The Case of Conflict Diamonds

Transcription

1 Working Paper No 2007/01 JANUARY 2007 The Case of Conflict Diamonds An Analysis of Regime Theories and Regime Interaction Elisa Gilgen* ABSTRACT Not more than 150 words. KEY WORDS Constitutionalism, Human Rights, Trade and Conflict. * Elisa Gilgen holds a Master in Political Science and works as a Research Fellow at the World Trade Institute, Berne, Switzerland. Contact at elisa.gilgen@wti.org. NCCR TRADE WORKING PAPERS are preliminary documents posted on the NCCR Trade Regulation website (< and widely circulated to stimulate discussion and critical comment. These papers have not been formally edited. Citations should refer to a NCCR Trade Working Paper, with appropriate reference made to the author(s).

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3 NCCR TRADE WORKING PAPER 2007/01 1 Abstract This paper discusses the unique linkage of two international regimes the World Trade Organization (WTO) and the Kimberley Process. Whereas the WTO is responsible for the reduction of existing barriers to trade, the Kimberley Process restricts the trade of diamonds originating from war torn regions. These two regimes with their fundamentally different missions have been linked with the establishment of a WTO diamond waiver. A waiver is an exception clause agreed upon by the WTO Ministerial Conference and allows Member States to use trade measures otherwise forbidden under WTO rules. Based on regime theories, this paper analyses the role of the civil society, the governments and the diamond industry in linking the WTO with the Kimberley Process. The aim of the paper is to critically apply regime theories to a case of regime interaction. It highlights the advantages as well as the limits of regime theories and introduces the concept of constitutionalism as a new input for the study of regime interaction.

4 2 THE CASE OF CONFLICT DIAMONDS List of Abbreviations AB DSU DRC ECOWAS EU GATT GATS GDDO GDP MC MEA MFN MPLA NGO KP KPCS PAC RUF SEA TBT TRIPS UN UN GA UN SC UNITA USA WDC WTO Appellate Body Dispute Settlement Understanding Democratic Republic of Congo Economic Community of West African States European Union General Agreement on Tariffs and Trade General Agreement on Trade in Services Gold and Diamond Department of the Government of Sierra Leone Gross Domestic Product Ministerial Conference Multilateral Environmental Agreement Most favoured Nation Treatment Movimento Popular de Libertacao do Angola Non Governmental Organisation Kimberley Process Kimberley Process Certification Scheme Partnership Africa Canada Revolutionary United Front Single European Act Technical Barriers to Trade Trade Related Aspects of Intellectual Property Rights United Nations United Nations General Assembly United Nations Security Council Uniao Nacional Para a Independencia Total de Angola United States of America World Diamond Council World Trade Organization

5 NCCR TRADE WORKING PAPER 2007/ Introduction One of the greatest ironies of this period in history is that, just as technology remakes our world, the need to maintain the human dimension of our work, and a company s sense of its social responsibility is growing at an equally rapid pace. Harmonizing economic growth with the protection of human rights is one of the greatest challenges we face today. Mary Robinson, UN High Commissioner for Human Rights, World Economic Forum Davos, February In 1947, not human rights but international security was at the heart of the establishment of the General Agreement on Tariffs and Trade (GATT). The creation of the GATT regime was based on the idea of capitalist peace. The understanding was that capitalism not only leads to economic interdependence but also to wealth and democracy, all of which are preconditions for peace among nations. 2 The idea of free trade and peace among nations remained the driving motivation for the establishment of the World Trade Organization (WTO) in 1995, which followed the GATT regime. The basic aim of the WTO is to reduce existing barriers to trade through fair and equal competitive conditions for market access, and predictability of access for all traded goods and services. The peaceful cooperation between nations has been reinforced by the non military dispute mechanism in the WTO that advances transparency, respect for a system based on legal rights and mutual understanding. In the year 2000, the World Bank published a report on the political economies in civil wars and created a direct link between trade and civil wars. 3 The analysis focuses on developing resource rich countries and concludes that not only the socio political grievance of people in an unequal society drives civil wars, but that economic factors matter as well, if not more. Countries with resources that are easily looted such as alluvial diamonds or illegal narcotics are more likely to be threatened by rebel insurgencies. Instead of fighting for justice, rebels follow their greedy interests to prolong civil wars in order to keep financial control over resources. Perversely, the same supply lines that move natural resources and narcotics out of zones of conflict often carry back small arms, and create the resources needed to buy them. 4 The economic linkage between trade and civil wars is widely accepted. At first sight, the WTO as the guardian of capitalist peace seems to be the proper institution to address these issues of 1 Partnership Africa Canada June 2003, p See Weede 2005, pp. 34ff. 3 See Collier and Hoeffler Halle, Switzer and Winkler 2004, p. 14.

