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                                                        Calendar No. 62
108th Congress                                                 Report
                                 SENATE
 1st Session                                                     108-36

======================================================================
 
                        CLEAN DIAMOND TRADE ACT

                                _______
                                

                 April 9, 2003.--Ordered to be printed

                                _______
                                

  Mr. Grassley, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 760]

     [Including cost estimates of the Congressional Budget Office]

    The Committee on Finance having considered the bill (S. 
760), to implement effective measures to stop trade in conflict 
diamonds, and for other purposes, having considered the same, 
reports favorably thereon and recommends that the bill, as 
amended, do pass.

                               BACKGROUND

    In several sub-Saharan African countries, rebel insurgent 
groups fund their military activities by mining and selling 
rough diamonds. Competition over the use and control of diamond 
wealth contributes significantly to the depth and longevity of 
these regional conflicts and to well-documented human rights 
violations against local populations. A group of diamond-
trading nations, non-governmental organizations (including 
humanitarian, human rights and faith-based organizations) and 
diamond industry groups involved in the rough diamond trade 
worked for many years to address the problem of ``conflict 
diamonds.'' These groups sought to create a voluntary 
international certification scheme to regulate the rough 
diamond trade in order to eliminate conflict diamonds from 
legitimate diamond trade. These efforts, supported by the 
United Nations General Assembly, culminated in the Kimberley 
Process Certification Scheme for Rough Diamonds, adopted by 
participating nations in the Interlaken Declaration of November 
5, 2002.
    In the Interlaken Declaration participating governments, 
including the United States, declared that they were, 
``committed to the simultaneous launch of the Certification 
Scheme beginning on 1 January, 2003.'' The Certification Scheme 
sets out a rough diamond trade control and tracking system 
based on the use of import/export certificates that certify 
that rough diamonds have been handled in accordance with the 
provisions of the Scheme. Countries participating in the 
Certification Scheme commit to import and export only properly 
documented rough diamonds. The purpose of the Certification 
Scheme is to curtail the trade in illegally exported conflict 
diamonds.
    The Preamble to the Certification Scheme and the Interlaken 
Declaration provide that the international certification scheme 
and measures taken to implement the scheme would be consistent 
with international trade rules. In January 2003, the United 
Nations Security Council passed resolution 1459 strongly 
supporting the Kimberley Process and the Interlaken 
Declaration. In addition, a group of Kimberley Process 
participants, including the United States, requested a waiver 
under the Marrakesh Agreement Establishing the World Trade 
Organization for certain measures taken to implement the 
Kimberley Process. On February 26, 2003, the WTO Council for 
Trade in Goods agreed by consensus to recommend approval of the 
waiver by the WTO General Council. The Council is expected to 
consider the waiver at its next meeting which will take place 
May 15-16, 2003.
    The Clean Trade Diamond Act is intended to implement the 
Kimberley Process Certification Scheme in the United States.

           SUMMARY OF THE CLEAN DIAMOND TRADE ACT, AS AMENDED


Short title (Section 1)

    This section provides that this Act may be cited as the 
``Clean Diamond Trade Act.''

Findings (Section 2)

    Congress makes the following findings:
    (1) The sale of rough diamonds provides funds for the 
activities of rebel groups in Sierra Leone, Angola, and the 
Democratic Republic of the Congo in seeking to overthrow 
legitimate governments, destabilize the region, and commit 
atrocities against civilians.
    (2) These activities have caused the displacement and 
deaths of many civilians.
    (3) Human rights advocates, the legitimate diamond 
industry, and the United States have been working to block 
trade in conflict diamonds.
    (4) The United Nations Security Council has at various 
times adopted resolutions imposing embargoes with regard to the 
conflict diamond trade in Sierra Leone, Liberia, and Angola.
    (5) The United States has implemented these embargoes under 
domestic laws and regulations and is now taking further action 
with this legislation implementing the Kimberley Process.
    (6) The legitimate diamond trade and the economies of 
countries engaged in such legitimate trade could be severely 
damaged by a consumer backlash caused by concern about conflict 
diamonds. Accordingly, to protect legitimate trade, South 
Africa and other countries active in the diamond trade have 
devised a scheme to regulate the trade in diamonds in order to 
eliminate conflict diamonds, known as the Kimberley Process. As 
the consumer of a majority of the world's diamond supply, the 
United States has an obligation to implement an effective 
solution to the funding of regional conflicts through the sale 
of diamonds.
    (7) Failure to curtail the trade in conflict diamonds could 
have a severe impact on countries such as Botswana, Namibia, 
South Africa, and Tanzania.
    (8) The United States seeks to resolve regional conflicts 
in sub-Saharan Africa fueled by the conflict diamond trade.
    (9) As stated in the Interlaken Declaration, the Kimberley 
Process is to be implemented in a manner consistent with 
international trade rules.

