bought
normally by cutters from the South African Government, was worth about
305. per carat, 'which is approximately equivalent to the cost per
carat of the wages paid in polishing goods of this size and quality'.
He continued:
If
the South African cutter obtained the full benefit of the remaining 15
per cent, over and above the ordinary trade profit made by the European
cutter on the sale of brilliants, the circumstances would theoretically
be desirable, as that would constitute an additional incentive to the
rapid expansion of the industry, but such is not the case. As a matter
of fact, owing to his restricted financial resources the South African
cutter cannot take full advantage of his favourable circumstances, and
he is therefore exploited by the cutting establishments of Amsterdam
and Antwerp, who finance him on condition that he sells them his
brilliants. In existing circumstances, when the South African industry
is small, the European cutting establishments which finance South
African cutters utilize the brilliants obtained to cheapen their other
goods, and are thereby enabled to undersell other merchants who have
not the advantage of tied South African sources of supply. If the
business of the exploiting European cutters expands, the Syndicate will
have to reduce their present prices in order to enable the other
cutters to compete, and this reduction would inevitably connote a
reduced price to the primary producers, that price being based on the
prices realized in Europe. The South African cutter would then
automatically obtain his rough goods at a reduced price and a vicious
circle would be established in which the primary producers would be
the sufferers. The foregoing illustrates the point I endeavoured to
make in my letter of the 5th instant, i.e. that in the long run prices
and assortments in South Africa must correspond with those of London,
and the South African cutter should, therefore, only have the advantage
of the export tax.
I
may say that I have recently received cables from Europe, of which I
enclose copies, referring to the exploitation of South African cutters
by European cutters. Although I have been able to reassure my
correspondents, the evil, of which they complain, is undoubtedly real
and will increase as the possibilities of the present situation become
more generally appreciated. That is why I have stated in this letter
and in previous letters that the special concessions which the
Syndicate is prepared to make to South Africa could only be allowed to
foster the trade during its infancy. . . .
In
spite of the cogency of these arguments, the Government adhered to its
policy of separate sales and made special provision for continuing to
do so in the sales agreement concluded with the Syndicate in February
1929.
