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Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue 16 - Evidence - June 16, 2005


OTTAWA, Thursday, June 16, 2005

The Standing Senate Committee on Energy, the Environment and Natural Resources, to which was referred Bill S- 36, to amend the Export and Import of Rough Diamonds Act, met this day at 8:35 a.m. to give consideration to the bill.

Senator Tommy Banks (Chairman) in the chair.

[English]

The Chairman: I call to order this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources, which is considering Bill S-36, an act to amend the Export and Import of Rough Diamonds Act.

Members will recall that we dealt with the Kimberley Process a while ago. This bill is to amend that process in two respects.

Mr. Bagnell, all members of the committee extend our congratulations to you on your engagement of yesterday. We also extend our best wishes to your minister for his early recovery.

The Honourable Larry Bagnell, Parliamentary Secretary to the Minister of Natural Resources: With me at the table are Louis Perron and Shari Buchanan, and there are other officials in the background.

As the chairman said, this bill only makes two amendments to the Export and Import of Rough Diamonds Act. As you know, in some places in the world diamonds are used to fund rebel groups and governments that slaughter people and do all sorts of other bad things. For that reason, we implemented the Kimberley Process, which requires certificates for import and export of diamonds. Virtually every country in the world that deals with diamonds adheres to that process in order that such things do not happen. However, we rushed our legislation on that and we missed a couple of important elements, and Bill S-36 is to provide for those.

The first amendment will allow us to give our partners in the Kimberley Process the statistics that we collect through these permits, as most countries already can. Of course, the purpose of the exercise is to be aware of what is happening in the trade of diamonds so that there is no illegal trade in blood diamonds.

The second amendment is with respect to what are called ``powder diamonds,'' or diamonds smaller than one millimetre. They are nearly worthless and there are millions of them. Of course, we do not want to require a certificate for each one of those, as that would be very complicated, so the 43 countries in this process decided to require certificates only for diamonds larger than one millimetre, and this bill makes that amendment to the act.

It is a pleasure to speak to you on Bill S-38, which is designed to amend the Export and Import of Rough Diamonds Act. The act provides controls for the export, import and transit across Canada of rough diamonds and enables implementation in Canada of the international Kimberley Process Certification Scheme for trade in rough diamonds which came into force on January 1, 2003, under the authority of the Minister of Natural Resources.

It is important to understand the international concern that persists about the link between illicit international trade in rough diamonds and armed conflict, particularly in Angola, Sierra Leone and the Democratic Republic of Congo.

While ``conflict diamonds'' constitute a small percentage of international diamond trade, they have had a devastating impact on peace, security and sustainable development in affected countries.

The Kimberley Process is the principal international initiative established to develop practical approaches to the ``conflict diamond'' challenge. The process was initiated in May 2000 by several southern African countries in response to growing international pressure to address peace and security concerns, as well as to protect the national economies of several southern African countries that depend on the diamond industry. It was simultaneously implemented at national levels by participating countries on January 1, 2003. Canada has since chaired the Kimberley Process in 2004 and continues to be ongoing chair of the Kimberley Process Statistics Working Group in Gatineau. We had the meeting here in Ottawa.

Canada's key interests in participating in the Kimberley Process Certification Scheme have been to advance peace and human security in affected parts of Africa and to help maintain public confidence in the legitimate diamond industry, particularly given Canada's status as a major diamond producer.

The process now includes 43 countries involved in producing, processing, importing and exporting rough diamonds. These countries account for 99.8 per cent of the global trade in and production of rough diamonds. They include all of Canada's major diamond trading partners.

Although the Kimberley Process is still in the early stages of implementation, it has already had a concrete and positive impact on the international trade in rough diamonds and on the fortunes of conflict diamond-affected countries. In assessing the success of the Kimberley Process to date, the most important measure it has made is the contribution in assisting conflict diamond-affected countries in regaining control over their diamond resources. Peace agreements in Sierra Leone, Angola and the Democratic Republic of Congo, in combination with the implementation of the Kimberley Process, have enabled these countries to substantially increase the proportion of their diamonds being exported through official government channels. For example, Sierra Leone's certified exports in 2004 are estimated to be valued at $130 million versus $10 million in 2000.

Since the launch of the Kimberley Process in January 2003, national authorities have seized dozens of diamond shipments imported in violation of the Kimberley Process procedures. In most of these cases, criminal charges have been laid and prosecutions have either been completed or remain ongoing.

Although Canada's status as an important diamond-producing country is recent, it is currently estimated to be providing some 4,000 direct and indirect Canadian jobs. Mine production in 2004 is estimated to be valued at $2.1 billion Canadian. Canada currently ranks as the world's third most important diamond producer by value.

