Thursday, April 16, 2015
Regular readers know that I have blogged repeatedly about my opposition to the US Dodd-Frank conflict minerals rule, which aims to stop the flow of funds to rebels in the Democratic Republic of Congo. Briefly, the US law does not prohibit the use of conflict minerals, but instead requires certain companies to obtain an independent private sector third-party audit of reports of the facilities used to process the conflict minerals; conduct a reasonable country of origin inquiry; and describe the steps the company used to mitigate the risk, in order to improve its due diligence process. The business world and SEC are awaiting a First Amendment ruling from the DC Circuit Court of Appeals on the “name and shame” portion of the law, which requires companies to indicate whether their products are DRC Conflict Free.” I have argued that it is a well-intentioned but likely ineffective corporate governance disclosure that depends on consumers to pressure corporations to change their behavior.
The proposed EU regulation establishes a voluntary process through which importers of certain minerals into the EU self-certify that they do not contribute to financing in “conflict-affected” or “high risk areas.” Unlike Dodd-Frank, it is not limited to Congo. Taking note of various stakeholder consultations and the US Dodd-Frank law, the EU had originally limited the scope to importers, and chose a voluntary mechanism to avoid any regional boycotts that hurt locals and did not stop armed conflict. Those importers who choose to certify would have to conduct due diligence in accordance with the OECD Guidance, and report their findings to the EU. The EU would then publish a list of “responsible smelters and refiners,” so that the public will hold importers and smelters accountable for conducting appropriate due diligence. The regulation also offers incentives, such as assistance with procurement contracts.
One of the problems with researching and writing on hot topics is that things change quickly. Two days after I submitted my most recent article to law reviews in March criticizing the use of disclosure to mitigate human rights impacts, the EU announced that it was considering a mandatory certification program for conflict minerals. That meant I had to change a whole section of my article. (I’ll blog on that article another time, but it will be out in the Winter issue of the Columbia Human Rights Law Review). Then just yesterday, in a reversal, the European Parliament’s International Trade Committee announced that it would stick with the original voluntary plan after all.The European Parliament votes on the proposal in May.
Reaction from the NGO community was swift. Global Witness explained:
Today the European Parliament’s Committee on International Trade (INTA) wasted a ground-breaking opportunity to tackle the deadly trade in conflict minerals. […] Under this proposal, responsible sourcing by importers of tin, tantalum, tungsten and gold would be entirely optional. The Commission’s proposed voluntary self-certification scheme would be open to approximately 300-400 companies—just 0.05% of companies using and trading these minerals in the EU, and would have virtually no impact on companies’ sourcing behaviour. The law must be strengthened to make responsible sourcing a legal requirement for all companies that place these minerals on the European market–in any form. This would put the European Union at the forefront of global efforts to create more transparent, responsible and sustainable business practices. It would also better align Europe with existing international standards on responsible sourcing, and complement mandatory requirements in the US and in twelve African countries.
I’m all for due diligence in the supply chain and for forcing companies to minimize their human rights impacts. Corporations should do more than respect human rights-- they must pay when they cause harm. I plan to spend part of my summer researching and writing in Latin America about stronger human rights protections for indigenous peoples and the deleterious actions of some multinationals.
But a mandatory certification scheme on due diligence is not the answer because it won’t solve deep, intractable problems that require much more widespread reform. To be clear, I don't think the EU has the right solution either. Reasonable people can disagree, but perhaps the members of the EU Parliament should look to Dodd-Frank. SEC Chair Mary Jo White disclosed last month that the agency had spent 2.75 million dollars, including legal fees, and 17,000 hours writing and implementing the conflict minerals rule. A number of scholars and activists have argued that the law has in fact harmed the Congolese it meant to help and news reports have attempted to dispel some of the myths that led to the passage of the law.
So let’s see what happens in May when the EU looks at conflict minerals again. Let’s see what happens in June when the second wave of Dodd-Frank conflict minerals filings come in. As I indicated in my last blog post about Dodd-Frank referenced above, the first set of filings was particularly unhelpful. And let’s see what happens in December when parents start the holiday shopping—how many of them will check on the disclosures before buying electronics and toys for the members of their family? Most important, let's see if someone can actually tie the money and time spent on conflict minerals disclosure directly to lower rates of rape, child slavery, kidnapping, and forced labor-- the behaviors these laws intend to stop.