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The Great Congo Paper Chase

Who would have thought that the financial reform bill would become such a headache for the supply chain?

Buried in the Dodd Frank Wall Street Reform and Consumer Protection Act passed by Congress last summer was a provision that had nothing to do with Wall Street or the consumer, but will have a big impact on the supply chain.

The law requires companies to disclose whether their products contain any of four “conflict minerals” from the Democratic Republic of Congo (DRC). A brutal civil war in the region has killed millions of people, and maimed hundreds of thousands of women and children who have been sexually victimized by ruthless militants. The rebels are believed to be financing their terror by selling tantalum, tungsten, tin, and gold from illegal mines in the area. (See Conflict minerals law shines spotlight on electronics supply chain.)

The law does not impose any penalties for companies that source minerals from the region. However, by requiring companies to disclose whether their products use such minerals, Congress is exposing the supply chains to public scrutiny, particularly by the human rights organizations that pushed for the requirement.

For all of its good intentions, the provision probably won’t stop the rebels from buying arms with money from the sale of these minerals. What it will do is create a huge exercise in paper pushing along the supply chain.

It's impossible to trace minerals back to the mines from which they are extracted. In the case of tantalum, of which the electronics industry is the heaviest user, the best you can do is trace the mineral back to one of five or six smelters around the world. And each smelter mixes tantalum from a variety of sources around the world. So the tantalum is “from everywhere and nowhere all at once,” as so aptly described by Rick Goss, vice president of environment and sustainability at the Information Technology Industry Council (ITIC) in Washington, D.C.

The industry is creating an audit program to “certify” that smelters don’t get tantalum from illegal Congolese mines. Right. How can they verify that the smelter doesn’t get tantalum from the Congo? Oh, and here’s a further wrinkle: It’s OK to get minerals from a legal mine operating in the Congo (these are mines that allow many of the poor in the Congo to earn a meager income), but not an illegal one (these are the ones where the rebels make their money to buy their guns.) In an area that’s in such chaos, can you get any paperwork to certify where these minerals are coming from? Even if you do get paperwork, can it be trusted?

What’s worse is that the provision may set a precedent for the supply chain. “We’re on a slippery slope here,” says Tom Valliere, senior vice president of Design Chain Associates. Until now, regulations like RoHS have restricted materials in the supply chain for health or environmental reasons. But this provision is the first to discourage use of a material in electronics for moral or socio-economic reasons.

Of course the situation in the Congo is horrible — the UN has called it the biggest genocide since World War II. But if Congress takes action like this for the Congo, what comes next? What about the iPhones that are made by Hon Hai in China, “where workers are jumping off the roof because of the [poor] working conditions?” Valliere asks.

Good questions. What do you think?

11 comments on “The Great Congo Paper Chase

  1. Barbara Jorgensen
    October 8, 2010

    As with so many things, a well-intended policy becomes impossible to execute. My guess is that if companies are required to disprove the use of conflict minerals they will end up saying “to the best of our knowledge” none were used. As long as they can demonstrate due diligence, that might be enough.

    I think a better tactic to is vote with their pocketbook. Is it possible major tantalum consumers will publically boycott suspect suppliers? That could put a lot more pressure on the mining operations and save a tremendous amount of paperwork.

    Is that viable? I'd love to hear some feedback

  2. SP
    October 8, 2010

    It difficult to understand how that law was passed in a country like USA. I mean is it practically possible for any company to say where the minerals were sourced from. There are many other ways to help situation in congo. I guess its all for political gains. The electronics industry has to face the extra work.

  3. Anna Young
    October 9, 2010

    Tam, I apologize but I don't understand what you think should be done here. Are you suggesting this was a bad law and that Congress shouldn't have taken such a tough decision or are you saying there are no ways for anyone to win here? Could you please clarify this? Thank you.