This only marks the start of Canada's diamond history as more mines are scheduled to come into production in the coming years. These include the Jericho mine in Nunavut in 2006, the Snap Lake mine in the Northwest Territories in 2007, and the Victor mine in Ontario in 2008. These and other advanced exploration projects located in the same areas, and also in Quebec and Saskatchewan, ensure prosperous times to come for the economy of many regions, including Aboriginal communities, major Canadian cities as hubs for the financial markets, equipment manufacturing companies, and allied industries.

In addition to diamond mining, a small diamond cutting and polishing industry has grown in Yellowknife, Vancouver, Toronto, Montreal, and Matane, Quebec. These operations have an important training component, which includes a number of Aboriginal apprentices.

Both the mining industry and diamond cutting and polishing industry are dependent on access to export markets, and this access depends on Canada's participation in the Kimberley Process. Because the Kimberley Process Certification Scheme is in its early phase of operation, shortcomings that impede its effectiveness were noted and addressed at the KimberleyProcess Plenary meeting held in Gatineau, Quebec, from October 27-29, 2004.

For Canada to be compliant with the modifications brought forward at the Kimberley Process Plenary meeting, amendments to the act are required, first, to introduce a provision to enable the publication of Kimberley Process Certificate-based import and export statistics collected through the Kimberley Process Certification Scheme; and, second, to change the definition of the term ``rough diamond'' as defined in the act and provide ministerial powers to facilitate future changes to the term as required by the Kimberley Process Certification Scheme.

Bill S-36 provides the required changes to the act for Canada to comply with the Kimberley Process requirements. Regarding the first amendment, under the Kimberley Process Certification Scheme participants are required to submit trade data in order to facilitate the identification of irregular trade activity, which is the foundation of the scheme. Most participants submit trade data based on Kimberley Process Certificates. Currently, however, Canada is one of only a handful of participants that does not submit Kimberley Process Certificate-based trade data, as the act does not give Canada the authority to publish trade data statistics based on Kimberley Process Certificate data. Canada can only submit the official trade statistics published by Statistics Canada, which are based on customs export and import declarations.

The Kimberley Process Plenary meeting in October 2004 recognized that statistics derived from different sources are hindering the comparability and analysis of the trade data and, consequently, the effectiveness of the Kimberley Process Certification Scheme. For this reason, Partnership Africa Canada has been quite vocal in having Canada amend its act to enable the publication of Kimberley Process Certificate-based trade data.

The second amendment, to change the definition of the term ``rough diamond,'' as defined in the act, and to provide ministerial powers to prescribe the classes of diamonds to be excluded from the definition of ``rough diamond,'' is required to comply with changes adopted in the Kimberley Process Plenary meeting, which limits the applicability of the Kimberley Process Certification Scheme to diamonds equal to or larger than one millimetre in one dimension. This decision was made to remove unnecessary administrative burden on the Kimberley Process Certification Scheme as the smaller diamonds are of too little value for illicit trade.

These amendments are technical in nature and do not require any policy changes. I support these amendments to be made now in order to signal to Canadian stakeholders and to the international community that Canada is moving ahead to comply with evolving requirements of the Kimberley Process Certification Scheme.

The Chairman: Honourable senators, we have received letters in respect of this bill from members of the companies that are involved in the diamond industry. However, we only received them yesterday, so they have not been translated. With your permission, I will distribute them to you now.

Is it your pleasure to look at those letters now before we begin questioning the witness?

Hon. Senators: Agreed.

Senator Di Nino: Could you give us a flavour of those rather than take up time now? Are they supportive? Do they raise concerns?

The Chairman: They are generally supportive. I do not want to interrupt the flow of questioning. You were first, Senator Di Nino. Since you have asked, I will characterize them.

On the first amendment to which Mr. Bagnell referred, the sharing of information, they are hopeful for the regions set out in these letters that there will be a delay of between 10 and 12 weeks in the sharing of that information. They are concerned about it constituting an infringement of their proprietary interests.

Although these small diamonds have little value for trade, they are useful in determining what the nature of the pipe is, as they are called, and the quality of diamonds being obtained from it. Competitors would have direct inside information, unlessthe 10- to 12-week delay was in place.

The second issue they are concerned about is the reference to one millimetre, although Mr. Bagnell said the act contains the authority for the minister to change the designation of the measurement to determine exclusion of diamonds from the act. Their point is that one millimetre is not a term in the industry, or a practical effect, that is used to determine the size of diamonds. Rather, they go by different designations of quality based on the sieves that they use and they are referred to specifically in the letter. They are supportive of the thrust of the bill, but they have those two concerns about the amendments.

