Structure, Order Will Come With a Panama Diamond Exchange

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RAPAPORT…  On October 19, the Panama Diamond Exchange (PDE) issued a press release to report that His Excellency, Ricardo Martinelli, the President of the Republic of Panama, had notified our organization that he will be initiating a session of the National Assembly within the next few weeks. The purpose of the session will be to complete legislation granting the area of our diamond exchange free zone status. As we also noted in the press release, President Martinelli additionally informed us that his government will be expediting Panama’s membership in the Kimberley Process (KP).

At PDE, President Martinelli’s message had been greeted with a sense of accomplishment. Free zone status and KP membership are both essential steps that need to be taken in order for Panama to evolve into Latin America’s first fully fledged diamond center. And, as we have learned firsthand, there are no short cuts when navigating Panama’s legislative and administrative systems. The president’s notification followed about two year’s worth of intense and often painstaking legal preparation.

It was with dismay, therefore, that soon after our announcement, we became aware of charges published in the general press suggesting that PDE’s program to establish Panama as a regional diamond hub could increase the country’s role in laundering illegal diamonds mined in South America. How ironic! Our very purpose in setting up PDE was to create a body that would promote the orderly and proper trade of diamonds in one the world’s most promising diamond markets.

It is not that we are oblivious to Latin America’s checkered history. I have personally acted to expose and curb the activity of traders in the region who are selling rough diamonds that do not carry legitimate KP certificates. But it is with the express purpose of eradicating such practices that PDE was first conceived. It is our fervent belief is that by establishing a body with the physical and legal infrastructure that exists in centers like Belgium, Israel and New York, we can promote the growth of a vibrant diamond jewelry market in a region of more than 700 million people, 220 million of whom are members of the upwardly mobile middle class.

There is a flawed assumption made by those who question the consequences of PDE’s establishment, namely that our purpose in obtaining free zone status is to create a market that is not carefully regulated. Nothing could be further from the truth. Free zone status concerns the tax and customs tariff regime that will be instituted. It does not concern the monitoring of diamonds that move in and out of the facility; they will be examined by qualified government officials to ascertain that they are being traded legitimately. In short, PDE will not increase the likelihood of illegal diamonds being sold in Latin America, but rather, provide our region with the only structure dedicated to orderly and proper trade in gemstones.

When we began planning the establishment of PDE, we did a tour of major diamond centers to learn what had to be created in Panama so that it would be able to operate according to international standards. It was then that we came to understand the necessity of obtaining a preferential tax status. Centers like Antwerp and Tel Aviv, both of which are home to carefully regulated industries, benefit from very liberal tax regimes that have been tailor-made for their diamond sectors. Value-added tax (VAT) is non-existent or levied at a zero rate and the diamond trading zones are considered bonded areas, meaning that goods traded within their confines are not subject to customs tariffs.

Thus was formulated the concept of a free zone status for PDE. Were it not to be instituted, we would not only find ourselves operating at a disadvantage when compared to diamond centers outside of Latin America, but unscrupulous diamond traders would have an added incentive to smuggle goods — tax free — in and out of the region.

During our tour of the major diamond centers, we examined methods used by the government agencies in the various countries to monitor and verify the merchandise moving in and out of their diamond centers. We then began a dialogue with the Panamanian authorities so that a similar regime could be established at home. What has been proposed is a system under which official government import-export offices will be set up both at Tocumen International Airport and in the PDE complex itself. It is a system that is very similar to the one used in Israel.

Panama’s membership in the KP is a key element in the operation of the PDE. Until such time that the government of Panama fulfills its obligations for KP membership, international imports and exports of diamonds will not fully commence at the diamond exchange. It is a commitment that we made to the World Federation of Diamond Bourses (WFDB) right after our organization’s establishment.

And so I call upon the international community to support the PDE project. Not only will it encourage the growth of a thus far underdeveloped diamond jewelry market, but it will bring Latin America into the fold of the established diamond trade. PDE will institute a 21st century environment, with all of its legal checks and balances, in a region where one previously did not exist.

For more information, please contact: Erez Akerman, president, Panama Diamond Exchange (PDE).
Tel: 507.204.5778; Email: info-at-pde.com.pa