Electronic and paper documentations showing efforts by OEMs and component vendors to comply with the Conflict Minerals Rule are piling up at high-tech companies worldwide even as a courtroom battle rages over the legality of the legislation, according to interview sources. Although a Federal Court has ruled that a portion of the law violates manufacturers’ First Amendment Rights, observers say the top electronics companies are still requesting evidence of compliance from suppliers, widening a growing gulf in the industry.
Determined to avoid penalties for non-compliance and concerned the litigations won’t end soon, OEMs and contract manufacturers have not stopped demanding evidence of compliance from component suppliers and the extended supply chain. Sources say suppliers generally try to comply but grumble privately about this. Their main complaint is not just that the financial cost is heavy but also that compliance has not achieved the objectives hoped for by the US Congress, which passed the law to put a squeeze on the Congolese warlords who benefit from illegal mining of the so-called conflict minerals.
Unfortunately, there are no ways easy forward for any of the parties involved despite the recent ruling that the Conflict Minerals Rule violates the First Amendment Rights of the impacted companies. Congress is unlikely to abrogate the Dodd-Frank Wall Street Reform and Consumer Protection Act that gave birth to the legislation and the top OEMs and EMS providers will probably insist suppliers continue to provide compliance information if only to avoid the inevitable public relations nightmare that would follow if they stopped asking. (See: Conflict Minerals Ruling Ignites Compliance Confusion).
What shouldn’t surprise anyone is that suppliers hate this law notwithstanding anything the industry associations say. They don’t like it because they feel caught between “do-gooders” in Congress responding to Human Rights and Labor Law activists and “feel-gooders” (OEMs, especially) in the industry who want to be seen as sensitive to the plights of ordinary folks in the war-torn zones of Africa. These people haven’t benefitted from the Conflict Minerals Rule because the warlords simply find other ways of “scrubbing” their illicitly obtained minerals, according to industry sources.
Fundamentally, though, compliance with this rule may also be problematic in that companies cannot truly achieve the objective of making sure their raw materials were properly and legally mined without paying a prohibitive cost. To confirm “true compliance” a manufacturer would have to station representatives all along the conflict minerals supply chain and ensure 24-hour monitoring of mines, smelters, processing and shipment operations.
Companies do try to be compliant but “compliance” varies by company and depend on the resources each enterprise can put into the process, said respondents to recent EPS stories. In other words, this may turn out to be an exercise in “futility” as a respondent put it. The industry is conflicted on this issue. There are many companies that aren’t even paying any attention to the litigation brought by industry associations. Instead, they insist suppliers sign documents proving they are compliant.
What we now have in the industry is a trail of “paper compliance” leading nowhere because regulators do not have the resources or inclination to examine the documentation provided by “compliant” companies. Once secured, OEMs, too, file compliance information away just in case a regulator turns up to confirm the supply chain is conflict minerals “free”.
Industry observers say this doesn’t mean that the industry isn’t committed to complying with the conflict minerals rule. It’s just that this isn’t the most important element of most managements' day-to-day activities. This law and the processes surrounding it needs to be reviewed and voices from the industry taken into consideration, respondents said. Everyone should be heard, including those voicing objections. It doesn’t require a court of law to improve the law and its implementation. People are speaking out and they need to be heard.
Due to the sensitive nature of the subject, many commenting on the subject don’t want to use their names and certainly not the names of the enterprise where they work. The following comments are representative of the views expressed by EPS readers.
OEM Executive: This is an exercise in futility. There has been no evidence to date that this onerous government overreach has had any effect on the human rights issues in the Congo. Turning brutal, violent rebels into desperados is certainly not going to make them less brutal and violent. In fact, feedback from the business community in the Congo indicates this has only resulted in more poverty and violence since this requirement has in practice resulted in an embargo. If the US wants to help quell the violence in this area of the world, I’m certain the ruling governments of the Congo would welcome military intervention to stop the violence.
It is simply not true that companies can just “strike off” suppliers from their approved supplier lists for not supplying this information. The majority of suppliers to small/mid-size manufacturers are not publicly traded. Many of them simply supply a statement of policy saying they will do whatever they can to comply with the regulation. But the costs in software, recordkeeping and manpower cannot be justified in the interest of maintaining cost competitiveness. So, the best you can offer in terms of Conflict Minerals compliance is “unknown”. Unless you are a large corporation with complete financial control of your supply chain, there is no way you can get 100 percent compliance unless you simply don’t use any electronics, metals or plastics in your supply chain.
This costly, fruitless and ineffective regulation is nothing more than a “feel good, we’re doing something” scheme; at no cost to the people who imposed the law. And, since it doesn’t affect the vast majority of the US populace the costs and headaches all fall on the shoulders of, who else, the evil business community. If the Federal Government really wanted to regulate “Conflict Minerals” simply make it illegal to import them. Then the burden falls on Customs and overseas suppliers. The buyer wouldn’t have to worry about whether there might be some smelter somewhere 7 or 8 levels down the supply chain funding violence. And, the use of the Scarlet Letter approach to legislation would cease.
Component & Compliance Engineer: The recent conflict minerals court ruling is not going to change much for me in my pursuit of this information from the many part suppliers I have contacted. Our customers are looking for whatever advantages are possible to distinguish themselves from their competition. Now they may even step up their desire for data to make the case of “mine is better than theirs” scenario. Social consciousness and environmentally friendly offerings are becoming more and more important to the consumer.