Mr. Bagnell: On the delay, that is a standard procedure now. We plan to maintain that for the very reason the industry wants. That should not be a concern. We are going to release the stats. It is about three months or so. As they would like, we will continue not releasing the data. We get the data from another source, which is a problem because it is not identical, but we will continue the delay. That would address the first concern.

The second concern was what again?

The Chairman: The measurement.

Mr. Bagnell: The sizing, yes. That is one of the reasons we are putting this in regulations. When you do regulations, you have to gazette. We agreed to consult with the industry before we made the regulations for that very reason because we know they use sieves, for instance, which may have a hard time catching a diamond that is in one dimension. It is a specific length. That is why we want to have a regulation as opposed to leaving it exactly in the act. The exact wording in the Kimberley Process comes up because it may not match these sieves. We would have a regulation that, of course, is consulted through gazetting with the industry to come up with something that not only fulfills the intent of the process but also is practical.

The industry will have a lot more say through this process to ensure that that occurs, and we have already given them our commitment to consult with them in developing this regulation for that very reason.

Senator Di Nino: First, I, too, would like to add my congratulations. We should put on the record that this initiative was really created by a group of African countries who recognized the problem. I do not want to take too much time, but as you know our Standing Senate Committee on Foreign Affairs is studying Africa and the statement that keeps recurring is that Africa has to do for itself. This is one of those very good examples and we should applaud them and also Canada for joining.

I have a quick comment on one of your statements. I believe you said that diamond usage was being abused, and so on. I hope you are correct. I am not confident that the misuse of that resource for purposes of tyrants and despots is totally finished, but I am sure that the system at least is in place to hopefully stop it completely.

The chairman partially dealt with the issue of proscribed by the regulation. We are always concerned about what we refer to as framework legislation which gives too much power, in my opinion, to the minister for future changes or future amendments that may not fully respect the intent of the law. That is one of the first questions I had. You have partially answered it, Mr. Bagnell, but would like you to deal with that a little more?

Second, we talk about the Kimberley Process including only rough diamonds, not finished diamonds. You mentioned in your comments that in Canada we have now started a new cutting and polishing industry. What is stopping some of these African countries, or other countries from anywhere in the world, from setting up a process of cutting and polishing and selling a finished diamond? Why is that not caught in the Kimberley Process system?

Third, what are the penalties for non-compliance in the legislation? I have not detected any commentary about penalties for non-compliance other than seizing of that shipment.

Mr. Bagnell: Regarding the penalties, the Republic of Congo lost its participant status for violation, so countries can be kicked out if they do not follow. The problem is they will not be able to sell their diamonds. Canada's major partners for selling or for buying diamonds are Europe and the United States. All the major countries involved in purchasing, the markets and everything, are members of the Kimberley Process. Therefore if a country is kicked out, they will not be able to sell their diamonds.

Senator Di Nino: Is that in the legislation somewhere?

The Chairman: It is in the Kimberley Process?

Senator Di Nino: It is in the original bill?

Mr. Louis Perron, Senior Policy Advisor, Minerals and Metals Sector, Natural Resources Canada: Yes. The Kimberley Process does confirm that if the participant countries do not abide by the requirements of the process, there is a way to exclude those participants from the process. Obviously this is a significant step, because at that time this country cannot participate or trade with all the rest of the participants, which cover about 99.8 per cent of their trade. It is a significant movement.

Mr. Bagnell: I will let Mr. Perron answer the second question, but I will answer your first question which is about the power for the minister to change things that are not within the intent.

It is an interesting question in consideration of a debate we are having in Parliament this week, because we were doing something in the exact opposite direction in the Fisheries Act. The Conservatives were putting something in the act from a regulation. Here, we are putting it into a regulation from the act. They were arguing that, because we are putting it in the act, we are taking it out of the purview of both senators and parliamentarians because regulations are scrutinized by Parliaments through our Joint Scrutiny of Regulations Committee. They were saying, ``Do not take this authority away from Parliament by putting it in the act. Leave it in regulations.'' What we are doing here is putting this in regulations.

There are two reasons that I do not think a minister would be able to abuse this. First, there is the process itself. All the countries must comply with the intent of the process. If a rogue minister were to try, through regulation, to convince his cabinet colleagues to do something inappropriate, the other 42 countries would kick us out of the process and we would not be able to sell our diamonds. We would be caught there.

