Europe can improve upon US's 'conflict minerals' legislation: ICG

Europe is up in the air about how to deal with what is coming out of the ground in conflict zones.

A year ago, the European Parliament asked the Commission to develop a European version of the Dodd-Frank legislation, which establishes disclosure regulations relating to the use of conflict minerals by companies, and was passed by the US Congress in July of 2010. However, in Brussels, skepticism persists as to whether any such measure will be enacted, and many wonder what added value Europe could bring in any case.

On one hand, the market reacted more quickly than expected to Dodd-Frank: importers officially distanced themselves from the minerals originating in the Kivus region of the Democratic Republic of the Congo; on the other hand, the Kivus economy is suffering, and the international mechanism of regulation which stands as the historical model, the Kimberley Process, is itself in dire straits. On balance, it would seem European policymakers have enough reasons at least to hesitate.

That would be the wrong conclusion, however. The real goal should not be to simply follow Dodd-Frank or “Europeanise” it. The EU’s version should go further by addressing the weaknesses of the American act – complementing regulation by the market with a political and developmental approach that is currently lacking.

The Dodd-Frank Act imposes two obligations of transparency on companies with securities registered in the US: financial transparency in the extractive industries and transparency of supply in case of mineral imports from the African Great Lakes region. This law translates the due diligence principle for the identification of the origin of imported ores and the principle “Publish What you Pay” of the Extractive Industries Transparency Initiative (EITI) into national law. Although it is already applied to other economic sectors like banking and the food industry, the introduction of due diligence into U.S. legislation caused great controversy. Indeed, it aims at making transparent a business that prefers darkness to light and discretion to advertising.

The Dodd-Frank Act has undoubtedly been “raising the bar”, however it raises more questions than answers. First, it is very challenging to create conflict-free supply chains from the Kivu provinces, an area where the Congo government’s authority is only theoretical. The two highest authorities of the Congolese government have called for the demilitarisation of mining sites in 2009 and 2010 with little effect.

Second, it is very challenging to set up a truly reliable verification system of supply chains. Export certification will be performed by the administration of exporting countries. But in 2010, Burundi, the Congo, Uganda, Tanzania and Rwanda were respectively 170th, 146th, 127th, 116th and 66th out of 170 countries ranked on corruption by Transparency International. The certification of “conflict free” minerals by administrations that are far from being “corruption free” inevitably calls into question the credibility of the entire enterprise.

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