Continuing Conflict Mineral Confusion

I know I’m late to the party on this David Aronson/Dodd-Frank kerfuffle, but I have to say that I’m still really baffled by some of the arguments being tossed around. 

First of all, as I’ve said in the past, I’m not at all clear on what the legislation is actually supposed to do.  I get that the short answer is “provide transparency in the mineral supply chain in the DRC.”  And that sure does sound like a nice thing to have.  But then what?  It seems like the theory is that once the transparency is created, no one will buy minerals from mines that are under the control of armed groups, which will cut off mining revenue as a means and motivation to continue the conflict, and hasten said conflict’s end.  But even assuming that the factual assumptions underlying that logic are correct (e.g. that minerals are fueling the conflict, and that cutting mineral revenue would end it), it seems to me that it’s a fairly brutal method of conflict-ending, no?  People work in those mines.  They rely on them for survival.  Is there a scenario in which shutting them down does not have a devastating effect on extremely vulnerable people?  (The same people, in fact, that this whole shebang is supposed to be helping in the first place?)  Should we take the same attitude towards all other economic activity that is “taxed” by armed groups?  Or is this policy mechanism limited to economic activity that’s linked to hipster toys like iPhones?

Second of all, I don’t understand advocates’ insistence, in response to criticism like Aronson’s, that “[t]he Dodd-Frank legislation in no way mandates or supports a real or de facto embargo on minerals exports from eastern Congo.” (That’s from Jason Stearns, who I’m quoting because he stated it so clearly, but he’s by no means alone in such thoughts.)  I understand that the law doesn’t specifically mandate a ban.  But a law’s specific provisions, and its effect on actual behavior, are never the same thing – and there was no reason to expect that they would be in this case.  For one thing, if Dodd-Frank is not meant to have a de facto embargo effect on conflict minerals, along the lines of what I outlined in the paragraph above, then what is it supposed to do?

And moreover, how could it not have such an effect?  Minerals are commodities.  They are priced as commodities.  Congolese-sourced “three Ts” are not, to my knowledge, boutique luxury items that command a premium in the marketplace because of their exotic sourcing.  So, when Dodd-Frank raises their cost – both directly, by imposing the costs of making the supply chain transparent, and indirectly, due to the risk of massive securities-law penalties if the transparency isn’t handled correctly – that makes them a much less attractive product than minerals from elsewhere that come with no such costs

A hypothetical example, to illustrate my point:

Tantalum dealer: Welcome to Crazy Bob’s House of Tantalum!  What can I do you for today?

Electronics manufacturer: I would like to buy some tantalum, please.

Tantalum dealer: You’re in luck!  Today you have two tantalum options.  House Blend Tantalum for $100 per pound, or Premium Great Lakes Tantalum for $110 per pound.*

Electronics manufacturer: What is the difference between them?

Tantalum dealer: There isn’t one!  They are exactly alike in purity, quality, and all other substantive attributes.  However, the “Premium” variety costs more up front, because we have to spend a lot of money to ensure the transparency of the supply chain in order to comply with U.S. securities laws.

Electronics manufacturer: I’m sorry, what was that about “securities laws”?

Tantalum dealer: Oh, did I forget to mention that?  If we didn’t do a good job clearing up the supply chain, your company will be on the hook for a massive, costly SEC investigation and fines.  So, how much do you want to order?

Electronics manufacturer: So, let me get this straight: my options are regular tantalum that does not cost extra and does not carry a risk of major regulatory investigation, or tantalum that is in no way better but costs extra and does come with all that risk?

Tantalum Dealer: Correctamundo!

Electronics manufacturer: 10 pounds of House Blend please.  And maybe you can just put a note in my file that I am never, ever, under any circumstances, to be sold the other stuff?  I’m not touching that Great Lakes stuff with a ten-foot pole.

Tantalum Dealer: But where is your commitment to buying from this region? Why don’t you care about Africans?

Electronics manufacturer: I have a commitment to my shareholders to not incur unnecessary costs or risks.  It’s too bad about Africa, but don’t worry – I’ll send a donation to Bono to make up for it.

Tantalum dealer: Thanks for shopping at Crazy Bob’s!  Please come again!

And I’m not even going to bother getting into the whole “illicit armed groups have an advantage in the illicit trade that is likely to result” issue, because that’s hardly news. *Cough* war on drugs *cough* also basically every other illicit trade ever *cough cough cough.*

So, to sum up: I understand why transparency would be nice.  And I’m certainly all in favor of conflict ending, rule of law being established, and all that good stuff.  But I’m not at all convinced that Dodd-Frank, as a means towards those ends, will do more good than harm.

