{UAH} THE VALUE OF YOUR IPHONE IS A LIFE OF A CONGOLESE

Towards Electronics Free of Conflict Minerals

By: Wasima Khan | 10 hours ago |

With the acquisition of conflict minerals for their manufacturing, the electronics industry is involved in an ongoing humanitarian crisis in eastern Democratic Republic of Congo. Recent law reforms for US listed companies have so far failed to incentivize investors to change corporations’ “bad” practices. Can social enterprises like Fairphone can help achieve a world free of conflict mineral products?

One of the world’s deadliest wars continues to wrack the eastern Democratic Republic of Congo (DR Congo) and it is partly financed and sustained by the electronics industry. Electronics-makers seek a variety of natural resources for the production of their products in DR Congo. Yet armed militia have taken over the natural resource mines in this region and commit severe human rights abuses. As the corporations are forced to reckon with these armed groups to acquire natural resources, the latter have effectively become a part of the electronics industry’s supply chain. As a result, aggressive militia, violating human rights, are profiting from the exploitation of raw material resources.

So how do big legal sticks force corporations to remove themselves from this ugly situation? In order to address DR Congo’s humanitarian crisis, law reforms have recently taken place in the United States specifically targeting electronics corporations. In August 2012, the U.S. Securities and Exchange Commission adopted new regulations in the securities law to implement section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This section deals with conflict minerals originating in DR Congo or an adjoining country. Conflict minerals include tin, tantalum, tungsten and gold (the so-called “3TG minerals”). These conflict minerals are used in the manufacturing process of power electronics such as laptops, digital cameras and mobile phones, mostly for consumers in Western markets.

According to the rule, US-listed corporations are obliged to publicly disclose their use of these minerals on an annual basis if they are “necessary to the functionality or production of a product” manufactured by those corporations. But the rule extends far beyond US-listed corporations. Foreign companies and private companies involved in the supply chain are also supposed to comply with the disclosure requirements. Existing global guidelines from the OECD and the United Nations provide corporations with practical guidance on how to identify the source of conflict minerals in their supply chains. Taken together, it’s an impressive sounding collection of legal tools.

But while the US disclosure rule aims to accelerate reform of the electronics industry, its benefits are limited. The US disclosure rule does not forbid corporations from using conflict minerals as such. Complementary steps need to be taken to gradually demilitarize DR Congo’s mining sector in order to create a structural change. Another problem is the uncertainty around punishment as it is not clear which sanctions will follow if corporations disobey the law.

Equally serious, the rule comes with a series of unintended consequences. When it comes to practical terms, many electronics manufacturers have stated that they are unprepared to meet their new obligations as they do not have information available on their usage of conflict minerals. The rule requires corporations to look into complex supply chains and in some cases will force them to find new suppliers. In fact, it is claimed that the US legislation has caused a ‘de facto embargo’ in some parts of DR Congo. This apparent success has led to a decrease in conflict financing but at the same time increased poverty for mining communities. In addition, when American and European buyers started to draw back from conflict-ridden regions in the DR Congo, Chinese corporations gained a virtual monopoly. Allegedly, they exploited this advantage to lower the prices of the minerals with 20 to 30 percent.

Under such circumstances, it’s doubtful whether the law reforms in the United States can reduce the problem while other countries do not restrict the purchase of conflict minerals. As yet, the EU does not have a similar legal provision but it is increasingly urged by human rights organizations to adopt comparable legislation. Meanwhile, calls for a European version of the US legislation are growing louder in Brussels.

“I have stressed that there needs to be a European response to the US rule. For a long time there did not seem to be any interest within the European Commission but now developments are finally taking place,” says member of the European Parliament, Judith Sargentini (Dutch Green Left Party).

The European Commission is currently busy setting up an EU initiative on responsible sourcing of minerals originating from conflict-affected and high-risk areas. According to Sargentini, the European legislative initiative will be more far-reaching than the US law, recognizing that conflict minerals are also sourced from other countries besides the DR Congo. She mentions the example of Colombia where tungsten is mined illegally by the terrorist organization, FARC and supplied to some of the world’s leading multinationals.

But probably the biggest challenge to ending the use of conflict minerals through law is that corporations are not inclined to promote human rights on a voluntary basis when profits are sacrificed. In the United States, the resistance from the business community became explicit on November 21, 2012 when the National Association of Manufacturers, together with the US Chamber of Commerce and the Business Roundtable brought a lawsuit against the SEC seeking to bar implementation of the new rule. They claimed that the rule was too costly and violated the corporations’ right of free speech. Last July, a federal judge decided in favor of the SEC and upheld the rule. The business industry groups have decided to appeal the decision.

Some hope that the reputational damage – ‘naming and shaming’ – following from disobedience would be enough to compel corporations to obey. And it’s true that legislative efforts can draw attention to an issue. As Arthur Izebaud, consultant at Global Resources Professionals, an international professional services firm working with electronics companies on supply chain management issues, says: “The US rule creates a broader sense of awareness of the issue of conflict minerals.”

But, as Izebaud notes, legal efforts have limited effect in reforming a company’s culture beyond a superficial compliance with the rules:

“Corporations do not have [the] ideological underpinnings to comply with this sort of legislation. In fact, if corporations weren’t forced to disclose, they wouldn’t address this issue at all. Customers prefer cheap products and shareholders demand high profit margins. In a highly competitive environment recently affected by a financial crisis, corporations simply choose profit as their first priority,” he says.

With the law in itself apparently insufficient to spur business leaders towards a sustainable shift in behavior and culture, social entrepreneurs have been trying to set an example in changing the way we do business. Until recently, however, the electronics industry did not have social enterprises with the purpose of creating conflict mineral-free products. Now, though, there is Fairphone ringing in the changes.

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