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September 22, 2014

How Will U.S., Canadian Efforts to Address Conflict Minerals Affect Consumers, African Nations?

This week the Canadian House of Commons will take up legislation that will require the nation’s corporations to “exercise due diligence” with respect to “the exploitation and trading of designated minerals originating in the Great Lakes Region of Africa.” The legislation asks industry to “ensure that no armed rebel organization or criminal entity or public or private security force that is engaged in illegal activities or serious human rights abuses has benefited from any transaction involving such minerals.” The proposed legislation comes despite the fact U.S. companies (and indeed the U.S. government) have found complying with a similar U.S. law to be difficult and costly – and despite the fact African leaders have said the rule and others like it have actually harmed the region. The Wall Street Journal (subscription required) reported last week that the four U.S. companies who undertook voluntary audits of their reporting processes could not fully determine whether they had “eradicated the minerals from their supply chain” while Rosa Whitaker, (subscription required) the U.S.’s first assistant trade representative to Africa, explained how the U.S. law has harmed the African economy. Whitaker reported, saddled with hefty compliance costs, U.S. companies have essentially stopped trading with 10 African countries. Since U.S. companies will no longer deal with the African nations, those nations have turned “instead to Asian partners.” The result of those new relationships is that Asian companies now get to be the ones to turn the raw minerals into useable components and resell “them at a premium to the affected American companies.” That process not only raises prices for American consumers, it is “a big income loss for African producers,” Whitaker says. Of course, regardless of the unintended consequences of the U.S. law, public companies will have to file conflict minerals reports again next year. Affected companies can find more strategies for compliance in this report from Schulte, Roth and Zabel and should join a webinar this Thursday offered by Source Intelligence. Finally, MSCI members should not forget to check out MSCI’s own conflict minerals webpage.