Companies around the world are anxiously waiting for the US Securities and Exchange Commission (SEC) to issue its conflict minerals rule. It is the rule that will require companies to determine whether their products contain metals sourced from mines located in conflict areas of the Democratic Republic of the Congo and adjoining countries.
The SEC issued a proposed rule in late 2010, but they have yet to issue a final rule.
Why the delay and when can companies expect a final rule?
The SEC was forced to delay their final rule after it became apparent the rule would be difficult to implement and that some rule-making flexibility was required. The authorizing legislation doesn’t allow the SEC much wiggle-room and that has frustrated companies and slowed regulators.
Here are some key issues that the SEC is still pondering:
Manufacturer supply chain issues. Companies want the SEC to take into account the realities of today’s global supply chains. The intent is to have manufacturers trace the metal in their products to the mines from which it was sourced. The problem is that most companies currently only have direct contact with a first tier supplier or a company immediately upstream from themselves. Components are typically sourced from multiple countries and manufacturers.
Companies want the SEC to take into account the lack of transparency in the electronics supply chain and the challenges faced by manufacturers in tracing conflict minerals. They want the SEC to allow companies making a good faith but unsuccessful effort to trace the source of their conflict minerals to report their status as “indeterminate.”
Allowing a phase-in period. Companies want a “phase-in” period. More time is needed to develop effective and reliable mine/smelter verification (audit) programs. Reliable programs don’t exist for all regulated metals, and the ones that do are still a work in process. Companies also want an exemption for mined ore already at a smelter, and for minerals in products already in supplier inventories. Without such an exemption, companies would be forced to report all products of unknown origin as containing conflict minerals.
Allowing an exemption for recycled minerals. Companies want the SEC to exempt recycled and reclaimed metals. They claim downstream users have no ability to trace the origin of the original minerals given the various forms of recycling and the thousands of domestic and foreign consolidators and scrap dealers. The intent of Congress was to regulate ore and metal made directly from minerals mined in the DRC and adjoining countries. Exempting recycled or reclaimed metals, they argue, would not contradict congressional intent.
Allowing a de minimis exception. Conflict minerals are used in products in varying quantities and for various purposes. Manufacturers point out that it is not cost effective to trace the minerals in every product in which they are used. They want the SEC to establish a de minimis quantity for which reporting is not required.
The US Securities and Exchange Commission is not providing a lot of information on what the final rule will look like or when we can expect it, but statements made by SEC chairman Mary Schapiro during a March 6, 2012 congressional budgeting hearing provide some insight:
The commission is working to finalize the adoption [of a final rule] and I’m hopeful in the next couple of months, it will be done... We will have a phase-in period, I don't know how long, that will... give sufficient time for some of the supply chain due diligence mechanisms to be developed and put in place... I don't believe a de minimis exception is possible under the statute. But the rule will try to give latitude and flexibility in some areas that I think will be helpful to different kinds of businesses in order to comply.
The earliest expected date for a final conflict minerals rule is June 2012. The industry hopes the delay provides the SEC the time it needs to consider how to best handle key industry issues and concerns. Human rights groups point out that the problem of rebel-controlled mines continues. They want a rule as soon as possible.
How do you feel about the delay?
Click here for more information on conflict minerals and other legislation requirements affecting the electronics industry.
In principle I agree with you. But the reality is much different. Enterprises value profits before everything else. Running a lucrative manufacturing business with social and ethical values is icing on the cake. Most manufacturers are not doing it currently but I believe an educated consumer base will eventually force them to it.
Thanks for your post. It is a complicated issue and you are right, the details are not well understood. Regardless, human rights violations are occuring in the Congo and it is an issue that needs addressed. Delay or not it is good to see progress. A delicate balance is needed to ensure the final rule is not too onerous for companies or they could decide to no longer source any mined product from the Congo. That would only hurt the Congo. I am pleased that the SEC is aware of the issues and working an solution that hopefully will be amenable to all.
Syedzunair, You'll be surprised how uninformed the general public is about these issues. For many, "conflict minerals" is a phrase that needs explaining and even this may not be enough. The average iPhone buyer does not care that the device is assembled under conditions many have criticised. And, they certainly, won't sweat over whether or not somebody died in Africa mining tantalum powder used in tantalum capacitors. It's too far removed from their daily lives. At least until someone takes the step to explain in the simplest terms the issues involved.
@Ken: I was listening to a WSJ report yesterday that pointed out the SEC has about 4,000 employees charged with overseeing regulations--everything from the practices that got us into the recession to compliance with...well Dodd-Frank. The gist of the story was the SEC does pretty well with limited resources. I know that the "tacking on" practice often gets legislation passed that would otherwise be shot down, but it does result in some strange bedfellows.
Barbara probably no agency single agency is perfect to have oversight on the issue and if you moved it away from the SEC it would probably mean starting the whole process again. With so much money involved in the minerals trade you are probably going to need to have a heavy hitting agency like the SEC to keep an eye on things.
Bit like the old saying of follow the money would hope the SEC is the best agency do that!
Kmanchen probably big business would and did stop any conflict mineral rules seeing the light of day. Think that reflects poorly on big business more than anyone else. Agree the SEC is in a tough position as they are threatened with lawyers which is a disgrace. Case of having totally lost the argument some business interests think this is the only way left they have to derail things.
SEC should stand up to the blackmail, if the business interests are dumb enough to follow through with their threat going to turn out to be very embarrassing for them as NGO's will have a field day, the Foxconn scandal will turn out to be a storm in a tea pot in comparison.
Think some of the smarter companies have already realized that and this is why the are working with agencies trying to change things. The best companies are going to incorporate a lot of processes to deal with the conflict mineral issue whether these rules are brought in or not.
Why should the worst companies be allowed to slowdown and undercut this process or gain some competitive advantage by accessing conflict minerals?
The U.S. Chamber of Commerce is increasingly going to find themselves out of step and just representing a minority of companies with the worst practices at this rate. The best companies are going to incorporate a lot of processes to deal with the conflict mineral issue whether these rules are brought in or not, or when.
I believe this is a step in the right direction and hope that similar initiatives can be used to ensure we all produce and consume in socially responsible ways. most people would be willing to pay a bit more for products that make environmental and social sense.
Barbara - Great point! Why the SEC was given responsibility, why the regulations only target SEC registered companies, and why compliance is to be reported in SEC annual filings could be the subject of a whole other blog. The problem stems from the issue being addressed as an amendment to the Dodd-Frank Act. An attempt was made prior to Dodd-Frank to write a stand alone conflict minerals law. It never made it out of committee. If it had I think the legislation would have been written differently.
Adding an amendment to a pressing bill with widespread support (like Dodd-Frank) is not uncommon. The problem is it by-passes the normal affected party vetting process (and legislative give and take) that legislation is supposed to have. The SEC is now receiving industry comments after the fact and is having to deal with an issue that taxes their capabilities. EPA would probably have been better equipped to tackle this issue.
Thanks for your response. The SEC is in a tough position. The Dodd-Frank Act tasked it with over 800 obligations and it has swamped the agency. To-date the SEC has missed 70% of their rulemaking deadlines and have only issued 100 of the 393 final rules they are required to issue. It is a can't win proposition. If they rush out a poorly considered rule, the resulting lawsuits could be worse than the delay.
This new version will expand coverage to all electrical and electronic equipment, require special marking of finished goods and more compliance documentation, and increase penalties for non-compliance.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.