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?