6 4 THE CASE OF CONFLICT DIAMONDS trade with conflict resources. But there is a widespread debate on how far the issues of trade and human rights should be incorporated into the legal framework of the WTO or whether other regimes are more suitable to address the problem. The Kimberley Process is a significant example of how the international community can address the problem of trade with conflict commodities. In 1998, Global Witness, a small London based non governmental organisation (NGO), published a report on A rough trade. It gave evidence that the international trade in diamonds funded the civil war in Angola, which cost the lives of several hundred thousand civilians. In 2001, in response to the activities of Global Witness, the major diamond trading and producing countries, representatives of the diamond industry and NGOs met in the South African town of Kimberley, to determine how to fight the problem of trade in conflict diamonds. The conference was the start of an almost threeyear long negotiation process to establish a Kimberley Process Certification Scheme (KPCS) and was completed with the signing of the Interlaken Declaration, on 5 November 2002, in Switzerland. The scheme created a diamond label that indicates the place of origin to check whether a diamond is conflict free. One of the main issues arising was the compatibility of the scheme with the international trade rules of the WTO. While the European Community and Switzerland argued for a wait and see attitude towards the WTO, the United States and Canada wanted to avoid possible conflicts with the WTO. On 15 May 2003 the General Council of the WTO granted a waiver to countries implementing the Kimberley Scheme. A waiver allows for specific restrictions of trade under exceptional circumstances. From a theoretical point of view, the WTO diamond waiver offers an interesting example of how two international regimes the WTO and the Kimberley Process can interact. Since the 1970s, the analysis of regimes in international politics has become a major research topic for political scientists. International regimes can be defined as sets of implicit or explicit principles, norms, rules and decision making procedures around which actor s expectations converge in a given area of international relations. 5 Regime theories analyse why regimes develop in a certain issue area. Three schools of thought give answers to this question. They are all actor based in the sense that they see a specific actor as the driving force behind regime development. According to cognitivists, governments are not merely rational actors, but products of ideas, beliefs and knowledge. Transnational networks of professionals and international NGOs play a central role in creating regimes, as they provide this knowledge. Realists focus on power relationships between governments. Regimes are established to reinforce the power structure between governments in an anarchic world. The relative power between states defines how effective a regime is. Last but not least, neo liberals base their analysis on constellations of economic interests. International regimes matter, because they help states to coordinate the 5 Krasner 1983, p. 2.

7 NCCR TRADE WORKING PAPER 2007/01 5 interests of the domestic business community in an efficient and predictable way. 6 In this paper, the three schools of thought will be used as a basis for analysing the interaction between the two regimes at issue the WTO and the Kimberley Process. Based on three hypotheses, the role of the epistemic community, the governments and the diamond industry will be examined. The aim of this paper is to critically analyse regime theories in the context of regime interaction. The following three questions are asked: Which political actor was central in linking the WTO with the Kimberley Process? What was the motivation behind this? Why did the WTO grant a waiver and not use another legal instrument? The paper starts off with a descriptive section on the WTO and linkages to other trade related policy fields (chapter 2), and then turns to the Kimberley Process as a specific example of how the international community can address the trade and human rights interface. The WTO diamond waiver is introduced as an instrument for linking the two regimes (chapter 3). After the descriptive sections, the theoretical foundation of regime theories is laid down. The chapter describes not only the theory in general, but also the three specific schools of thought within regime theories. Referring to these three schools of thought, the three hypotheses for this paper will be formulated (chapter 4). Chapter 5 applies the hypotheses on the current case of regime interaction between the WTO and the Kimberley Process. The three hypotheses are operationalised in a comprehensive way. All three contain two central aspects: first they talk the about actors the NGO community, governments and the diamond industry. Second they ask about the motivation of these actors knowledge, power or economic interests. The research is based on a qualitative analysis of the relevant literature (chapter 5). The qualitative analysis leads to a critical review of regime theories when applied to a case of regime interaction. It analyses the role of the WTO organs in overcoming a regime conflict. Further, the concept of constitutionalism is introduced as a complementary approach for analysing regime interactions (chapter 6). The concluding chapter not only summarises the findings, but also gives an overview of other conflict commodities (chapter 7). 2. The WTO and Linkages One of the biggest challenges that the WTO is facing today is to define its own mission. This chapter looks at the mandate of the WTO and its linkages with non trade issues. The first part of this chapter describes the concept of capitalist peace as the core mission of the WTO (section 2.1). With the advent of the WTO in 1995, the mandate of the trade regime was significantly widened. In December 1999, thousands of demonstrators filled the streets of 6 See Hasenclever, Mayer and Rittberger 1997.

