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Industries anger against VAS grows
DTC tight lipped about the cull in tax and other mounting pressures
By: Diamond World News Service
May 23 2006 12:00AM
Reference: 360  


De Beers’ distributor of rough diamonds has been warned that the diamond giant could face massive repayments if it does not backtrack on a compulsory charge. The call reflects growing concerns that the fixed so-called Value Added Service (VAS) charge and the failure of the company’s demand driven Supplier of Choice policy to meet its targets, is damaging the industry as a whole. VAS, which is a 2% fee on turnover paid six monthly in arrears, as well as the Supplier of Choice policy, are currently under investigation by the European Commission (EC) competition authorities.

“If the EC rules against VAS they will be doing DTC a favour, they have defended it with such rigour, they can’t climb down the tree,” said a distributor or Sightholder of De Beers’ Diamond Trading Company (DTC) in London. “Its something they really have to get rid of,” he said. Full-year 2005 sales by DTC, De Beers selling arm, totalled $6.5 billion, which was distributed to around 84 Sightholder companies. The Commission can impose a fine or require a company to change its behaviour if found guilty of illegal practices under EC competition law. Companies can subsequently sue for damages in front of a national court. In Belgium, one Sightholder has sought legal action through a national court.

DTC has been tight-lipped about the calls to cull VAS. However, the risk that the company may be forced to change its strategy is already emerging as a threat. “As DTC sales have grown more expensive in relation to market prices, the clients in mass have grown angrier about the VAS charge, which was something that DTC launched when there were profits on the boxes they sell. The clients accepted it, signed for it, saying they have no choice. DTC is still a syndicate,” said one Sightholder. Several Sightholders have criticized VAS on the grounds that it made what was a straight price increase difficult to pass on, while the cost has not generated any additional margin or volume. Since the introduction of VAS margins have come under increasing pressure. The comments also highlight a growing dismay about the core components of VAS, which include continuity of supply, a so-called ‘Intention to Offer’ diamonds by DTC, consistency of boxes, an extranet and a Key Account Manager Service.

According to the Sightholders, assortments are recently everything but consistent. “Even if they were consistent, why should this be used to justify an additional charge,” said one. But De Beers said; “VAS is bringing important benefits to Sightholders and their businesses. Whilst we always welcome and listen to feedback from our clients and take this into consideration for the development of future services, VAS plays an integral part of our offer to clients,” it said.

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