Second, you have scrutiny over it and, because we are putting in a new regulation, it actually gives us more scrutiny to stop the government from doing that. We have a Joint Scrutiny of Regulations Committee of both the Senate and the House of Commons. During that process, it is publicly gazetted so that the watchdog, NGOs and anyone else interested would also bring it forward.

There are so many checks and balances in this chain that that would not be a concern. I had actually researched this because you had raised it and I thank you for that because I wanted to be sure myself.

Senator Di Nino: For the record, I want you to repeat the fact that there will be a consultation process with the industry. That concerns me most. You said it in your preamble, but as part of the answer for the record, I will repeat that you did say that there will be a consultation process before the regulations are enacted, because the industry would find it very difficult if it was already in effect. Although it is gazetted, and so on, it is much easier to convince the powers, if you wish, from an industry standpoint to massage the regulations so that it is not against some of their principles.

Mr. Bagnell: That is true. For the record, there will be consultation before these regulations are gazetted with the industry.

Senator Di Nino: Thank you, Mr. Bagnell.

Mr. Bagnell: Mr. Perron will now respond to your second question on the processed diamonds as opposed to rough diamonds and give you the technical details on that.

Mr. Perron: On your question about cutting and polishing in Africa, essentially they have the same problems we have in Canada when setting up a cutting and polishing industry. A lot of expertise, education and equipment are needed to develop this cutting industry. There is an issue of the various aspects of the trade and the capital costs associated with it that make it more difficult to start a cutting and polishing industry in Africa in general. Once you have all of this industry set up or the people lined up with the expertise to cut and polish, then you must ensure that you can compete with international competitors, being able to cut and polish at a cost that can compete with the rest of the world on this.

Mr. Bagnell: What is to stop them from getting around the trade in diamonds? The act says ``rough diamonds.'' What is to stop them from just cutting them and then doing illegal trade?

Mr. Perron: Presently, the Kimberley Process does not address the cutting and polishing part of the industry. As I understand it, the first step with the Kimberley Process was to regulate the trade of rough diamonds. Obviously, if this goes on, and if the Kimberley Process is successful, another process could be put in place to address the concerns on the cutting and polishing industry.

There is also, I might add, not having to do with the Kimberley Process, a Canadian diamond code of conduct which is a voluntary code with the industry that addresses some of these concerns. Essentially, there is a paper trail between the mine where the diamonds are extracted from the soil and the final sale. That links the fact that the diamonds are legal or have been mined and produced legally. A cutting and polishing industry in Canada would not buy a diamond that does not have a paper trail associated with it, or therefore an illegally produced diamond.

The Chairman: So that we understand clearly the answer to Senator Di Nino's question, let me pose a hypothetical situation. You said the Democratic Republic of the Congo has been turfed. I assume we can call them the bad guys in this case, because they have been known to deal with what are called ``blood diamonds.'' If the Democratic Republic of the Congo set up a cutting and polishing industry in the Congo and nefariously got rough diamonds and cut them and polished them, then a dealer in Canada or Amsterdam could buy those diamonds. Is that correct?

Mr. Perron: Yes. If I understand Senator Banks, rough diamonds that are produced outside of the Kimberley Process cannot be bought by participants to the Kimberley Process, because there is no certificate attached to those. If any company of a participant buys those diamonds, this can force the expulsion of that country out of the Kimberley Process.

The Chairman: But if the Democratic Republic of the Congo —

Mr. Bagnell: I made a mistake. It is the Republic of Congo.

The Chairman: If the Republic of Congo, the government of the Republic of Congo or some commercial enterprise in the Republic of Congo set up, however expensive or difficult it might be, a cutting and polishing operation, and they derive, immorally, in our view, rough diamonds, and then they process those diamonds, cut them and they polish them in the Congo, they are now no longer rough diamonds. They could now go on to the international market without being caught by any regulatory process such as the Kimberley Process. That was the nature of Senator Di Nino's question. Is that correct?

Senator Di Nino: In general, that is the question. If I could, the question is this: Why not include all diamonds in the Kimberley Process, in effect? That would, for me at least, give greater comfort.

Mr. Perron: I am sure that this is something that may be addressed in the future, but right now the Kimberley Process does not address that type of situation.