8 6 THE CASE OF CONFLICT DIAMONDS Seattle to protest during the WTO s third Ministerial Conference. They claimed that the WTO despite expanding its mandate failed to address the important issues. An overview on the debate over the proper mission of the WTO is given in the second part of this chapter (section 2.2). The Concept of Capitalist Peace Following the philosophical tradition of Immanuel Kant, three significant factors can be defined as promoting peace between nations: democracy, interdependence through trade and collaboration in international organisations. 7 After the shock of World Wars I and II, the United States of America and its allies were eager to create multilateral institutions in order to ensure that the world would never again have to experience such destructive wars. The United Nations was founded in The purposes of the United Nations are to maintain international peace and security; to develop friendly relations among nations; to cooperate in solving international economic, social, cultural and humanitarian problems and in promoting respect for human rights and fundamental freedoms. 8 Fifty years after the founding of the UN, the collaboration within international organisations as a pacifying element is still controversial. Although there has not been a large scale international war since the founding of the UN, the UN cannot prevent the outbreak of violent conflicts. The two other elements that promote peace among nations the idea of democratic and capitalist peace remain popular. In his famous book Perpetual Peace (1795) Immanuel Kant gives three explanations as to why democracies are less likely to fight wars against each other: first, people in general are hesitant to begin a war, as they risk losing their lives. In a Kantian democracy, the people decide upon foreign policy; therefore, democracies are less likely to enter into wars. A second, more normative explanation stresses that democracies share the same values commonly defined as basic human rights and therefore fight less against each other. The third institutional explanation suggests that the slow decision making procedures in democracies make it harder for the leadership to engage in wars. The leadership is forced to resolve crises by means other than war. Although Immanuel Kant s vision of a democracy was much more radical than today s democracies, his reasoning remains persuasive. His first cost analysis is especially convincing. Although certain groups may profit in an armed conflict, overall, human, economic and ecological resources are wasted. Importantly, wars also waste the resources of the winning party. In 7 For an overview on the three factors that promote peace between nations, see Russett and Oneal United Nations, Basic Facts about the United Nations: retrieved on 1 October 2006.

9 NCCR TRADE WORKING PAPER 2007/01 7 democracies, with their dedication to transparency and public review, this relation between war and the wasting of resources cannot be hidden. The United States of America, when designing the Marshall Plan to rebuild Europe after the Second World War, applied the concept of capitalist peace and peaceful interdependence through trade. The secretary of state under President Roosevelt Cordell Hull reasoned that if we could get freer flow of trade freer in the sense of fewer discrimination and obstruction so that one country would not be deadly jealous of another and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance for lasting peace. 9 In his book Balance of Power, Globalization and the Capitalist Peace (2005) Erich Weede gives a broad summary of the extensive research that has been done on the pacifying effect of international trade. Trade or economic interdependence plays a double role in the prevention of war, because it exerts not only a direct, but also an indirect pacifying effect. The direct effect is based on the classic neo liberal argument that increased international trade makes conflict too costly as the economies of the different nations become interdependent. 10 Indirectly, economic liberalism leads to growth, prosperity, and democracy, which again reinforces the democratic peace. 11 The idea of capitalist peace was the central motivation for the establishment of the Bretton Woods Institutions in 1944: The World Bank, the International Monetary Fund and the International Trade Organisation. The International Trade Organisation never came into force and instead the GATT regime was set up as an interim solution that lasted for almost fifty years. The idea of free trade, development, peaceful and sustainable living among nations remained the driving force for the establishment of the World Trade Organization in 1995, which followed on from the GATT regime. According to the preamble of the WTO Agreement, the WTO guarantees trade and economic endeavour with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand. 12 The reduction of existing barriers to trade further allows for the optimal use of the world s resources in accordance with the objectives of sustainable development. 9 Hull 1948, p See Weede 2005, pp. 34ff. 11 See Sen World Trade Organization, Agreement Establishing the World Trade Organization.

10 8 THE CASE OF CONFLICT DIAMONDS The Mission of the WTO In December 1999, thousands of demonstrators protested in the streets of Seattle during the WTO s third Ministerial Conference. Not only were the organisation s lack of transparency, accountability and representation criticised, but more generally, the demonstrators questioned the legitimacy of the WTO s mission as such. With the end of the Cold War the definition of security has been broadened to encompass social, economic and ecological security. The protesters claimed that today s most urgent problems are not international security but issues of illegal drug and arms trafficking, lack of job security, environmental problems and civil wars. 13 Although the mandate of the WTO has been sharply expanded as compared to the GATT regime, the trade ministers had indeed failed to integrate certain aspects of trade. Rorden Wilkinson summarises the most important criticisms in his article The contours of courtship, the WTO and civil society (2002). The absence of a clear linkage between trade and worker s rights in the WTO s legal framework ran contrary to aspirations that the WTO would parody the International Trade Organisation. 14 Further the WTO was designed with little environmental sensitivity. The influential dispute settlement mechanism has often given greater importance to trade liberalisation, rather than environmental concerns. The TRIPS Agreement receives even more condemnation from environmental groups who are concerned about human and animal life and the biosphere. Ultimately, the growing gap between rich and poor remains the major ground for criticism. If the international trade regime cannot offer prosperity and development to everybody, but promotes inequality as the protesters in the streets of Seattle argued then the idea of capitalism as a motor of prosperity and democracy and the entire raison d être of the WTO as a guardian of capitalist peace stands on weak foundations. In contrast to the voices in the streets of Seattle, there is a general consensus among scholars that the problems of globalisation are not the result of too much integration, but of too little and that the WTO is a victim of its own success. Many stress that the problem of poverty is not a problem of trade but a lack of integration into the trade system. Or as Kofi Annan, General Secretary of the United Nations from , puts it: The main losers in today s very unequal world are not those who are too much exposed to globalization, but rather those who have been left out. 15 At the same time, scholars emphasise that capitalism is not a precondition for democracy as the concept of capitalist peace assumes. Rather democratic and capitalist development must go hand in hand. If a capitalist system is put in place without a democratic control mechanism and without respect for human rights, the wealth will not be distributed equally, which creates conflicts within a society. 13 For an overview on the main critics see Wilkinson Wilkinson 2002, p Annan in Sampson 2001, p. 20.

