By Peter Schroeder - 03/06/11 12:55 AM EST
Business groups are warning that it might be impossible to comply with proposed rules requiring companies to track whether minerals came from combat-torn parts of Africa.
But the two lawmakers behind the so-called "conflict minerals" provision are telling regulators to stand firm and issue strict rules as quickly as possible.
The provision is intended to make companies more accountable for the trade of minerals that has driven the conflict in the Democratic Republic of Congo (DRC) and the surrounding region.
In proposed rules unveiled in December, the SEC said American companies that rely on conflict minerals would have to file annual reports with the agency and post their findings on their websites listing where the minerals came from. The specific minerals that must be tracked are tin, tantalum, gold and tungsten, which are used in a variety of products, such as jewelry and cell phones.
If a company determines its minerals came from the combat-affected region, or even if it is unable to determine where they came from, it would be required to file a report with the SEC, informing the regulator of its findings, and publish that report on its website.
The U.S. Chamber of Commerce blasted the SEC's proposal in a letter to the agency Monday, calling the rules "burdensome and difficult, if not impossible to comply with." The SEC needs to scrap its original effort and rewrite the rules from scratch, the nation's largest business lobby said.
In a separate letter sent Wednesday, a coalition of 14 business groups, including the National Retail Federation and the Consumer Electronics Association, warned that any rules need to recognize "the facts on the ground" and avoid rules that are "unduly burdening industry and harming American competitiveness."
They told the SEC that any rules must be flexible, and should include a transition process stretching to 2015, so that businesses can set up the infrastructure needed to meet the new requirements.
But the two primary authors of the conflict mineral provision, Sen. Dick Durbin (D-Ill.) and Rep. Jim McDermott (D-Wash), sent their own letter to the SEC this week, urging regulators to not delay and finalize the rules by April, as spelled out in Dodd-Frank.
"Conflict minerals legislation was first considered in 2008 and the current law is almost a year old. Many companies have been involved in this conversation for years," they wrote in a Monday letter. "We currently see no justification for delaying compliance."
The coalition of business groups told the SEC that since most companies do not directly purchase minerals, but rather obtain them through third parties, time is needed to set up systems allowing them to work through the supply chain to determine the point of origin.
"The lack of infrastructure is a serious issue and must be acknowledged," they wrote, adding that the SEC should be flexible and recognize "no two supply chains are identical."
If the rules are too strict and come too quickly, the groups also warned that it could result in a "de facto embargo" of the African region. If rules make it too difficult for businesses to obtain minerals from the region, they might avoid it altogether, they said.
But Durbin and McDermott dismissed such claims as scare tactics. In their letter, they cite experts who say that about 1 percent of Congolese workers depend on the mining industry.
"Even if a de facto ban came to pass — which we doubt — the economic impact would not be as great as commonly assumed," they wrote.
In fact, they argue their provision could end up helping the Congolese economy by helping to starve the black market, defunding the war, and help lead to the creation of a legitimate mining sector in the region.
The lawmakers made clear in their letter that they want companies to know where their minerals came from and publicly disclose that knowledge — and suffer the consequences if they do not.
"In short, the intent behind [the provision] is that companies must know the origin of their conflict minerals and be liable for penalties if they do not report or are not transparent," Durbin and McDermott wrote.