What am I missing?

*Prices totally made up.  If you want to know what Tantalum really costs, call Crazy Bob yourself.

Is My Cell Phone Full of Rape, Redux

A bunch of y’all asked me what I thought of The Atlantic’s “Is Your Cell Phone Fueling Civil War in the Congo” article on Monday. To which I reply: About the same thing I’ve thought every other time an article with a virtually identical title has popped up in my “rape and lions” Google News Alert over the last couple of years.

Seriously guys, it’s like déjà vu all over again. The article begins:

“Pick up any household electronic — a phone, a remote, or a laptop — and it could contain minerals mined in the Democratic Republic of the Congo, a country where armed rebel groups connected with crimes of rape and murder profit from trade of these minerals.”

Sound at all familiar? No? Let’s take a little trip back in time…

The day:  June 26, 2010.  The man: The Kristof.  The paper:  The New York Times.  The article:  “Death by Gadget in the Congo”:

“An ugly paradox of the 21st century is that some of our elegant symbols of modernity — smartphones, laptops and digital cameras — are built from minerals that seem to be fueling mass slaughter and rape in Congo.”

Oh come off it, you might be thinking. Two pieces on the same topic beginning with similar words does not a federal case make.

And you may have a point, but then again, there’s:

The Hawaii Independent in December 2010: “Is your new mobile phone made with conflict minerals?“;
The Guardian in August 2010: “‘Conflict minerals’ finance gang rape in Africa“;
The Washington City Paper, in June 2010: “Does Your Ipod Support Rape in the Congo?“;
CNN, December 2009: “Rape and murder, funded by cell phones“;
The Star (Canada) in June 2009: “Rape, war and your cell phone“;
Huffington Post in April 2009: “Congo Violence Fueled By Common Material In Cell Phones, Laptops“; and
The Telegraph in November of 2008: “How the mobile phone in your pocket is helping to pay for the civil war in Congo.”

And that’s just the results of a quick 5 minutes of googling. So if the Atlantic article is the first intimation you’ve had that your cell phone might not have been completely honest with you about its past, congratulations on coming out of that coma / returning safely from that space mission / escaping that underground bunker.

I just don’t have much to add to what I, Amanda, and others have said on this subject previously, but I suppose I’ll say it again anyway:

Yes, armed groups operating in the eastern Congo fund their activities in part through the sale of minerals that are used in the manufacture of consumer electronics. And yes, those armed groups are implicated in horrific atrocities against the civilian population of the region. But so are armed groups that aren’t heavily involved in the mineral trade. There’s no evidence that attacks on civilians are either more intense or more concentrated in areas associated with mining or supply routes. And I remain unconvinced that competition over mineral wealth is a primary driver of the violence. The roots of this conflict lie in contested claims over land and citizenship rights, which have become further entrenched by the impact of regional geopolitics. So yes, we would all prefer that our shiny new gadgets arrived free of associations with bloodshed and sexual violence, but we shouldn’t expect that removing our link to it will have much effect on the conflict itself.

Man, even I’m sick of hearing me talk about this…

Some More About Why We Don’t Think Mineral Regulation Is a Solution to the Conflict in the Eastern DRC

The vital question of our times “conflict minerals legislation: hot or not?” continues to divide the blogosphere.

Enough alleges that mean bloggers are misrepresenting their positions. TexasinAfrica responds, highlighting quotes from Enough’s reports and press documents that suggest that the aforementioned meanie-faces aren’t so much “misrepresenting” their positions as “reporting them accurately.”

TexasinAfrica also seconds Chris Blattman’s point about the need to consider unintended consequences: “What if victory on a high-profile, sexy, but ultimately limited issue keeps Congress from acting on the important things? If the price of victory is complacency, it is a price too dear.”

They both get a “yeah, what s/he said” (and a Lucky Charms red balloon to Blattman for his “This is Enough, after all, not Good Enough” quip) but our objections to this policy go further:

First, we’re just not sure that regulating Congolese “conflict minerals” passes the Love Actually Test. We find the evidence that minerals are driving the conflict unconvincing. Worse, we have not seen any good explanation of how this policy could be expected to have a negative impact on armed groups without having a much worse impact on the individual Congolese miners who are already struggling to survive amidst poverty, instability, and violence.

