By Adrian Croft and Justyna Pawlak
BRUSSELS (Reuters) - Belgium, centre of the global diamond trade, is demanding that the European Union lift sanctions on a Zimbabwean mining firm despite deep concerns within the bloc over alleged fraud in a July election that kept President Robert Mugabe in power.
Belgium's call for the removal of sanctions on the state-run Zimbabwe Mining Development Corporation (ZMDC) has put it at odds with other EU countries such as Britain which is reluctant to rush into a move that could be seen as rewarding Mugabe.
EU states are squabbling over how to interpret an agreement by EU foreign ministers in February to lift sanctions on ZMDC within a month of the poll unless EU governments unanimously agreed the vote was not "peaceful, transparent and credible."
This was part of an EU strategy of easing sanctions to try to encourage 89-year-old Mugabe, Africa's oldest leader who has ruled the former British colony for 33 years, to hold a fair election.
Mugabe overwhelmingly won the July 31 vote but it was denounced as a "huge fraud" by his main rival Morgan Tsvangirai.
The EU has expressed "serious concerns" over the alleged irregularities.
However, Belgium - home to the world's leading diamond trading hub at Antwerp - argues that the EU has not refused to recognise the election and so the February agreement must be respected and sanctions on ZMDC lifted.
"For us, there is an agreement," Belgian Foreign Ministry spokesman Hendrik van de Velde said.
He said the agreement was confirmed by diplomats from EU member states last Friday and it was now simply a question of drawing up a legal instrument lifting the sanctions on ZMDC, something he expected to happen soon.
Belgium's interpretation of the debate is not shared by EU officials who say talks are still going on about what to do.
Former colonial power Britain, which has been more critical of the Zimbabwean elections than the EU as a whole, is reluctant to see a rush to lift sanctions on ZMDC.
"No decision has yet been taken regarding the de-listing of any individual or entity under the measures related to Zimbabwe, including ZMDC. Discussions continue on the listing of ZMDC," a Foreign Office spokeswoman in London said.
However unwelcome the move would be to Britain, some European diplomats say it is inevitable the bloc will have to lift sanctions on ZMDC in line with the February agreement.
"At the end of the day, we have to delist ZMDC," a diplomat from one EU country said, asking not to be named.
ZMDC operates five joint-venture mines in the rich Marange diamond fields, producing eight million carats last year and generating $685 million in exports, the state-owned Herald newspaper reported earlier this year.
Belgium says lifting EU sanctions on ZMDC would increase Zimbabwe's tax revenues by $400 million a year as well as bringing more trade to Antwerp.
Mugabe, buoyed by broad approval from African election observers for the vote, has rejected the Western scepticism.
Anti-corruption watchdog Global Witness, citing links between mining companies, insiders in Mugabe's ZANU-PF party and Zimbabwe's pro-Mugabe military, has alleged that state diamond revenues may have been directly spent on securing the Mugabe re-election through intimidation of voters and vote-rigging.
"We would be very concerned if sanctions were lifted on ZMDC now," Global Witness' senior campaigner on conflict resources, Emily Armistead, told Reuters. "These sorts of allegations need to be looked at much more carefully before the EU makes a decision."