Mr. Bob Lomas, Director, Special Projects Division, Minerals and Metals Sector, Natural Resources Canada: If I might add, what you said is possible. That could happen. You could cut and polish within the Republic of Congo. That, in effect, would legalize the diamond in terms of the Kimberley Process because there are no controls on trade in polished diamonds. It is important to consider, though, that what you are talking about is establishing a legitimate industry within the country that would likely come under the scrutiny of the government. The problem you have with the illicit trade of diamonds is actually smuggling diamonds out of the country, diamonds that are not going through a formal process. If you are to develop a formal industry which will require installation of equipment and training of people, it may take a couple of years to develop. It will not be an easy task. I think the problem right now is, in terms of rebel organizations, the movement of rough diamonds, not the movement of polished diamonds.

Senator Di Nino: As one final comment, we do know that, in effect, governments have been abusing the system, so hypothetically a government could set up its system and get around the Kimberley Process. That is the point I am making. We, as the good guys, should raise that at some point in time to this process.

Mr. Bagnell: Would it be safe to assume that the countries that are problematic are not the countries that have most of the sophisticated processing business in diamonds?

Mr. Lomas: I think that would be fair, but clearly the problem right now is rebels having control of diamond producing areas and being able to get control of the diamond production and not exporting through proper government channels. That is the main issue right now.

Senator Fraser: I support the Kimberley Process, and I am glad to see we are doing what we can to cooperate with it. However, the Kimberley Process thus does not include paperwork so that a diamond, once certified in the rough, so to speak, would carry that certification all the way through. There is no way to know. It just stops at the import-export stage. If I am a diamond cutter in Amsterdam and I want to import rough diamonds from Africa, I will have to have a certificate showing that they have been certified under the Kimberley Process, but that is it. I can just put that certificate in the file. I do not have to duplicate it after I cut and polish the diamonds and send them on. I do not have to accompany the finished diamonds with duplicates of the paperwork. Is that correct?

Mr. Perron: Yes, that is correct. The Kimberley Process addresses the trade of rough diamonds, essentially, so when the cutting and polishing industry buys diamonds on the market, the rough diamonds coming into Canada will need to have a certificate attached to them, but that is where it stops. Any paper trail that follows that is not associated with the Kimberley Process. It is an internal process that the industry puts in place.

Senator Fraser: If I import rough, uncut diamonds into Canada and I want to sell them to someone in Canada, does the Kimberley Process apply? Will the person to whom I sell them require the paperwork, or is it just a border control?

Mr. Perron: The Kimberley Process is for border control only and does not address that part of the issue. However, as I said, in Canada we have the Canadian Diamond Code of Conduct.

Senator Fraser: We were supplied with an interesting background paper from Global Witness and Partnership Africa Canada which is sympathetic to the Kimberley Process. It sets out a number of improvements that the authors believe need to be made, and I believe that they make a plausible case. One of the improvements they suggest is better statistics which this bill addresses. They also make a series of recommendations that go beyond the purview of any one government, I would think, which involve better review and monitoring processes, and better enforcement with quicker suspensions, et cetera.

Are the countries that participate in the Kimberley Process actively working to strengthen these mechanisms?

Mr. Perron: Yes, they are.

Senator Fraser: It really is a work-in-progress.

Mr. Perron: Yes.

Senator Fraser: I understand that there is to be a meeting this month.

Mr. Perron: We met last week in Russia, as Russia is the chair of the Kimberley Process for 2005. As you said, it is awork-in-progress. There are two meetings each year, aninter-sessional meeting and a plenary meeting, at which the various difficulties the Kimberley Process is finding are addressed. The amendment in this bill with regard to the sizing of diamonds is in response to a decision taken at the October 2004 meeting to exclude diamonds less than one millimetre in diameter from the purview of the Kimberley Process.

Senator Fraser: Were any agreements made last week that will result in further amendments to the act?

Mr. Perron: You asked about a better review. The review is built into the act and will be done in 2006, after three years of operation. Also, a review will be done at the international level beginning in 2006 to look at all the workings of the Kimberley Process and to address all the matters that have not yet been addressed.

The Chairman: Do other signatory countries to the Kimberley Process have the same kind of flexibility with regard to the one millimetre size? If I remember correctly, the Kimberley Process stipulates one millimetre or less, and I presume the sieve designations are used by the industry in producing countries other than Canada. Will they be modifying the definition of measurements in their legislation?

Mr. Perron: The Kimberley Process contains a technical guideline. The intent is to exclude diamonds of less than one millimetre. It is up to each participant to decide how they will implement that guideline. In some cases they will use the designation of one millimetre and in others they will use sieve numbers. That is a decision each participant country makes to ensure that they can implement the guideline properly.

Senator Fraser: Clause 1 of the bill before us says:

``rough diamond'' means a diamond that is unsorted, unworked or simply sawn, cleaved or bruted...

What is ``bruted?''