And second, we disagree that a campaign centered around conflict minerals is a good idea simply because it “resonates” with advocates and concerned consumers in the United States who “do not want their purchases to fund armed groups in Congo.”

Campaigns centered around telling the public that their yuppie-consumer-goods are full of rape and murder are, fundamentally, about disengagement, not engagement. This kind of advocacy tells consumers that the problem is their connection to the conflict via the minerals in their phones and iPods, and that the solution is to break that connection.

That’s not a recipe for ongoing engagement, it’s an invitation to withdraw further from an already-remote problem.

Conflict Minerals: Riddle Us This

Now that Kate’s back in town, we’re working on a longer joint post about our position on this whole OMG-DRC-Conflict-Minerals kerfuffle.

Until then, we have a question for our readers who believe that regulating Congolese minerals would be likely to have a positive impact on the conflict situation there:

How?

We’re serious. We want to know what you think the mechanism for improvement would be. Because to us, this is sounding like so much underpants gnome logic. (Phase 1: Steal Underpants; Phase 2: ??; Phase 3: All Armed Groups Pack Up and Go Home.)

So, Cblatts, Jason, Team Enough, Nell Okie, and anyone else: we are genuinely interested in learning how you think this would play out. Please walk us through the steps we are missing between “restricting the market for minerals from the DRC” and “improvement in the lives of those affected by conflict in the Kivus.”

(Those of you who think it is not a good idea can explain that too if you’d like. But we’re not having as much trouble figuring that side out.)

Impress Your Friends and Outflank Your Enemies: The Wronging Rights Guide to the Conflict-Mineral Regulations in Section 1502 of HR 4173

As Kate notes, the recent passage of new legislation on “conflict minerals” from the DRC has prompted much discussion from the aid-blogosphere. Predictably, the reactions have been mixed. The Enough Project is thrilled, which is hardly surprising, given their extensive campaigning around the conflict-minerals issue. Jason Stearns offers more measured support. Laura Seay at Texas in Africa is not a fan. Chris Blattman, showing himself to be a ninja of skeptical ambivalence, has not just one but two posts in which he somehow manages to criticize nearly every aspect of the new regulations, yet still come out in favor of them overall.

Therefore, this seems like a good time for a quick analysis of what the new legislation actually says. So, without further ado, I present:

Impress Your Friends and Outflank Your Enemies: The Wronging Rights Guide to the Conflict-Mineral Regulations in Section 1502 of HR 4173.

1. Who has to follow the new law’s requirements?

Not clear! The text of the bill amends Section 13 of the Securities Exchange Act of 1934 (which is codified in 15 U.S.C. 78m, if you’re interested in looking it up), by adding a new subsection (p) at the end. However, the new subsection (p) doesn’t specify who is bound by its requirements. It seems to leave that up to the SEC’s regulations, which haven’t been issued yet.

You see, paragraph 1(A) of the new law directs the SEC to issue regulations requiring “any person described in paragraph 2″ to comply with the new reporting requirements.

Easy, right? Just check paragraph 2! Well, except that paragraph 2 refers right back to paragraph 1(A). It defines “persons” as anyone (1) who is required to comply with the reporting requirements in paragraph 1(A); and (2) who manufactures a product that either (a) requires conflict minerals in order to function, or (b) requires conflict minerals as part of the manufacturing process.

So yeah, that’s a little confusing. As far as I can tell, this allows the SEC significant discretion to decide who must comply with the reporting requirements, as long as the category is limited to manufacturers of “products.” (Another term that isn’t defined yet! Isn’t law fun?)

(The Enough Project and the Washington Post appear to be under the impression that the law applies only to publicly traded companies, but I can’t figure out where they’re getting that idea from. I emailed Enough’s Laura Heaton, though, and will update this section if I get more information.)

2. What does the new law require people to do?

The new law’s requirements fall into two basic categories. The first category imposes new disclosure and auditing responsibilities on private citizens and corporations who manufacture products using “conflict minerals.” The second category orders the State Department to get to work on a “strategy and map to address the linkages between conflict minerals and armed groups.” Much as I love maps, I’ll focus on the first category in this analysis, because it’s the one that’s most relevant to the debate over the regulation of conflict minerals.

For the sake of clarity, I’ll begin with a few things the new law does not do. It does not outlaw conflict minerals, from the DRC or elsewhere. It does not create any new crimes. It does not apply to any person or corporation that’s outside the jurisdiction of the U.S. Securities and Exchange Commission, or SEC. (For the moment, it’s unclear who it actually does apply to, as will be discussed further below.) It does not specify any new penalties or punishments.