11 NCCR TRADE WORKING PAPER 2007/01 9 The question remains as to whether the WTO is the right organisation to incorporate human rights issues into its legal framework. Within the academic community, among governments and NGOs, intense discussion is taking place on the proper mandate of the WTO. Charnovitz (2002) and Alvarez (2002) have written relevant articles on the current academic debate. Besides workers rights, there are various other candidates for issues that might be incorporated into the legal framework of the WTO. They include investment, competition, the environment, and the alleviation of poverty, harmful tax practices, corruption and the question of labour mobility. Other issues have been proposed as matters that should be exempt from WTO obligations. For example, WTO rules could specifically permit measures to preserve local culture, enhance food security, combat tobacco smoking or fight terrorism. The problem is that many of these issues could be resolved by banning trade. The trade ministers have resisted this new policy so far. The mandate of the WTO is to combat official restriction on trade, not to impose new restrictions. 16 In general trade relatedness is insufficient as a normative framework within which to decide whether to rule on a new issue, because ultimately almost any issue is somehow related to trade. Among international regimes, the WTO has one of the strongest enforcement mechanisms. According to Charnovitz, this is an important reason why the WTO has to be careful when taking on new issues. Because its rules are backed by a strong enforcement system, the WTO should be cautious about articulating new rules on topics lacking an international organisation working as a check and balance against WTO overreaching its mandate. For example, no institution champions the property rights that indigenous peoples ought perhaps to have over traditional knowledge. Thus the TRIPS Agreement can be overpowering. Another example is trade in services. Pressing for greater market openness in developing countries may have deleterious effects in the absence of an effective regulatory structure. 17 Jagdish Bhagwati is an advocate of keeping the WTO small and specialised. He considers that an extension of the WTO would undermine its core framework, which is to secure mutual gains from trade, because one organisation cannot be used to achieve both an economic and a social target. Bagwathi consequently opposed the incorporation of the TRIPS Agreement into the WTO framework. The principle of mutual gain simply does not obtain in any significant degree for intellectual property protection. 18 Other scholars follow the argumentation of Bagwathi or Charnovitz and point out that it is essential that there are many different organisations, as there is no democratically elected global government. This approach is defined as functionalism. In the international system, which has neither a government nor a parliament, institutional specialisation is essential both to the legitimacy of institutions which precisely draw authority from the focussed mandate they have received from the international community, and to their 16 See Charnovitz 2002, p Charnovitz 2002, p See Bhagwati 2001, p. 26.

12 10 THE CASE OF CONFLICT DIAMONDS accountability since their performance can only be assessed on the basis of that focussed mandate. 19 There is not only a political reason for functionalism, but also a legal one. The relationship between the rules of the international trading system and those of the human rights system is marked by a fundamental difference in approach. Trade law tends to focus on the action of governments; human rights laws necessarily look at the impact of laws and practices on individuals. This widely noted difference in approach adds to the intractability of the trade and human rights problem by increasing the likelihood that analyses made by experts from one field will not adequately reflect the full character of the other field. 20 Therefore it is best, if different specialised agencies deal with the different issues. They create a kind of mechanism of checks and balances in global governance. The Kimberley Process as an international initiative to combat conflict diamonds confirms the functionalist approach. Although the issue of conflict diamonds is trade related, the WTO was not at the forefront of the international effort to stop the trade in conflict diamonds. Instead the Kimberley Process, a highly specialised international regime, has been put in place. Whereas the WTO is responsible for the reduction of existing barriers to trade, the Kimberley Process restricts the trade of diamonds originating from war torn regions. The two regimes have fundamentally different missions that conflict with each other. To overcome this conflict, they have been linked with the establishment of a WTO diamond waiver. The following chapter describes this unique example of regime interaction. 3. Kimberley Process The issue of conflict diamonds is one of the most pressing examples of the capitalist peace debate. With the value of the annual diamond trade worldwide exceeding $56 billion, it provides prosperity for millions. At the same time it stands at the centre of brutal wars in Sierra Leone, Angola and the Democratic Republic of Congo (DRC) that have been financed with the proceeds of the prosperous diamond trade. 21 For NGOs in search of an issue, diamonds are almost heaven sent. Not only is the connection between trade and war blatant, but the industry is dominated by one big company and is not regulated in any meaningful way. It represents the globalisation problem that has brought young people out on to the streets of Seattle, Prague, and Genoa. According to Ian Smillie from the NGO Partnership Africa Canada, it is a much clearer issue than seals and the fur trade Jacquet, Pisani Ferry and Kahn 2000, p Nadakavukaren Schefer 2005, p See Wright 2004, p Ian Smillie quoted in Partnership Africa Canada October 2001.

