EU Alrosa Antitrust Ruling Annulled

The European Court of First Instance said the settlement was “manifestly disproportionate,” adding that EU regulators did not prove that together the two held a “dominant position” in the EU market that would justify limiting their freedom to do business.

Alrosa is the world’s second-largest rough diamond producer after De Beers. Under a 2001 deal, De Beers said it would buy diamonds worth $800 million from Alrosa every year for five years.

But the commission said last year that De Beers agreed to legally binding commitments to stop buying rough diamonds from Alrosa.

EU regulators claimed that De Beers held an unrivaled position in the diamond market for much of the 20th century but its promise to stop buying gems from Alrosa starting in 2009 would open up new opportunities for competition in the worldwide rough diamond market — worth $12 billion in 2004.

Last year’s deal closed an anti-monopoly probe into the deal between the firms, which the EU warned could shut out other competitors.

The EU court ruled that the European Commission was wrong to agree to the deal.

“The commission merely accepted the commitments proposed by De Beers at face value, without looking for alternative solutions which might have better respected the contractual freedom of the parties,” the five-judge panel ruled in Luxembourg.

It added that Alrosa also had “a right to be heard” in the negotiations last year before a deal was reached.

Alrosa told the court the agreement between De Beers and the commission would have forced it to look on while its competitors continue selling diamonds to De Beers. The commission argued the February 2006 decision would have opened up the diamond market to normal competition.

“If there is a contract, and the commission accepts undertakings by one party, it creates a problem with the co-contractor,” said Michel Struys, a competition lawyer at Allen & Overy in Brussels.

“The commission should have consulted with the co-contractor. The commission can remedy that and reach the same conclusion after consulting Alrosa.”

Wednesday’s ruling can be appealed at the European Court of Justice, the EU’s top tribunal, which is also based in Luxembourg.

The commission will study the judgment and consider an appeal, said Jonathan Todd, a spokesman for the commission.

De Beers controls about 60 percent of the world’s rough diamond supplies and produces 43 percent of world output. Under the 2006 deal, the company was to start to phase out purchases from 2006 to 2008.

Source: The Moscow Times, Tuesday, July 12, 2007