Mr. Perron: A rough diamond is very angular. Bruting is the first step in the cutting and polishing of the diamond. The edges are smoothed out a bit.

Senator Fraser: Mr. Bagnell, I hope your engagement will include Canadian diamonds.

Mr. Bagnell: Actually, she proposed to me and the ring includes Yukon gold nuggets.

Senator Adams: Mr. Bagnell is my next-door neighbour in Nunavut. Rankin Inlet is very close, only about 2,000 miles away.

I recall when diamond companies began coming into the territory before the Nunavut land claim was settled. At that time, the Government of Canada did not have a policy on diamonds. This amendment to the Kimberley Process deals with diamonds of less than one millimetre. What will this mean to the diamond companies? Does it affect the tax they will pay?

Currently, we have regulations for the operation of diamond companies in Canada. Will this bill affect the exportation of diamonds?

Mr. Perron: Senator Adams, diamonds under one millimetre in diameter are about the size of a grain of salt. Cutting diamonds that small is quite a feat. Currently Canadian producers are not extracting diamonds that small. They extract only diamonds more than 1.6 millimetres in diameter. Although in the future they may want to extract diamonds that small, currently the two main producers do not. These small diamonds are worth less than $1 a dollar and we are only excluding them from process in order to facilitate handling under the process.

In some countries, like Russia, they do trade these small diamonds, for whatever purposes, and there can be some fair exchange of that. Restricting the controls to diamonds that have value and can be used to finance conflicts in conflicted areas is the real reason behind trying to exclude those small diamonds from the process.

It is the same thing as excluding the diamonds used in industrial processes. Those do not require certificates because there we are talking about powder diamonds. The value of them is not commercial. There is no significant commercial value to them. That is essentially why this technical guideline was adopted by the international Kimberley Process. As a participant, we now need to implement that in Canada.

Mr. Bagnell: This is just for the problem of the rebel groups on the diamonds. If there are to be other regulations related to diamonds, they must go through the rules of any other commodity in Canada — it does not matter what size they are — for importing and exporting and all the rules of businesses and taxes. Nothing is excluded from that. This is just for the certificate. We ensure the ones worth more than $1 are certificates so that rebel groups do not use them. It is a particular purpose of both this act and this bill, but it does not preclude any other regulations the Government of Northwest Territories or Government of Canada wants to make related to diamonds or any other commodities.

Senator Adams: If you used that exporting, do you have a special tax for the Inuit right now? Presently, I do not know how the diamond company works. If someone is carrying the diamond and it breaks in its case and then they take it to Vancouver and leave behind a little bit in Yellowknife, is there an inspection to determine if the size is worth it here in Canada and then to separate it from the other diamonds? Will it work that way?

Mr. Bagnell: They must be separated for exporting. The little ones have to be separate from the ones where you need a certificate. It is part of the act and the changes we are putting in today.

Senator Adams: This is only in my area of Nunavut, but we had some meetings last March in Rankin Inlet, and we found something happening between Rankin Inlet and Chesterfield. We now have an exploration with a 36-man crew between Rankin Inlet and Chesterfield. In the future, is the government looking towards this area?

We do not have good mapping in northern Canada, but companies want to prospect and to explore, especially in the land claim area, which is very typical. This is an Inuit area. In Nunavut, so many square kilometres belong to the federal government. Sometimes it is very difficult. I deal with people from Nunavut and from the federal government's side on land. In the future, maybe Mr. Bagnell's department can look at this stuff with the Government of Canada.

Mr. Bagnell: We are looking at some more money in our department for funding geoscience mapping. We are trying to get cabinet to give us some more money to do exactly that, senator, because I know Nunavut is one of the areas in Canada that has the least geoscience mapping. You are right. We need more there so we can find more of these operations. You have the one diamond find so far, but we could find more, whether it is on settlement land or non- settlement land. Once the government helps to find and map it, then the companies can go in and find it and build your economy. It is a good point and good that you have it on record because that will help us when we lobby for that money.

The Chairman: The first finds did not rely very much on government information. They relied on determined people, none of whom were believed at the time. They said, ``There are diamonds up there.''

Senator Buchanan: The Minister of Natural Resources is very fortunate to have a person of your great calibre, Mr. Bagnell, as their parliamentary secretary. As Mr. Bagnell and I have discussed many times, we have many Bagnell families in Nova Scotia, right?

Mr. Bagnell: That is right.

Senator Buchanan: Half Liberal, half Conservative. In my many years as premier, I learned about what they all were. They were and still are very honourable people.