13 NCCR TRADE WORKING PAPER 2007/01 11 This chapter describes the efforts of the international community to resolve the issue of conflict diamonds. It starts with an overview on the link between the trade of natural resources like diamonds, and civil wars (section 3.1). Second the Kimberley Process is described (section 3.2) and the third part focuses on the WTO waiver that has been granted to assure the compatibility of the diamond label with the rules of the WTO (section 3.3). The last section summarises the successes as well as the limitations of the Kimberley Process (section 3.4). Conflict Diamonds; the Linkage between Trade and Civil War Carl Von Clausewitz once famously observed that war is the pursuit of politics by other means. 23 This was said in answer to the Napoleonic Wars, traditional international wars between two states. But since the end of the Second World War, international wars have become the exception and civil wars the rule. Referring to Clausewitz, David Keen noted that nowadays war is the pursuit of economics by other means. 24 In 2000, Paul Collier and Anke Hoeffler from the World Bank published an important paper on Greed and Grievance in Civil War and the economic reasons behind these new wars. Political and social grievances in an unequal country are not enough to cause the population to rise up and rebel against illegitimate governments. The integration into the global market opens up trade channels that can be used not only by legitimate governments but also by rebel groups, fighting against governments. If rebels try to loot money or goods from manufacturing firms, they can relocate to a safe area, but resource firms cannot relocate. Natural resources therefore offer rebel groups unusual funding opportunities. In recent decades, civil wars have been increasingly fuelled by rebel groups competing with national governments for control over valuable primary commodities rather than by ideological, ethnic or religious differences. Even Erich Weede, an advocate of the pacifying effect of free trade, admits that resource wealth does make civil wars more likely, longer and deadlier. 25 Although a few scholars claim that only oil is important, there is general agreement that resources such as iron, coal, oil, gold, silver, tea, coffee, jute, rubber, tobacco, coca, timber or diamonds also matter. 26 In his article How Do Natural Resources Influence Civil War? Evidence from Thirteen Cases (2004) Michael Ross even shows that the exploitation of resources lead not only to greed, but also raises grievances. The exploitation of natural resources usually leads to environmental hazards, insufficient job opportunities and social disruption due to labour migration. In the so called resource wars on 23 Von Clausewitz in Smillie 2002, p Keen See Weede 2005, p. 75ff. 26 See Fearon and Laitin 2003 and de Soysa 2002.

14 12 THE CASE OF CONFLICT DIAMONDS the African continent mainly in Sierra Leone, Angola and the Democratic Republic of Congo (DRC) the relationship between the exploitation of resources and civil war has been most devastating. It is striking that the grievance aspect has hardly ever played an important role. Of all the resources in Africa, diamonds hold a special position. Diamonds happen to be a primary commodity as well as one of the most highly concentrated forms of wealth, and are easily smuggled and traded by rebels. 27 In Sierra Leone, foreign forces supported local rebel groups against the government, to gain access to natural resource wealth. Liberia s Charles Taylor helped organise and support the RUF (Revolutionary United Front) invasion of 1991 to gain access to Sierra Leone s diamond fields. 28 By the late 1990s, control over diamond mines had become a central issue of war. Between $300 million and $450 million in diamond revenues were taken out of Sierra Leone over 90% bypassing governments taxes and leaving through illicit channels via neighbouring Liberia and Guinea as well as nearby Côte d Ivoire. 29 Rebel groups that had no resources to sell, but had a chance of securing them in combat, were even able to sell future mineral rights to foreign firms of neighbouring governments. While the RUF was the main beneficiary even the intervening UN troop ECOWAS profited from the smuggling of conflict diamonds. Ironically, the government of Sierra Leone twice escaped defeat by selling off the rights to exploit diamond fields that it did not yet control. 30 In Angola too, diamonds fuelled the civil war. After its independence in 1974, the political movements in Angola split into two factions, the Movimento Popular de Libertacao do Angola (MPLA) and the Uniao Nacional Para a Independencia Total de Angola (UNITA). These two groups soon became involved in the Cold War, with MPLA being allied with the Soviet Union and UNITA linked with the United States. The war lasted for almost three decades. A UN brokered peace agreement in 1991 led to elections in Angola in But when the MPLA won a relative majority in the presidential race and a majority in the legislative elections, UNITA restarted the civil war, financing its activities from the diamond trade. There are figures showing that between 1992 and 1997, UNITA amassed $3.7 billion in diamond revenues. 31 Other estimates are much lower, around $600 million. But nevertheless, the revenue was huge or, in other words, if an automatic weapon costs as little as ten dollars, then UNITA rebels, in control of perhaps $100 million per year income from sales of rough Angolan diamonds, can buy 100,000 weapons Tamm 2002, p See Ross 2004, p See Grant and Taylor 2004, p See Ross 2004, p See Grant and Taylor 2004, p Tamm 2002, p. 7.

