Makers of smart phones and other high-tech gear will have to publicly disclose whether or not their products rely on so-called “conflict minerals” under a new U.S. federal rule, though manufacturers won a two-year reprieve before the rules will take full effect.
The new requirements, meant to stem the flow of money fueling atrocities in the Democratic Republic of Congo, target manufacturers of so-called “blood phones” and other hi-tech equipment made with conflict-tainted minerals.
Brutal warlords in the eastern DRC reap big profits from tin, tungsten and gold, as well as lesser-known elements such as cassiterite, coltan and wolframite. Western companies that buy those minerals can indirectly be financing atrocities including systematic rape, slavery and the use of child soldiers.
Human rights activists expressed cautious optimism upon seeing the final rule, whose release was originally slated for April 2011. Under the rule, publicly-listed companies will have to post on their Web sites the results of independent audits showing whether or not the source of their minerals is connected to factions committing atrocities in the DRC.
“This represents the first time, in terms of legislation from the U.S., that we’ve seen concrete action taken to really address this issue from a legal sense,” said Jana Morgan, an assistant policy advisor for Global Witness, a London-based human rights group.
The new rules are part of the massive Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010, and had been the subject of intense lobbying by computer and cell phone manufacturers and by the U.S. Chamber of Commerce.
The Chamber argued that the reporting requirements would place an expensive burden on companies and put them at an unfair disadvantage against firms from China and other regions without conflict mineral rules.
Tom Quaadman, the Chamber’s vice president of the Center for Capital Markets Competitiveness, touted the 2-year phase-in rule and a provision to exempt scrap and recycled metals.
“Clearly, challenges remain, and we will need to analyze the text of the rule to determine our next steps,” he said in an email statement to 100Reporters.
The National Association of Manufacturers was likewise cautious in responding to the rule. Jessica Lemos, the association’s director of international trade policy, declined to issue fresh comments on the day the rule went into effect, but pointed to her own blog post from August that declared that “even the SEC estimates that this rule could cost industry $3-4 billion in initial costs, and roughly $200-600 million annually thereafter.”
In August, the SEC also approved the final version of a sister provision in the Dodd-Frank law, which requires oil, gas and mining companies listed on the U.S. Stock Exchange to disclose taxes, fees and other payments to foreign governments for extraction rights. Activist groups such as Transparency International and Publish What You Pay say the measure is a boost for transparency and anti-corruption. The European Union is currently considering a similar rule.
But questions about its implementation remain, as the first deadline for reporting is nearly a year and a half away. Industry push back on the disclosure rule has been fierce, with the American Petroleum Institute indicating that the measure illegally flouts economic analysis requirements – language that telegraphs a possible legal challenge.
Ida Sawyer, DRC researcher for Human Rights Watch, said tracking conflict minerals is essential for cutting off rebels from their funding: “I think the U.S. has enough influence to make a difference here,” Sawyer said in an interview from Kinshasa.
Her organization released a report this week outlining horrific abuses and war crimes in eastern DRC from the March 23 Movement, a newly-formed rebel group backed in part by Rwanda.
Sawyer says the SEC’s conflict minerals rule will serve as an incentive for Congolese companies to ensure their mines are under the control and protection of civilian authorities instead of rebel groups.
Until 2014, the rule will allow companies to temporarily declare defeat if they demonstrate that they don’t know where their minerals originate.
Morgan, of Global Witness, criticized the SEC for what she termed “seriously misguided exemptions.” She said that manufacturers have had plenty of time to investigate the sources of their minerals.
She’s also concerned that a “contract to manufacture” provision exempts huge retailers selling generic products. Mining companies, too, are excluded from the provisions because they were not considered to be “manufacturers.”
Still, Morgan said she’s encouraged to see the rule go into effect, pointing out that a proposal to exempt small companies was defeated.
Washington Congressman Jim McDermott, co-author of the rule, also criticized the exemptions, but said they don’t undermine the spirit of the measure.
“All of us who are in the business of fighting corruption would like to fight it 100 percent, but there’s going to be leakage,” McDermott said. He notes that in order for a company to qualify for the 2-year “undeterminable” extension, they’ll still have to show that they’d done their best to comply.
“What we’re trying to do is get people to follow a process that we can then improve upon.”
McDermott said that responsible companies are already following their supply chain carefully, because it’s good business sense.
“We are simply refining that process for minerals that are coming from a part of the world where there is an extremely violent situation that’s being fed by the money created by the mining of these minerals,” he said.
“I’m hoping that we can turn off the spigot.”
Morgan, of Global Witness, said that the manufacturers’ cost estimates for software to track the source of minerals were grossly inflated, and had failed to take into account free programs that are available to help companies avoid using conflict minerals.
She notes that General Electric, Motorola Solutions and Microsoft broke from the Chamber’s position, repudiating its stance against the rule. She called on companies to voluntarily make their best effort to avoid invoking the “undeterminable” exemption, and for consumers to demand conflict-free devices.
McDermott dismissed industry objections and exaggerations, saying it’s just the job of trade organizations like the National Association of Manufacturers and the Chamber of Commerce to oppose any expenses for their members.
“And along comes a guy with an idea like mine, and then they say, ‘Well hold on. If we do it that way, that’ll be the end of cell phones.’ Well, come on, guys.”
The congressman said the rule to limit conflict-fueling trade is not meant to destroy jobs, place a burden on the technology sector or keep raw materials from supporting the U.S. economy.
“But it ought to be coming back in a way that’s benefiting the people,” McDermott said, “not benefiting warlords that are arming schoolchildren and killing people in the night.”
Diana Jean Schemo
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