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Brussels - The European Union's Court of Justice on Wednesday annulled an EU antitrust decision that had prevented South African giant De Beers from buying rough diamonds from Russian rival Alrosa.
The EU court said that European Commission efforts to curb business between the two diamond operations was "manifestly disproportionate", adding EU regulators did not prove that the two together held a "dominant position" in the EU market that would justify limiting their freedom to do business.
The Commission said last year that De Beers agreed to legally binding commitments to stop buying rough diamonds from Alrosa after negotiations with De Beers.
EU regulators claimed that De Beers held an unrivaled position in the diamond market for much of the 20th century but its promise to stop buying gems from Alrosa starting in 2009 would open up new opportunity for competition in the worldwide rough diamond market - worth US$12bn in 2004.
Last year's deal closed an antitrust probe into a deal between the two firms that the EU warned could shut out other competitors.
Alrosa, however took the De Beers deal with the EU to the Luxembourg-based EU court, claiming it was unfair.
The EU court ruling said the European Commission was wrong to accept commitments proposed by De Beers last year "at face value, without looking for alternative solutions" that might have better respected the two companies' right to do business together.
It added that Alrosa also had "a right to be heard" in the negotiations last year, before a deal was reached between De Beers and EU regulators.
De Beers controls about 60% of the world's rough diamond supplies and produces 43% of world output.
Under the 2006 deal, the company was to start to phase out purchases between 2006 and 2008.
De Beers had been threatened with fines of up to 10% of its total worldwide turnover if it did not stick to the EU antitrust agreement.
Russia's Alrosa is the world's second-largest rough diamond producer after De Beers. Under a 2001 deal, De Beers said it would buy diamonds worth US$800m from Alrosa every year for five years.