Memo To Trump: Retain “Conflict Minerals” Provision Of Dodd-Frank

REUTERS/Kevin Lamarque

Stewart Lawrence Stewart J. Lawrence is a Washington, D.C.-based public policy analyst who writes frequently on immigration and Latino affairs. He is also founder and managing director of Puentes & Associates, Inc., a bilingual survey research and communications firm.
Font Size:

The Trump administration is under growing pressure from business conservatives to rescind a little-known provision of the 2010 Dodd-Frank Act that compels companies in the global supply chain for metal minerals – including electronics, computer and aircraft manufacturers — to disclose the location of the mines that provide them with their critical inputs. 

The seven-year old “conflict minerals” provision – also known as section 1502 — is intended to ensure that African warlords in countries like the Democratic Republic of Congo – who have committed widespread atrocities against civilians — are unable to exploit the mines in territories they control as a source of illicit funding for their cause. 

The way it works is simple:  Valuable metals like tin and tungsten extracted from mines controlled by the rebels are stigmatized as “toxic” and subject to lower prices, making them less valuable on the world market.  Those from non-conflict mines are deemed “clean” and sold at higher prices.   Over time, the warlords lose money and are unable to finance their repression.  Pressure on local communities eases, and they can farm and organize again.  With greater space for civic representation and pressure, the prospects for peace and democracy grow.

It’s a nice idea but difficult to prove, even though non-profit human rights and business groups say it’s starting to work — and they fear that rescinding 1502 will allow the warlords to recoup their lost power. 

But the hitch is disclosure:  Companies must report annually to the Securities and Exchange Commission on the sources of their manufacturing inputs.  That has the effect of creating a two-tiered market stigmatizing companies that rely on “conflict” minerals.

And to free market stalwarts like the US Chamber of Commerce and the National Association of Manufacturers, it also represents a wholly unwarranted intrusion into corporate business operations.  They say it’s a dangerous precedent that could lead to ever-expanding encroachments on business decision-making autonomy – a kind of “creeping socialism” — and with some reason, perhaps, they want it squashed. 

But in fact, there’s strong precedent for measures like 1502, and not all businesses think they’re such a bad idea.  For example, companies like Nike and Adidas have been abiding by voluntary guidelines to weed out Asian sweatshop suppliers for years.  And there’s even a precedent in Africa — the “blood diamonds” campaign of the late 1990s that exposed slave labor conditions in mining operations in Sierra Leone and Zimbabwe. 

Brand-name companies don’t want to face consumer boycotts and see their image tarnished through association with “oppressive” suppliers.  And many don’t think that creating intolerable working conditions is required to earn a profit.   

But arguably there’s a difference in the case of Section 1502 because businesses aren’t simply being asked to comply – they’re being compelled to.   And some businesses further down the supply chain, especially smaller ones, object that it’s not that easy to tell what the sources of their inputs might be, and the costs of trying to track them down is prohibitive.

Still, it is significant that major tech giants like Apple and Intel have agreed to abide by 1502 even if the measure is rescinded.  And companies like Boeing, and even Ford, which are currently on the fence, may well decide to follow suit.

So far, Trump has resisted pressure to sign a draft executive order sponsored by the Chamber and its allies that would halt implementation of 1502 immediately.  That’s a good sign.  But incoming SEC chairman Michael Piowor, a Trump loyalist, has agreed to suspend 1502’s annual disclosure requirement, a victory for the Chamber.  And last month the House Finances Subcommittee passed legislation – The Financial Choice Act — that would eviscerate Dodd-Frank and also rescind 1502 entirely.   That bill, in its current form, is unlikely to pass the GOP-controlled Senate, however.

The reason?  It turns out there’s unusually strong bipartisan support for 1502.  Many Democrats and Republicans are deeply concerned about the future of Africa where weak state violence of the kind found in Congo is undermining the region’s long-term stability at a time when new oil and natural gas reserves are being discovered and China is rapidly expanding its influence. 

A measure like 1502 – though no substitute for a broader foreign policy – does send a clear signal to friends and foes:  America supports peace and democracy and an end to bloody wars.

And there is room for compromise.   A federal appeals court ruled in 2015 that U.S. companies, under free-speech laws, could not be compelled to make public value-judgments about their own products.  It may be that 1502 should be clarified to allow dissenting companies to opt-out of formal disclosure.  Most companies would still be required to make findings of fact about their supply lines.  However, those that found the reporting requirement too costly or onerous might be granted some exemptions.

In short, 1502 may well be a useful lever, and the White House should resist the temptation to dispense with it altogether.

Africa, unlike China, is highly vulnerable to global pressure, and if any exists, the United States should use it.   To paraphrase Trump, the Congolese warlords are “really bad guys,” among the worst human rights violators in the world.  Companies that agree to impose indirect financial sanctions on such groups aren’t engaging in feel-good humanitarianism.   And they are not recklessly trampling on the prerogatives of private businesses.

What they’re actually doing is placing the long-term interests of the United States in a highly troubled and unstable region “first.”  That’s a cause that Trump — with some caveats, perhaps — should support.