Definitions (Section 3)

    Section 3 defines terms used in this bill, including: 
controlled through the Kimberley Process Certification Scheme, 
Participant, exporting authority, importing authority, 
Kimberley Process Certificate, and rough diamond.

Measures for the importation and exportation of rough diamonds (Section 
        4)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 4 requires the President to prohibit the 
importation or exportation of rough diamonds that have not been 
controlled through the Kimberley Process Certification Scheme. 
The prohibition may be waived with respect to a particular 
country for periods of not more than 1 year each if the 
President determines and reports to Congress that the country 
is taking steps to implement the Kimberley Process or the 
President determines and reports to Congress that the waiver is 
in the national interests of the United States.

                           REASON FOR CHANGE

    This provision implements the Kimberley Process 
Certification Scheme in the United States by establishing a 
system to ensure that rough diamonds are not imported into or 
exported from the United States, unless the shipment is 
accompanied by a valid Kimberley Process Certificate. 
Participants in the Kimberley Process undertake measures to 
ensure that rough diamonds are not imported from or exported to 
a non-participant, but at the same time, the Interlaken 
Declaration and the United Nations Security Council Resolution 
supporting the Kimberley Process both stress that the widest 
possible participation in the process is essential and should 
be encouraged and facilitated. The Section 4(b)(1) waiver is 
designed to facilitate this aim to encourage non-participants 
to implement the Process. Language in the bill requires the 
President to determine that the country being granted this 
waiver is taking effective steps to implement the Kimberley 
Process Certification Scheme. The Section 4(b)(2) waiver is 
similar to national interest waivers for various foreign 
assistance restrictions in Federal statutes, such as 22 U.S.C. 
Sec. Sec. 2370, 2370a(g), 2377(b), 2378(b), and 7513(b)(2). The 
Committee intends that the national interest waiver under 
Section 4(b)(2) be judiciously exercised. It is not intended to 
be used to undermine the goals and objectives of the Kimberley 
Process Certification Scheme.

Regulatory and other authority (Section 5)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 5(a) authorizes, and requires as necessary, the 
President to issue such proclamations, regulations, licenses 
and orders, and conduct such investigations as may be necessary 
to carry out the Act. Section 5(b) requires any U.S. person 
importing into, or exporting from, the United States rough 
diamonds to keep a full record of any transaction covered by 
the legislation. Section 5(b) further provides that the 
President may require the person to provide this information 
under oath.
    Section 5(c) mandates the President to require the 
appropriate agency to conduct annual reviews of the procedures 
of any entity in the United States that issues Kimberley 
Process Certificates for exportation to determine whether they 
are in accordance with the Kimberley Process. The President is 
also required to transmit to Congress a report on each annual 
review.

                           REASON FOR CHANGE

    The record keeping requirement in Section 5(b) is 
consistent with Section III(b) of the Kimberley Process 
Certification Scheme, that provides that documents pertaining 
to the Kimberley Process Certificate be readily accessible. The 
oversight provision in Section 5(c) is designed to strengthen 
government oversight of the diamond industry's issuance of the 
Kimberley Process Certificates.

Importing and exporting authorities (Section 6)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 6(a)(1) designates the Bureau of Customs and Border 
Protection within the Department of Homeland Security as the 
importing authority. Section 6(a)(2) designates the Bureau of 
the Census within the Department of Commerce as the exporting 
authority. Section 6(b) requires the Secretary of State to 
publish a list of all Kimberley Process participants and their 
exporting and importing authorities in the Federal Register.