So what does the new law require? Well, for the next nine months, nothing. The law directs the SEC to develop a new set of regulations on the disclosure of “conflict minerals” used in the manufacture of products. Those new regulations aren’t due until 270 days after the law was enacted, so for now, a lot remains unclear.

However, the gist of the new law is that although nothing has been outlawed, an awful lot of things are about to become much more expensive, complicated, and difficult. Congress did specify certain things that the SEC’s new regulations must include, so I’ll explain those for now.

a. Initial Disclosure
First, all “persons” covered by the law must submit an annual report disclosing whether they used conflict minerals that originated in the DRC, or in an adjoining country, to manufacture any of their products.

(The definitions of “person,” “conflict minerals,” and “adjoining country” are discussed more below. If you just can’t wait to get there, feel free to scroll down and check them out now, and I’ll wait for you up here. Otherwise, in a nutshell, “conflict minerals” are coltan, cassiterite, gold, wolframite, or their derivatives; an “adjoining country” is one that shares a border with the DRC; and “person” is not yet fully defined, but will be some subset of manufacturers who use conflict minerals in their products.)

Manufacturers who can be certain that their conflict minerals didn’t come from that region are done: no more duties under the new law. They also get to pass go, and collect $200. Lucky bastards.

However, if the manufacturers use minerals that are from that region of Africa, or whose source is unclear, then the new law imposes some significant new investigation and disclosure requirements on them.

b. Audit Requirements
First, the manufacturer must conduct an “independent private sector audit” of the minerals’ origin and chain of custody, and certify the audit’s results. The audit must meet standards to be set through the coordination of three different federal agencies: the Comptroller General of the United States, the SEC, and the Secretary of State. If the audit is found to be unreliable, then the manufacturer will be in violation of the disclosure requirements, and the person who certified it might also be in very hot water personally with the SEC.

This audit requirement has the potential to be hugely burdensome, because those kinds of audits tend to be very expensive and time-consuming. It’s not hard to see why. Not only is there limited information about conflict areas available, it’s also inherently difficult to tell where minerals have come from, especially if they have already been processed. In combination, those factors mean that investigating minerals’ sources and supply chains won’t be easy. It’s true that “difficult” is not “impossible,” but it is usually “expensive.” Especially because the most important pieces of information here are the ones that will be the hardest to obtain: where the minerals were mined, who mined them, and what relationship the miner had with the region’s “armed groups.”

Providing this kind of information will be difficult for artisanal miners (excellent euphemism alert!) and other small suppliers who are only involved at one stage of the supply chain. So, this seems likely to push minerals from the DRC and its environs further into black and gray markets. (Which is definitely great, because when I think of “markets in which illegal armed groups are unlikely to thrive,” “black ones” come top of the list.) Conversely, because a manufacturer can avoid the costly audit requirement entirely if it’s sure that none of its minerals came from the DRC or its neighbors, I would expect this provision to be a huge boost to large corporations that control mines in other regions of the world and handle their own processing and trading, because they will be able to charge more money for the regulatory safety they offer.

c. Reporting Requirements
After the auditing’s done, the manufacturer has to compile a report that describes in detail (1) the audit and its results, (2) any other due diligence measures that it undertook in order to document the origin and supply chain of the conflict minerals it used, and (3) any products it manufactures that are not “DRC conflict free.” The report has to be submitted to the SEC, and made publicly available on the manufacturer’s website.

Products are only “DRC conflict free” if they don’t contain any minerals that “directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country.” Needless to say, that definition is really, really broad. The distinction between “finance” and “benefit” suggests that an “indirect benefit” would not have to be financial in nature, leaving the options for what would qualify wide open. And “armed groups” include any groups from the DRC or its adjoining countries that have been identified as human rights abusers in the State Department’s country reports on human rights – and as of now, that definition doesn’t carve out exceptions for national armies or UN peacekeepers. (More on that definition below.)

This places the burden on the manufacturer to prove a negative: that the minerals at issue didn’t benefit any armed group, even indirectly. Otherwise, for each non-DRC-conflict-free product, the manufacturer must report “the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity.” Once again: very difficult information to get, even more difficult information to trust. Complying with this requirement will be expensive.

The other due diligence requirements, beyond the audit, won’t be clear until the SEC issues its new regulations. However, the text of the law suggests that they won’t be mere formalities. The statute specifies that relying on due diligence processes that have been “previously determined by the Commissioner [of the SEC] to be unreliable,” is not enough to constitute compliance with the new law.