  4. Hawk
    October 9, 2010

    Tam, Are you asking us to play the Ostrich here? We cannot pretend this problem does not exist simply because it cannot be proven where raw materials are generated. Governments worldwide cannot ignore economic and political events in other parts of the globe simply because it may discomfort certain segments of their own business community. Developments in the Congo are important to the rest of the world on a social level and also on a business level. In the West, rules and regulations forbid production that is inhumane and also forbid the use of slave labor, child labor and gang activity in businesses. What this means is that businesses operating in the West have to comply with certain codes and so, I applaud the U.S. Congress for trying to do something about what is happening in the Congo. I understand the law puts a heavy burden on companies in the high-tech sector but it may also have some impact on the situation in the Congo.

  5. Ashu001
    October 10, 2010

    Tam,

    Nobody in Congress has bothered to read the entire Frank-Dodd bill and its constituents.Very few in the Media also seem bothered about its implications.

    It is just another example of Congress passing(without understanding what the implications are) just to make the life of business more and more difficult.

    Here's an idea.Give all those clowns in Congress a Paid Holiday for a Year.Only thing is during this time,they will not pass anymore laws and let the business community in the country run with all existing laws.America's economy will improve dramatically within six months.

    I have read through numerous surveys and they all point out that the No.1 Problem which American Businesses face is “Regulatory uncertainty”.Nobody in Business knows what newly fangled scheme these clowns in congress will cook up next.That's why no one wants to hire any extra employees.Nobody wants to expand either for the same reason.

    So lets get Congress and Govt as far away from our Economy as possible for just one year.

    We will be in much-much better shape as the natural Dynamism of America's economy kicks in.

    Too Bad Obama won't permit it,but thats what Hope is all about is'nt it???

    Regards

    Ashish.

  6. Tam Harbert
    October 11, 2010

    Thanks for your thoughtful comments. I'm not suggesting we just ignore the problem. There are other ways to apply pressure. I don't think this provision is the way to do it. As far as I can tell, there simply seems to be no way to ensure that minerals from illegal mines in Congo don't end up in the general supply from smelters. It seems it will just result in a huge amount of paper pushing without accomplishing anything. I also think it's valid to question whether this sets a precedent. Where do we draw the line on how much Congress should do in terms of creating regulations that ban or restrict products because of how their made or what the government in their country of origin does?  

  7. Tam Harbert
    October 11, 2010

    I don't disagree that the U.S. should do what it can to help end the genocide in Congo. But I just don't understand how this provision is going to be effective. From what I can see, there is simply no way to trace minerals back to their source, so I'm not sure how this provision is going to do anything except create a lot of paperwork.

  8. Tam Harbert
    October 11, 2010

    Major tantalum consumers are the electronics companies, and they are putting pressure on the tantalum smelters by coming up with these new audits. But there are only 5-6 smelters in the world, and so not a lot of sourcing options for the electronics companies. The audits are an attempt to identify where each smelter gets its tantalum, but I'm not convinced that such information can be pinned down or relied upon.

  9. Hawk
    October 12, 2010

    Tam, It seems to me that your article just touched the tips of regulatory dysfunction in the global high-tech industry. Governments have one aim and companies another and the two often can't get what they want exactly. Profit motives will always clash against the societal need to protect the most vulnerable among us. Could we expect companies to police themselves? If companies concerned about their image do, will others follow suit or will we have scrupulous companies placed at a disadvantage by competitors? I suspect we will have many more such rules from different governments in future. Perhaps both companies and governments can find a solution to this problem of what society wants versus what businesses need.

  10. Tam Harbert
    October 12, 2010

    Well said!

  11. Barbara Jorgensen
    October 14, 2010

    If nothing else, this particular regulation has opened a lot of eyes to the tsunami of regulations global businesses are dealing with. When human rights are involved, more debate and more emotion is raised about usually ho-hum legislation. Foxconn's treatment of its workers is a similar example. If you aren't in the electronics industry, it's unlikely that you ever heard of Hon Hai and Foxconn–but you do know Apple.

    It's also difficult to be “against” human rights any more than it is to be against the environment. Unfortunately, legislation seems like a last resort in dragging ambivalent businesses into doing the right thing,

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