                           REASON FOR CHANGE

    Section 6(a) is consistent with Section IV of the Kimberley 
Process Certification Scheme, which states that each 
participant in the KPCS should designate an importing and 
exporting authority. While the Bureau of the Census is 
designated as the exporting authority in the Act, the Committee 
anticipates and fully intends that other bureaus within the 
Department of Commerce, and other agencies within the U.S. 
Government such as the Department of Homeland Security, the 
Department of Justice and the Department of the Treasury, will 
assist in enforcing this Act.
    Section 6(b) is consistent with the aims of Section V of 
the Kimberley Process concerning cooperation and transparency 
with respect to information on designated authorities and 
applicable laws and practices of each participant.

Statement of policy (Section 7)

                              present law

    No provision.

                        EXPLANATION OF PROVISION

    Section 7 sets forth a statement of support for the policy 
that the President should promote and facilitate the adoption 
of the Kimberley Process by the international community.

                           REASON FOR CHANGE

    Section 7 is consistent with the Interlaken Declaration and 
the United Nations Security Council Resolution 1459 (2003) 
supporting the Kimberley Process which both stress that the 
widest possible participation in the Certification Scheme is 
essential and should be encouraged and facilitated.

Enforcement (Section 8)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 8 sets forth civil and criminal penalties for 
violations of the Act. Section 8(a)(1) provides that a civil 
penalty not to exceed $10,000 may be imposed on any person who 
violates, or attempts to violate, any license, order, or 
regulation issued under the Act. Section 8(a)(2) provides for a 
fine of not more than $50,000 or, if a natural person, 
imprisonment for not more than 10 years, or both, for willful 
violations, or willful attempts to violate, any license, order, 
or regulation issued under this Act.
    Subsection (b) provides that, in addition to the new 
penalties specified in subsection (a), other civil and criminal 
penalties, including seizure and forfeiture, under the customs 
laws of the United States shall also apply to importations of 
rough diamonds in violation of the Act.

                           REASON FOR CHANGE

    The civil and criminal penalties are intended to ensure 
compliance with the Act.

Technical assistance (Section 9)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 9 permits the President to direct Federal agencies 
to provide technical assistance to countries trying to 
implement the Kimberley Process.

                           REASON FOR CHANGE

    This provision is consistent with Section V(d) of the 
Kimberley Process Certification Scheme which states that 
participants should favorably consider requests from other 
participants for assistance in improving their implementation 
of the Scheme.

Sense of Congress (Section 10)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 10 notes that the Kimberley Process is an ongoing 
process and affirms the importance of statistical analysis and 
sharing in monitoring the implementation of the Kimberley 
Process and its effectiveness in reducing and eliminating the 
trade in conflict diamonds. It provides that the President 
should work with participants on strengthening the Process 
through the adoption of measures to share statistics and that 
the Executive Branch should continue to maintain statistics on 
imports and exports of rough diamonds, share this data with 
other participants and interested parties, and take a 
leadership role in negotiating a standardized methodology for 
reporting statistics.

                           REASON FOR CHANGE

    Section 10 is consistent with the purposes of Annex III of 
the Kimberley Process Certification Scheme, concerning 
statistics, and also with Sections IV(e) and V(b) of the 
Process, providing for the collecting and sharing of statistics 
among participants.

Kimberley Process Implementation Coordinating Committee (Section 11)

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 11 establishes a Kimberley Process Implementation 
Coordinating Committee to coordinate implementation of this 
Act. The coordinating committee will be co-chaired by the 
Secretary of Treasury and the Secretary of State and composed 
in addition of the Secretary of Commerce, the United States 
Trade Representative, the Secretary of Homeland Security, and a 
representative of any other agency the President deems 
appropriate.

                           REASON FOR CHANGE

    Section 11 seeks to ensure effective implementation and 
congressional oversight of the Act, through creation of a 
coordinating committee made up of all the agencies with 
substantive responsibilities under the Act.

Reports (Section 12)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 12(a) provides for annual reports to be submitted 
by the President to Congress on actions taken by countries that 
export rough diamonds to the United States to control the 
exports of diamonds through the Kimberley Process, and on the 
identification of such countries that also export rough 
diamonds not controlled through the Kimberley Process, where 
such uncontrolled exports significantly increased the 
likelihood that such uncontrolled diamonds would be imported 
into the United States. Section 12(a) requires the President to 
describe in the annual reports whether there is statistical 
information or other evidence that would indicate efforts to 
circumvent the Kimberley Process Certification Scheme, 
including cutting rough diamonds for the purpose of 
circumventing the Kimberley Process Certification Scheme.
    Under section 12(b) the President is also required to 
submit semi-annual reports to Congress for each country 
identified under section 12(a)(3) as having problematic non-
Kimberley Process exports. These reports must explain what 
actions the United States and the identified countries have 
taken to ensure that non-Kimberley Process controlled diamonds 
are not being exported to the United States from those 
countries. These reports must continue until such a country is 
no longer identified under section 12(a)(3).

