In its latest head-to-head with Israel, the White House last night was considering renewal of an agreement that allows Israel to buy industrial diamonds at a negotiated price from the U.S. strategic stockpile.
The five-year agreement expires at midnight tonight and is of crucial importance to Israel, which employs 20,000 people to cut and polish the flawed industrial diamonds it sells to the world as "novelty" diamonds, bringing in 40 percent of its foreign exchange. In its push for renewal of the agreement, Israel has the support of most key committee members in the House and Senate.
Israel does not have the same support in the White House, which rejected its attempt earlier this month to buy $60 million in industrial diamonds from the stockpile on grounds that the agreement made five years ago is in apparent conflict with a 1979 law that orders stockpile sales to be made through competitive bids.
"The question before us is whether it's good public policy to renew an agreement that would give one country preferential treatment," one White House source said. "It might be better to have competitive sales and get the best possible prices for the U.S. Treasury."
Israeli sources in Washington point out that there is a provision in the 1979 law for the president to override the competitive-bid clause for country-to-country stockpile sales. Diamonds fall into this category, because the Israeli diamond-cutting concern is owned by the state.
Israeli sources claim that the White House blocked Israel's most recent attempt to buy diamonds in order to put pressure on Israel to settle Middle East disputes. A White House source labeled the claim "pure nonsense."
The only public comment from the administration last night was that renewal of the agreement with Israel is "under intense review" by the National Security Council. Secretary of State Edmund S. Muskie also will be involved.
Trouble loomed for the agreement in 1976, when Israel bought $9 million of industrial diamonds. Diamond cutters in New York and Belgium complained about the sale, which they said gave Israel some of the best stones in the stockpile at less than competitive prices.
One administration source said the sale took place in a New York City bank vault, where diamond experts from Israel walked through ammunition boxes containing the diamonds and picked out the stones they wanted.
Israeli sources argued that there was nothing improper about the sale, even to the point of picking out the best stones. They also said that the diamonds offered for sale were of unusually high quality, for which they paid a fair price.
The sale caused controversy months after it happened. Diamond dealers in Belgium charged that Israel sold 75 percent of the first of six lots it bought to a dealer in Antwerp dealer, who sold them as cutting tools. Israel does not sell diamonds for cutting tools, only as jewelry.
Whether or not the White House decides to renew the agreement with Israel, GSA is authorized to offer for public sale up to 3 million carats of industrial diamonds in the strategic stockpile, which now contains diamonds totaling 20 million carats, 14 million in excess of stockpile needs.
Israel has submitted a bid to purchase up to 2 million of the 3 million carats to be sold, which at an average price of $30 a carat comes to a $60 million bid.
Israel claims it has to have access to the U.S. stockpile because the only other source for diamonds is the South African diamond cartel, which in 1977 put a surcharge of 40 percent on diamond sales to Israel and cut back its allocation to the Middle East country.
Israeli sources said the actions were taken by the South African cartel because Israel's share of the market is growing. Last year, Israel sold $1.5 billion worth of novelty diamonds, a 50 percent increase over what it sold in 1978.