Participation instead of boycotts

The US documentation requirements for raw materials known as “conflict resources” originating from countries such as the Democratic Republic of the Congo are aggravating the living conditions in the mining countries concerned, and putting a strain on not only US but also European businesses. The European Union, however, is planning to introduce a similar system.

The EU plans to introduce a regulation on how to deal with raw materials from conflict regions. The European Parliament wants to introduce documentation requirements for resources such as tantalum, tungsten and gold originating from conflict and high-risk areas. The manufacturers would have to audit their entire supply chain to prove that the revenues generated from mining and selling these raw materials are not being used to finance armed conflicts or war-related crimes in eastern Congo, for example. While this may seem like a reasonable approach, it does not actually put an end to or ease the conflict. Instead, it poses a threat to the livelihoods of countless people in the region.

This was confirmed in a study published in 2013 by the Oeko-Institut in collaboration with the BDI.

Three years before the study was published, the US Congress passed the Dodd-Frank Act in reaction to the 2008 financial crisis. While the Act mainly focuses on the stability of financial markets, Section 1502 deals with conflict resources that are obtained in eastern Congo and used by the warring factions to finance their crimes. Section 1502 places all US companies under an obligation to fully document the source and chain of custody of the raw materials in question, and to include an independent audit of their report. The goal is to prevent US companies from indirectly supporting armed conflicts – and the serious human rights violations associated with them – when processing raw materials.

These documentation requirements have far-reaching consequences for European businesses, too. Even the companies that supply US manufacturers now have to prove that they did not process any conflict resources. But this task places an almost unaffordable administrative and financial burden on many German businesses.

The BDI commissioned the Oeko-Institut in Freiburg to analyse the effectiveness of the US procedure. The study “Conflict minerals – An evaluation of the Dodd-Frank Act and other resource-related measures” reaches a sobering conclusion. The main point of criticism is that the easiest way to avoid the laborious documentation requirements is to acquire raw materials from other sources. Those who suffer most from such decisions are the Congolese mineworkers who extract the ores and sell them to local commodity traders; if they are no longer able to sell their wares, they lose their livelihood at a blow.

The award-winning documentary “We Will Win Peace” (2015) portrays the conditions in eastern Congo and the counterproductive impact of the Act: deprived of their only source of income, many of the mineworkers join the warring factions themselves.

In short, the US approach is leading to a loss of statehood and is exacerbating the conflict. As a result, the crime rate and especially sexual violence has increased in the region since the adoption of the Dodd-Frank Act. This alarming observation is supported by the UN’s crime statistics.

A number of US celebrities supported the introduction of this section of the Dodd-Frank Act back in 2010. But experience has shown that while the goal of improving the living conditions of the people in Congo is certainly very worthy of support, it has not been achieved – quite the opposite, in fact.

Instead of stringent documentation requirements, the Oeko-Institut study proposes a series of measures designed firstly to ensure transparency regarding the source of the raw materials and secondly, provide support to responsible mining practices. The study advises the EU to initiate a dialogue with local and European actors as well as the International Conference on the Great Lakes Region (ICGLR), an association of twelve East African states, in a bid to develop joint solution strategies. Instead of a general boycott, support is to be provided to responsible sourcing projects on site.

The BDI submitted the study to the European Commission before it concluded its draft regulation, so that it could take due account of the findings of the study. In May 2015, however, the European Parliament significantly toughened up the Commission’s draft. In spite of the well-documented negative experiences of the US approach, the European Parliament draft is based on stringent documentation requirements. The BDI warns that those who are hit hardest by such documentation requirements are the people living in the conflict region, and advocates an approach that is based on their participation rather than on regulations with penalising effects.