15 NCCR TRADE WORKING PAPER 2007/01 13 But it is not just the warlords in remote Africa who benefited from the trade with the stones. Reports highlighted that diamonds had entered the world market, indicating Switzerland as their place of origin; a country that clearly has no diamond mines. What is strongly suspected is that such diamonds are imported into Switzerland through various channels, some of which originate in one of the many war torn regions of the world, particularly in sub Saharan Africa. 33 The most significant example was the profit that terrorist groups had made from the diamond trade. A report in the Washington Post in late 2001 revealed that the al Qaeda network had purchased diamonds from rebels in Sierra Leone and sold them in Europe. Global Witness confirmed the Al Qaeda connection two years later. The NGO established that the terrorist network had become involved as early as the mid 1990s. The international community was alarmed and promptly took action. 34 From Kimberley to Interlaken On 24 June 1998, the United Nations published Security Council Resolution 1173, which sought to prohibit the direct or indirect export of unofficial diamonds from Angola. Nevertheless, it required civil society to bring the issue of conflict diamonds to the attention of the public. In December 1998, Global Witness a London based NGO published a report on A Rough Trade: The role of Companies and Governments in the Angolan Conflict. De Beers was the primary target of the Global Witness report. It was considered to be the giant of the diamond industry selling around half of the world s diamonds. Global Witness was able to demonstrate that it was possible to trace a parcel of diamonds back to its country and even mine of origin. They claimed that the identification and certification of diamonds is not such a difficult task. It is very evident to our buyers what a parcel of Sierra Leone goods (diamonds) looks like. It s not rocket science. 35 In January 2000, the effort was strengthened by the publication by Partnership Africa Canada of its report The Heart of the Matter: Sierra Leone, Diamonds and Human Security. 36 In May 2000, several NGOs and representatives from the diamond industry joined 38 states to devise a system to prevent the trade in conflict diamonds. The governments of South Africa, Namibia and Botswana initiated the meeting. It was the beginning of the so called Kimberley Process, named after the location of its inaugural meeting in Kimberley, South Africa. Over the following two and a half years, the participants of the Kimberley Process engaged in serious negotiations. The big breakthrough occurred during the 13 th plenary meeting in Gaborone, Botswana during the last week of 33 Grant and Taylor 2004, p See Global Witness Global Witness 2000, p See Smillie, Gberie and Hazleton, 2000.

16 14 THE CASE OF CONFLICT DIAMONDS November 2001, where the draft of the final agreement was written. On 5 November 2002, the governments signed the Interlaken Declaration, which introduced the long awaited Kimberley Process Certification Scheme (KPCS). The KPCS it is designed to create a paper trail from mine to customer. The KPCS accompanies each exported shipment of rough diamonds. It includes relevant production, import and export data. It is up to the authorities at the respective borders to confirm the details of the certification papers. In many ways, the KPCS can be seen as an ecolabel for diamonds. The signatories to the KPCS agreed not to trade with any non participant in the Kimberley Process. The national legislations to implement the KPCS was scheduled to be in place by 1 January On the appointed day, only a handful of countries, including India, Canada, Switzerland and some countries in Africa, were actually ready to begin the implementation. The European Union faced some administrative delays and implemented in February. The United States waited to implement until the question of WTO conformity was fully resolved in May Although the UN did not take part in the negotiations, it provided essential backup with publications and disseminations of expert reports, through its leverage on governments, and through its formal endorsement of the Kimberley Process in December 2000 with the General Assembly Resolution 55/56. In this resolution, conflict diamonds were officially defined as rough diamonds, which are used by rebels movements to finance their military activities, including attempts to undermine or overthrow legitimate governments. 38 Two subsequent resolutions by the General Assembly welcomed the progress and encouraged further work. The United Nations Security Council legally backed up the final document in January 2003, giving the KPCS important legal weight. 39 The WTO Diamond Waiver In the run up to the Interlaken meeting, one of the most important aspects was whether the Kimberley Process should be compatible with the legal framework of the WTO. The main issue was that participants in the Kimberley Process are required not to trade with non participants. The KPCS invites the participants to adopt trade measures on the national level. Any national trade measure by a Member of the WTO is subject to the WTO Dispute Settlement Understanding (DSU). National laws or regulations have to be drafted in conformity with the WTO Agreement, in particular the GATT 1994 and the Agreement on Technical Barriers to Trade (TBT). According to the fundamental most favoured nation treatment (MFN) of the 37 Kimberley Process, Interlaken Declaration. 38 See United Nations, UN GA Resolution 55/ See United Nations, UN GA Resolution 56/263, UN GA 57/302 and UN SC Resolution 1459.

