Wasima Khan is a PhD Candidate in Corporate Law, Erasmus University – Rotterdam.
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.
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