3. Some Definitions! We Love Definitions!

  1. “Conflict Minerals”: the new law defines “conflict minerals” as either (A) coltan, cassiterite, gold, wolframite, or their derivatives; or (B) any other mineral or its derivatives that the Secretary of State later determines to be “financing conflict in the Democratic Republic of the Congo or an adjoining country.”

    This is interesting for two reasons. First, the definition isn’t limited to minerals that actually come from the DRC or an adjoining country. So, for instance, gold is now a conflict mineral, no matter where it’s from, or when it was mined. I can understand the reasons for using such a broad definition -if gold from the DRC is interchangeable with gold that was mined 500 years ago, then it’s worth paying attention to the overall market. However, this means that the regulatory burden of the new law will potentially fall on a very broad group of businesses, not just the gadget manufacturers that have been the focus of the media campaign for this new law.

    Second, the Secretary of State can add minerals to the list if they’re financing conflict in an “adjoining country,” but not in the rest of the world. So, minerals that fuel conflict elsewhere aren’t “conflict minerals.” Hear that, petroleum?

  2. “Adjoining Country”: The new law defines “adjoining country” as “a country that shares an internationally recognized border with the Democratic Republic of the Congo.” (It’s not clear to me why they didn’t just list those countries specifically. Perhaps that option was rejected as an unwarranted leap of faith that those borders would remain stable over the next few years?)

  3. “Armed Groups”: Somewhat confusingly, not all armed groups are “armed groups” for the purposes of the new law. Rather, to qualify, a group must (a) be an “armed group,” and (b) be identified as “perpetrators of serious human rights abuses” in the State Department’s annual human rights report on the DRC or any “adjoining country.” A couple of potential issues here.

    The first is that there’s no carve-out for government or UN forces. As noted in the latest State Dept. report, the FARDC has been responsible for significant human rights abuses. However, including them in the definition of “armed group” means that no minerals can be labeled “DRC conflict free” unless they did not indirectly finance the army, which presumably includes legitimate taxes collected by the government in Kinshasa. Is it just me, or is that not actually a great way to encourage or strengthen legitimate governmental capacity?

    Second, under this definition, if a group isn’t specifically mentioned in one of the State Dept. reports, it doesn’t count for the purposes of the conflict-minerals law. It’s unclear how this would work for groups like the Mai-Mai, who are often discussed in the State Dept. reports as if they are one category of armed actor, but are actually disparate local militias that may or may not be connected to each other, or to other rebel organizations. So, is just being labeled a Mai-Mai militia group enough to be considered an “armed group” under this definition? Or must the State Dept. report reference a specific militia by name in order to count?

I hope this is helpful to y’all. I’m one sleepy blogger now, but if I have time tomorrow, I’ll try to post about my reactions to the arguments that Laura et al. have raised.

Point/Counterpoint: "Conflict Minerals Law Will Have No Effect in Eastern DRC" vs "Conflict Minerals Law Will Have Little to No Effect in Eastern DRC"

The Christian Science Monitor’s excellent Africa Monitor page currently has posts up from Jason Stearns and Laura Seay on the U.S.’s recently passed conflict minerals legislation.

The CSM post-naming elves (creators of my personal favorite: “Why Somalia would make Afghanistan seem like Mr. Rogers’ neighborhood for US troops“) have titled these posts:

Why recent US ‘conflict mineral’ legislation is a good thing for Africa” (Stearns)

It’s like a little debate, see?
Except as I see it, the difference between Stearns’s and Seay’s positions is not where the action on this issue is. Neither of them agrees with the central premise of the conflict minerals campaign, which assumes that competition over control of minerals is a primary driver of the conflict. One of them thinks the legislation might have some marginal positive effect despite being epiphenomenal to the sources of conflict and the other believes it probably won’t. Frankly, there’s not a lot of daylight between these viewpoints. (Hence the post title homage to the Onion’s classic post-9/11 Point/Counterpoint: “We Must Retaliate with Blind Rage” vs. “We Must Retaliate with Measured, Focused Rage.”)
The more interesting debate here is the division between the advocacy community, led by Enough, and the expert community. As far as I can tell, Enough has not yet managed to get a single serious researcher of the eastern DRC to sign on to their analysis of the conflict. (Would anyone like to dispute this? I am willing to lower the bar to anybody who has spent more than six weeks straight in the Kivus.)
Stay tuned for Amanda’s analysis of the legislation itself…