Don’t Bet Against Conflict Minerals Regulation

| August 20, 2015 | 1 Comment
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bolajiojoYou couldn’t find a more Pyrrhic victory. A U.S. Appeals Court has ruled that the Conflict Minerals disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act violates the First Amendment rights of manufacturing companies. The ruling, in favor of the National Association of Manufacturers, (NAM) means enterprises cannot be compelled by the Securities and Exchange Commission to certify that their products are “conflict free,” that is, that the items were produced with no components sourced from the African war zones of the Democratic Republic of Congo.

NAM was against the regulation because of its concern that it costs companies a lot of money to achieve and prove compliance. The association estimates U.S. manufacturers will have to spend much more than the $3 billion to $4 billion that the SEC estimated would cost companies to prove that their components and end-equipment were not produced with raw materials sold under conditions that benefitted the Congolese warlords.

Nobody should be celebrating. What NAM has achieved is a victory that they can only proclaim in a press statement. I am betting they will find it difficult getting many CEOs and corporate executives lining up publicly to extol the ruling. The Conflict Minerals regulation isn’t one companies have been quick to condemn. Rather, many manufacturers, including the leading electronics equipment manufacturers and component vendors, have spoken publicly about how they’ve taken steps to ensure their supply chains are scrupulously cleansed of raw minerals originating from the Congo. That is not about to change.

Furthermore, the U.S. Appeals Court ruling applies only to the United States. The court has no jurisdiction outside the United States and cannot impose the ruling on other national and regional regulatory bodies, including the European Union, which has emphatically backed and advocated positions similar to the one outlined in the Dodd-Frank legislation.

In fact, the Appeals Court decision was handed down in the same month that the EU proposed its own conflict minerals legislation that EPS managing editor Barbara Jorgensen in an article noted may cast “a much wider net than” the American law. Jorgensen noted the EU is likely to add other raw material compounds to the list of chemicals covered by the Dodd-Frank legislation and extend the coverage to other regions “perceived to be violating human rights.”

All the leading American electronics manufacturers and technology equipment vendors now generate substantial portions of their sales outside North America. Apple Inc., for example, gets more than 60 percent of its quarterly revenue from international sales. In the fiscal 2015 second quarter ended March, for example, the company reported 69 percent of total sales came from the international market, falling in the June quarter to 64 percent. Executives expect the numbers to rise again in favor of the international market. A company like Apple cannot be seen advocating its “First Amendment” rights to source components from war zones and neither can it blithely reject requests from analysts and consumers to disclose this information.

The Conflict Minerals genie has left the bottle. While legislators eventually took up the conflict minerals cause, resulting in the Dodd-Frank legislation, it bears pointing out that they were not the first to draw international attention to the problem the law was meant to address, which was the sadistic exploitation of local communities by African warlords in their brutish battle for territorial conquest. Human rights activists were the ones who publicized the incidents and marshalled world opinion to demand action by legislators.

The Appeal Court ruling will only bring further forceful attention to this subject. So, as NAM celebrates its victory, the executive should also realize it will only put a highly visible target on any member that desires to exercise its “First Amendment Rights.” This was a courtroom success but there won’t be a victory parade.

 

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Category: Featured Blogs

About the Author ()

Bolaji Ojo is editor-in-chief and publisher of Electronics Purchasing Strategies. He can be reached at bolaji.ojo@epsnewsonline.com

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