Think how fortunate we are today to have two Buchanans around this table. Ms. Buchanan, you are no doubt, like me, a graduate of Dalhousie Law School.

Ms. Shari Buchanan, Counsel, Legal Services, Natural Resources Canada: No, I am a graduate of the University of Ottawa.

Senator Buchanan: I cannot find too many Perrons in Nova Scotia.

After that preamble, I really have no problem with this bill at all, but I do have several questions. First, what is ``diamond powder'' and why is it excluded?

Mr. Bagnell: That is the reference to the small diamonds less than one millimetre.

Mr. Perron: Diamond powder is very small. Diamonds that are crushed will break down into powder form. They are used in cutting tools, so essentially they just put glue to hold the powder together. This is used for abrasive purposes essentially.

Senator Buchanan: Do we have a cutting and polishing industry in Canada yet?

Mr. Perron: Yes, we do. There is a cutting and polishing industry based in Yellowknife. There is another in Vancouver, Montreal and Toronto.

Senator Buchanan: Related to our mines in the North?

Mr. Perron: They use in large part the diamonds produced or extracted in Canada.

Mr. Bagnell: I visited the production plant in Yellowknife and what is very heartening is the skill for those interested, which is applicable to our Aboriginal people. They are marvellous carvers to start with. I have been told those who are interested and stick with it, because it does take a lot of training, are among the best in the world. We have to compete in a tough market. Where it is economic, it is great for Aboriginal people.

Senator Fraser, this afternoon I will look at a Canadian diamond for purchase. I encourage everyone to support the Canadian diamond industry.

Senator Buchanan: Is Amsterdam still considered the capital of the diamond cutting and polishing industry?

Mr. Perron: No, it is Antwerp, which is the hub of trade in diamonds.

Senator Buchanan: What about cutting?

Mr. Perron: The cutting and polishing industry in Antwerp is expensive. As a result, they try to concentrate on diamonds that are larger in size.

The Chairman: My question has nothing to do with the Kimberley Process per se. There is a Canadian certification process. You will know when you are buying a Canadian diamond; is that correct?

Mr. Perron: Yes. As I was saying earlier, Senator Banks, the Canadian diamond voluntary code of conduct attaches a paper trail to the diamonds from the mine to the retail sale.

Senator Peterson: As I understand it, the primary purpose of the bill is to stop the financial gains of the rebels who deal in these diamonds. It appears that the bill should be able to do that. Most of these people are quite resourceful. Let us say that their funding is cut off and they try to cut the diamonds and even polish them. How could they sell them? Could they go anywhere to do that? It would appear there would not be a market, but, if there was one, where would it be?

Mr. Bagnell: As we mentioned when that question arose earlier, they could be sold anywhere. Diamonds can be sold all over the world. They are easy to sell. They are not covered by this process. To date, the people who have been causing the problem are not that sophisticated. It is a complicated and detailed industry. It takes some time to obtain the machinery and to train people to use it. The rebel groups grabbing these diamonds to fund their conflicts are not that sophisticated. As such, it is not a problem. As Mr. Perron said, if it becomes a problem in the future, then the Kimberley Process could look at regulating those types of cut diamonds.

Mr. Perron: They would be able to sell them in Canada, but they would not be able to sell them as a Canadian diamond. That is because there would not be any paper trail attached to that diamond as it went out to be cut and polished.

Senator Peterson: If they are outside this process, I do not know how, all of a sudden, they could be marketed in reputable countries. They would have to go to a disreputable dealer who would be prepared to pony up the money and take his chances on then selling them to dealers or to whomever.

Mr. Perron: Exactly.

Senator Peterson: When you are talking millions of dollars, once their funding is cut off, they will be looking at other ways. They will not say, ``Too bad. They passed the bill and cut us off.'' I hope this is going far enough so that there will be no place for them to go.

Mr. Perron: The last resort is the customer. As I was saying, if you go to a store to buy a Canadian diamond, there is a paper trail that ensures that what you have is a diamond mined in Canada. Obviously, if the seller cannot guarantee that to you, then you should not go for that type of diamond. Let us say there is a certain resistance on the part of the customer to buy diamonds that come out of the system in an illegal way. I am certain that will cause difficulty for these smugglers when it comes time to try to sell their wares.

Senator Peterson: I have trouble with that. I do not think I would be relying on customers to look after the flow of illegal diamonds.

Mr. Perron: The Kimberley Process tries to prevent that from happening at the rough diamond level. As for the polished level, that is not under the control of the Kimberley Process.

