usedto finance African conflicts. Other respected leaders of the gemstone and jewelry industry have appeared before you who can best speak to such efforts currently under way by the World Diamond Council as well as to the subject of gemological realities related to identifying the country of origin of rough and polished diamonds. I will be addressing just a few points related to the realities of manufacturers, retailers, gemologists and appraisers, and how congressional activity might impact daily efforts to conduct their businesses.

The World Diamond Council, established by the Antwerp Resolution, appears to be making a concerted effort to lay out and put into affect plans to deal with this problem at the source; the only place where it can be dealt with most efficiently and in a manner which would avoid needless and unjustified harm to this important industry. We all owe a debt of gratitude to the sponsors of the C.A.R.A.T Act of 2000 as it made clear that the United States will be a leader in resolving this world problem. However, the CARAT Act can not be administered from a practical standpoint and would present an unjustified burden on all segments of the trade. Unfortunately the well intentioned proposals in the Act would also make it a meaningless burden as it would be close to impossible for many trade segments to comply.

Once rough diamonds leave their country of origin they are then bought and sold, and resold, in varying configurations and parcels, in diamond centers all over the world. Once polished it gets even more complex and efforts to track and label every polished diamond (above some relatively low dollar base) would cause total chaosif it could be done at all. It should not be difficult to envision how polished diamonds move from importer to finished jewelry. They are sorted by shapes, sizes and quality grades as well as in melange (mixed) parcels.

Manufacturers and diamond suppliers then do their own sorting based on the needs of their customer base and their in house quality control procedures. Customs laws would have to changed to have country of origin labeling reflect the place of mining, rather than the current designation requirement that it be the country of processing, or polishing. But that is where the problems would only begin. If each diamond had to be labeled based on country of origin, diamond suppliers would have to separate all their current categories of diamonds by as many subcategories as there are diamond producing countries. For jewelry manufacturers and small manufacturing retail jewelers it would be even more complex.

Such smaller manufacturers go through numerous parcels to mix and match qualities and sizes for a particular item. In addition, many retailers buy "semimounts" which are jewelry items containing the smaller stones and then separately buy center stones or maintain an inventory selection of such stones. If such a manufacturer, or manufacturing retailer could somehow manage to keep track of each individual stone, compliance with the CARAT Act could result in one small ring having five designations on it for the countries of origin of each diamond. Even that might have to then be changed if a small diamond broke in setting and had to be