17 NCCR TRADE WORKING PAPER 2007/01 15 WTO, government sponsored technical regulations and standards must not discriminate between different places of origin. It is therefore forbidden to differentiate between diamonds from a Kimberley Process member and diamonds from a non member. But in the current case, the governments agreed not to trade with any non member of the Kimberley Process. Exceptions to the MFN rule are only justified under certain circumstances, for example, fundamental human rights concerns. It seems clear that blood diamonds raise serious human rights concerns, but from a legal point of view, the connection between the traded good and the human rights violation is not necessarily evident, as the human rights violation is not inherent to the product. What is at issue is neither the product itself, nor the producer, nor the consumer. What is at issue is not the production process, but rather the identity of the individuals profiting from the trade. 40 The case of blood diamonds was an exceptional situation that was not directly covered by WTO rules. Article IX:3 of the WTO Agreement provides that the Ministerial Conference can grant a waiver for such exceptional circumstances. It allows Members to impose trade measures that are otherwise against the rules of the international trade regime. Granting of a WTO waiver generally requires that three quarters of the Members vote in favour of the measure. The Members applying for the waiver have to state in writing the exceptional circumstances that have led them to request the waiver. Eleven countries sponsored the request for the waiver to enable the measures necessary to implement the Kimberley Process Certification Scheme: Australia, Brazil, Canada, Israel, Japan, Korea, Philippines, Sierra Leone, Thailand, United Arab Emirates and the United States. On 15 May 2003, the WTO granted the Waiver concerning the Kimberley Process Certification Scheme for Rough Diamonds, which allows the Members to restrict the import of rough diamonds on the basis of human rights concerns. 41 The waiver was granted for the period 1 January 2003 to 31 December It is widely expected that by the end of 2006, the trade ministers will renew the waiver. The WTO waiver decision exempts trade measures taken under the Kimberley Process by these eleven Members and other Members that subsequently join from GATT provisions on most favoured nation treatment, elimination of quantitative restrictions and non discriminatory administration of quantitative restrictions Charnovitz World Trade Organization, WT/L/518 Waiver Concerning Kimberley Process Certification Scheme for Rough Diamonds. 42 See World Trade Organization 2003.

18 16 THE CASE OF CONFLICT DIAMONDS Kimberley Process A Success Story? According to information from the World Diamond Council (WDC) in early 2006, 99.8% of rough diamonds being provided to the jewellery industry were from conflict free sources, and certified as such by the Kimberley Process Certification Scheme. 43 One year after Interlaken, more than 70 countries, the NGO community, and the WDC finally agreed to implement a review system to ensure the credibility of the Kimberley Process Certification Scheme. The meeting in Sun City, South Africa, in October 2003 was seen as a major boost to the legitimacy of the Kimberley Process. The Working Group on Monitoring is mandated to monitor the implementation of the Kimberley Process Certification Scheme by all participants based on the voluntary agreement of the governments to invite the monitoring group into their country. Currently the monitoring group is composed of representatives from the EC, Israel, Canada, Central African Republic, India, China, Russia, South Africa, the United States, the World Diamond Council, and Global Witness/Partnership Africa Canada. Many governments have heeded the voluntary call to invite the group into their countries. Further, the governments agreed to annual self assessments. In case of serious doubts about compliance with the system, the Kimberley Process can launch a review mission without invitation. The mission to the Republic of Congo (Brazzaville), in June 2004, resulted in the country s expulsion from the KPCS. The fact finding mission reported that Congo was exporting diamonds at a rate approximately 100 times greater than its estimated production. The authorities were unable to explain the massive discrepancy between the volumes of exports and of domestic production and imports. 44 NGOs have voiced the criticism that the KPCS covers rough diamonds, but does not include polished stones. Moreover, trading within a participant s territory does not require the use of a certificate. This opens up the possibilities for illegal transfers to be made and for packages of rough diamonds to contain a mixture of conflict and legitimate diamonds. 45 The Kimberley Process depends on the liability of the system. If the black market enters the system, the trust of the customers can decline rapidly. There have been cases of smuggling in Côte d Ivoire and other western African countries. A resolution was unanimously approved at the 2001 Moscow plenary meeting of the Kimberley Process. According to the terms of this resolution, all diamond production from West Africa will be monitored and all exports from the region will be profiled. 46 Ultimately the success of the KPCS depends on effective cooperation between the industry and the governments. If the industry does not provide 43 World Diamond Council See World Diamond Council See Nadakavukaren Schefer 2005, p See Financial Times 2005.

19 NCCR TRADE WORKING PAPER 2007/01 17 the data, the Kimberley Process Working Group on Statistics cannot ensure timely reporting and analysis of statistical data on the production and trade of rough diamonds in order to identify anomalies and to ensure the effective implementation of the certification scheme. There is no guarantee that the chains of warranties of the industry are correct. As Burkhalter from Physicians for Human Rights says: The voluntary nature of licensing actual diamond mines is particularly troublesome. Rebel mined diamonds from Angola have been laundered through fraudulent South African mines, which claim to unearth diamonds but actually produce nothing more valuable than topsoil. 47 A report by the US General Accounting Office in February 2002, stated that while Belgium reported selling $355 million worth of rough diamonds to the US in 2000, the US reported buying only $192 million worth. Similar discrepancies were cited in connection with the Democratic Republic of Congo, the Central African Republic and the United Arab Emirates. 48 The Kimberley Process faces another more fundamental criticism. Lootable resources such as diamonds in Sierra Leone and Angola have not only benefited the rebels, but have also been a critical means of survival for the civilian population in resource rich areas. Stopping the trade, not only limits the profits of rebels, but also the income of civilians. In a report jointly written by Global Witness and Partnership Africa Canada on Rich Man, Poor Man Development Diamonds and Poverty Diamonds (2004) it is said that alluvial diamonds represent the primary source of income for more than one million freelance diggers and their families in Sierra Leone, Angola and the DRC. On average they earn only a dollar a day. Stopping the trade of conflict diamonds can undermine the last source of income for these families. The report highlighted that the working conditions are unhealthy and dangerous; cheating, theft and smuggling are rampant. The NGOs argued that until Africa s diamond diggers earn a fair wage, diamonds would always be a destabilizing factor in these countries and called on the diamond industry, the World Bank and the United Nations, to find ways to generate better prices for a commodity which represents one of the most concentrated forms of wealth on the earth The Linkage of the WTO and the Kimberley Process From an academic point of view, the Kimberley Process and the WTO diamond waiver provide an interesting example of regime interaction. The WTO waiver successfully linked two international regimes with fundamentally different missions. It is the first time in the history of the WtO 47 Burkhalter 2003, p See United States General Accounting Office See Global Witness/Partnership Africa Canada 2004.