                           REASON FOR CHANGE

    Section 12 is intended to inform Congress regarding 
effective implementation of the Act and of the implementation 
and operation of the Kimberley Process Certification Scheme.

GAO report (Section 13)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 13 provides that, not later than 24 months after 
the effective date of the legislation, the Comptroller General 
is required to transmit a report to Congress on the 
effectiveness of this legislation in preventing the importation 
or exportation of rough diamonds prohibited under Section 4. 
The report shall include any recommendations on any 
modifications to the legislation.

                           REASON FOR CHANGE

    Section 13 is intended to inform Congress regarding 
effective implementation of the Act.

Effective date (Section 14)

                              PRESENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Section 14 provides an effective date for the Act. 
Specifically, Section 14 provides that the Act shall take 
effect on the date the President certifies to Congress that 
either (1) a waiver granted by the WTO is in effect, or (2) an 
applicable decision in a United Nations Security Council 
resolution adopted pursuant to Chapter VII of the United 
Nations Charter is in effect.

                           REASON FOR CHANGE

    Section 14 is consistent with the Preamble to the Kimberley 
Process Certification Scheme and the Interlaken Declaration 
which provide that the international certification scheme for 
rough diamonds and measures taken to implement the scheme will 
be consistent with international law governing international 
trade.

                         VOTES OF THE COMMITTEE

    In compliance with section 133 of the Legislative 
Reorganization Act of 1946, the Committee states that the Clean 
Diamond Act, as amended, was ordered favorably reported with a 
quorum present, by voice vote, on April 2, 2003.

                            BUDGETARY IMPACT

    In compliance with sections 308 and 403 of the 
Congressional Budget Act of 1974, and paragraph 11(a) and (b) 
of rule XXVI of the Standing Rules of the Senate, and section 
423 of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4), 
the following letter has been received from the Congressional 
Budget Office on the budgetary and regulatory impact of the 
legislation:

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

S. 760--Clean Diamond Trade Act

    S. 760 would prohibit the importation into and exportation 
from the United States of any rough diamonds (as defined in the 
bill) that have not been controlled through the Kimberley 
Process Certification Scheme (KPCS). The diamonds prohibited 
from trade are those that come from or go to countries and 
territories that do not participate in the Certification 
Scheme. The KPCS outlines a series of recommended standards, 
practices, and procedures for certification of rough diamonds 
through an international document that was agreed to by the 
United States and 47 other countries. In addition, S. 760 would 
impose civil penalties on individuals who engage in the trade 
of such diamonds.
    CBO estimates that prohibiting the trade of such diamonds 
would have no effect on federal revenues because the duty rate 
on such imports is zero. Also, any additional revenues 
resulting from the civil penalties contained in the bill would 
be less than $500,000 per year. The bill would not affect 
direct spending.
    S. 760 would impose a private-sector mandate, as defined by 
the Unfunded Mandates Reform Act (UMRA), on importers and 
exporters of certain diamonds. The bill would prohibit the 
importation into and exportation from the United States of 
rough diamonds that have not been controlled through the KPCS. 
According to government and industry sources, the diamond 
industry began such a prohibition voluntarily on January 1, 
2003. Therefore the direct cost of the mandate would be 
minimal, if any, and would fall well below the annual threshold 
established by UMRA for private-sector mandates ($117 million 
in 2003, adjusted annually for inflation). CBO has determined 
that the bill contains no intergovernmental mandates as defined 
in the UMRA and would impose no costs on state, local, or 
tribal governments.
    The CBO staff contacts for this estimate are Annie Bartsch 
(for federal revenues), and Paige Piper/Bach (for the impact on 
the private sector). This estimate was approved by G. Thomas 
Woodward, Assistant Director for Tax Analysis.

                        CHANGES IN EXISTING LAW

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee finds no changes in 
existing law made by the bill S. 760, as ordered reported.