Mr. Bagnell: These rebel groups will go in with their machine guns to take over a diamond mine where they will have access to rough diamonds which are pretty valuable. They can sell those and fund the acquisition of more guns. To date, that has not been a problem. They are not nearly sophisticated enough to acquire the equipment and train the people needed to set up a modern processing industry. That is why it has not been a problem.

Senator Di Nino: I am with Senator Peterson. We keep talking about rebel groups, and there have been some awful ones. However, there have also been governments that have abused and misused. They are more sophisticated.

Having said that, it is impossible to legislate or regulate honesty and integrity. We will never stop completely the bad guys. However, I applaud the process that has been put in place. I think the system has helped. I particularly applaud the fact that it was started by a number of African countries.

Mr. Bagnell said that they are now seizing diamonds. What happens to those diamonds?

Senator Fraser: Can we buy them?

Senator Di Nino: They are a little rough. We would have to take them to Yellowknife. Having said that, I do not think either you or I would want them anyway.

What happens to them? Do governments keep them? Is there something in the Kimberley Process that would direct that those resources be supervised, monitored, et cetera? Do we know?

Mr. Perron: I will speak for Canada. Unfortunately, we have to destroy those diamonds. When they are seized, essentially, they are seen as having gone against the Kimberley Process. Thus, they are related to something illegal. Essentially, it would not be appropriate for the Canadian government to take those diamonds and then put them back in circulation and profit from their sale. If they were produced illegally and we stop them at the border, we know that they are being smuggled. If we turn around and sell those diamonds in the marketplace, that goes against the nature of the Kimberley Process.

Senator Di Nino: I was afraid you were going to say that. That was going through my mind. That sounds like a waste. Mr. Chairman, that is a discussion for another day. I believe there is some way that those resources can be put into some controlled hands to help the system. If you had someone smuggling $10 million over the Canadian border from the United States, you would not burn that money.

The Chairman: The master act which this bill seeks to amend says that subject to the regulations under the act seized diamonds must be disposed of.

Senator Di Nino: That is what I was afraid of. I think there should be a better way of using that resource to fight these tyrants.

The Chairman: How would you destroy a diamond?

Mr. Perron: It is an easy process. You just crush them.

Senator Gustafson: Mr. Chairman, I have a very general question. Mr. Minister, you talked about there being advanced exploration projects taking place. You mentioned Quebec and Saskatchewan. How do you know there are diamonds in Saskatchewan, for instance?

Mr. Bagnell: When they were found in Canada, it started a slew of prospecting all across Canada. These are the areas where they made some initial finds, and now they are doing more exploration to see whether it is enough to be commercial. I gave you a schedule of the ones coming on line next. One is in Nunavut; one is in Ontario. There are other ones, like in Saskatchewan, where they found them but they have to ensure through further exploration that there is enough to make a commercial mine out of it.

Senator Gustafson: How much seismic work has been done, to use the oil term?

Mr. Bagnell: I think it is drilling as opposed to seismic work.

Mr. Perron: It is mostly magnetic geophysical surveys and then potentially drilling and bulk sampling of these deposits.

The Chairman: Thank you very much, Mr. Bagnell and associates, for being with us. We appreciate your time.

I do not see any reason that we cannot now proceed with this bill, if that is the wish of senators. Do any senators wish to propose any amendments?

Hon. Senators: No.

The Chairman: If we are happy with the bill, I suggest we could dispose of it now. Senator Peterson, you are the sponsor of the bill. Is that agreeable with you?

Senator Peterson: That would be fine.

The Chairman: Is it agreed, honourable senators, that the committee move to clause-by-clause consideration of Bill S-36, to amend the Export and Import of Rough Diamonds Act?

Hon. Senators: Agreed.

The Chairman: There is a new rule which I will now observe. Since this is a relatively simple bill that contains only the two provisions that we have discussed with Mr. Bagnell, would you agree that the committee dispense with clause- by-clause consideration and report the bill in whole?

Some Hon. Senators: Agreed.

The Chairman: I require that this be unanimous.

Hon. Senators: Agreed.

The Chairman: Is there a dissenting vote? I will require a motion to that effect.

Senator Buchanan: So moved, Mr. Chairman.

The Chairman: Senator Buchanan has moved that the committee dispense with clause-by-clause consideration of Bill S-36, to amend the Export and Import of Rough Diamonds Act. Is it your pleasure, honourable senators, to adopt the motion?

Hon. Senators: Agreed.

The Chairman: Is there any vote in opposition?

Is it agreed that I report this bill at the next sitting of the Senate?

Hon. Senators: Agreed.

The Chairman: Thank you.

The committee adjourned.