20 18 THE CASE OF CONFLICT DIAMONDS that a waiver has been granted based on human rights concerns. 50 The WTO diamond waiver might well be the beginning of a new approach of the WTO to address non trade issues. This paper will discuss the results of further research on this unique regime linkage. The following central questions will be considered: Which political actor was central in linking the WTO with the Kimberley Process? What was the motivation behind this? Why did the WTO grant a waiver and not use another legal instrument? Before attempting to answer these questions, the theoretical foundation of regime theory is laid down. A theory in political science has two functions: First it simplifies a complex reality and bundles the different strands of research. Second it generates hypotheses for empirical work. Empirical work, in turn, helps to strengthen the theory or to improve and further develop it. 51 Following the second function of theories, regime theories will be used as the basis for the analysis of the link between the WTO and the Kimberley Process. Three hypotheses will be formulated. The analysis of the case study helps to subject regime theories to a critical review. After a general introduction to regime theories (section 4.1), three different schools of thought that analyse the question of regime formation will be described. Based on the three schools of thought, three hypotheses will be defined (sections 4.2, 4.3 and 4.4). Regime Theories For centuries, the structure of world politics was considered to be an anarchic system of sovereign nation states that did not have to answer to any higher authority. With the establishment of the UN and the Bretton Woods institutions this point of view changed. A complex world of diverse and relatively autonomous actors emerged and international politics was increasingly characterised by voluntary cooperation between sovereign states. A dense web of different types of cooperation has been created. Rosenau and Czempiel refer to it as Governance without Government (1992). In the case of governance without government obligations emerge not from an international government with its hierarchical norms and rules but from voluntary agreements that govern behaviour. Since the 1970s, the analysis of international regimes has become a major research topic for political scientists. Regime theorists question why certain regimes develop in an issue area. Regimes were first analysed in the US, but the research quickly spread 50 See Committee on Ways and Means See Sprinz 2003, p. 252ff.

21 NCCR TRADE WORKING PAPER 2007/01 19 to Germany. Due to its geopolitical location, research in Germany has long been centred on international security regimes, while in the USA the focus was on economic institutions like the GATT regime. In his important book International Regimes (2003) Stephan Krasner has written the most popular definition of an international regime as a set of principles, norms, rules, and decision making procedures, around which actors expectations converge in a given area of international relations. Principles are beliefs of fact, causation, and rectitude. Norms are standards of behaviour defined in terms of rights and obligations. Rules are specific prescriptions or proscriptions for action. Decision making procedures are prevailing practices for making and implementing collective choice. 52 The definition is not without its critics. It has been suggested that the differentiation between principles, norms, rules and procedures is arbitrary. Krasner s definition can be seen as merely a list of elements that are hard to differentiate and that often overlap in real world situations. 53 Nevertheless, this definition has been popular since its introduction in the early 1980s and is therefore used in this paper as well. There are three established sub fields of regime analysis: regime formation, regime maintenance and regime effectiveness. Theories on regime formation will form the basis for the current case study and will be described in detail in the following chapters. Regime maintenance or robustness is apparent when the regime stays in power although the political environment changes. The basic principles and norms remain the same, while rules and procedures may be adapted according to the changing environment. In the 1990s the analysis of regime effectiveness moved to the centre of regime analysis. There has been intense discussion among scholars about the effectiveness of international regimes. Many scholars sought to extend the standard definition by Krasner in order to include effectiveness. 54 According to the institutional approach by Robert Keohane, a regime is effective if it contains a formal set of rules that is agreed upon by the political actors, written down in documents or treaties and observed by the governments. (A) set of rules need not be effective to qualify as a regime, but it must be recognized as continuing to exist. Using this definition, regimes can be identified by the existence of explicit rules that are referred to in an affirmative manner by governments, even if they are not necessary scrupulously observed. 55 This paper considers two different regimes: The Kimberley Process and the WTO. The following table compares the two regimes according to their principles, norms, rules and decision making procedures. Although not very detailed, the table provides information about the robustness and effectiveness of the two regimes. 52 Krasner 1983, p See Young 1986, p Detlef Sprinz provides a summary of the different definitions on effectiveness. See Sprinz Keohane 1993, p. 28.