Reference no: EM131851769

Question: Business in a Globalized World

Discussion Case: Conflict Coltan in the Global Electronics Industry Supply Chain

Most people have never heard of coltan, although it is an essential ingredient in electronic products they use every day. Columbite-tantalite, or "coltan" as it is commonly known, is a black metallic ore. When refined, it produces tantalum, which is used to regulate electricity in portable consumer electronics, such as smartphones, laptops, play stations, and digital cameras. The largest share of coltan comes from Africa; other sources include Australia, Brazil, and Canada.

In the late 2000s, a common concern emerged among members of an oddly matched group-the electronics industry, the United Nations, governments, and human rights organizations. All wished to ban conflict coltan-ore that had been traded by warring groups to fund horrific civil conflict in the Democratic Republic of the Congo (DRC). Their efforts led, ultimately, to a set of international guidelines, national laws, and voluntary initiatives whose goal was to keep the electronics industry and its customers from inadvertently supporting killing, sexual assault, and labor abuses.

The Democratic Republic of the Congo is a nation of 71 million people in central Africa, covering a vast region the size of Western Europe. Since the late 1990s, the DRC has been the site of a brutal regional conflict, in which armed militias, including some from neighboring states, have fought for control. Despite the presence of United Nations troops, as many as 5 million people have died-the most in any conflict since World War II. Warring groups have used sexual assault as a weapon to control the population; an estimated 200,000 Congolese women and girls have been raped, often in front of their husbands and families.

The United Nations and several NGOs reported that militias had systematically looted coltan and other minerals from eastern Congo, using the profits to fund their operations. According to the human rights group Global Witness: In the course of plundering these minerals, rebel groups and the Congolese army have used forced labor (often in extremely harsh and dangerous conditions), carried out systematic extortion, and imposed illegal "taxes" on the civilian population. They have also used violence and intimidation against civilians who attempt to resist working for them or handing over the minerals they produce.

Said a representative of The Enough Project, another human rights group, "In eastern Congo, you see child miners [with] no health or safety standards. Minerals are dug by hand, traded in sacks, smuggled across borders."

Once mined-whether in the Congo or elsewhere-raw coltan made its way through a complex, multi-step global supply chain. Local traders sold to regional traders, who shipped the ore to processing companies such as H.C. Starck (Germany), Cabot Corporation (U.S.), and Ningxia (China). Their smelters produced refined tantalum powder, which was then sold to parts makers such as Kemet (U.S.), Epcos (Germany), and Flextronics (Singapore). They sold, in turn, to original equipment manufacturers such as Dell (U.S.), Sony (Japan), and Nokia (Finland).

By the time coltan reached the end of this convoluted supply chain, determining its source was nearly impossible. The late Steve Jobs, then CEO of Apple, commented in an e-mail in 2010, "We require all of our suppliers to certify in writing that they use conflict free materials. But honestly there is no way for them to be sure. Until someone invents a way to chemically trace minerals from the source mine, it's a very difficult problem."

As public awareness of atrocities in the Congo grew, governments and companies began to take action. The Organization for Economic Cooperation and Development, an alliance of mostly European nations, issued guidance for companies that wished to responsibly source minerals. A group of electronics firms, collaborating under the banner of the Electronic Industry Citizenship Coalition (EICC), developed a Conflict-Free Smelter Assessment Program, a voluntary system in which an independent third-party auditor would evaluate processors and designate them as "conflict-free." Minerals originating from responsibly operated mines would be "bagged and tagged" and then tracked through each step of the supply chain.

In 2010, the U.S. Congress passed the Wall Street Reform and Consumer Protection Act (also known as the Dodd-Frank Act, and further discussed in Chapters 8 and 14). This law included a provision, Section 1502, which required companies to disclose whether certain minerals and metals used in their products, including tantalum, had come from the DRC or adjoining countries. It was scheduled to go into effect in 2012. Supporters said that by shining a spotlight on conflict minerals, this law would help drive them out of the supply chain.

Others, however, thought the law could unintentionally hurt the very people it was meant to help. A journalist traveling in eastern Congo posted this report in late 2011: The smelting companies that used to buy from eastern Congo have stopped. No one wants to be tarred with financing African warlords-especially the glamorous high-tech firms like Apple and Intel that are often the ultimate buyers of these minerals. It's easier to sidestep Congo than to sort out the complexities of Congolese politics-especially when minerals are readily available from other, safer countries. For locals, however, the law has been a catastrophe.

In an effort to address this concern, two companies, AVX and Motorola, joined forces to create an initiative called Solutions for Hope. Their aim was to begin using coltan from the DRC that could be verified as conflict-free, in order to support legitimate exports from that nation as it struggled to recover from years of civil conflict. In one of the first shipments, in late 2011, coltan was shipped from a licensed concession holder in the DRC to a certified conflict-free smelter in South Africa. During the next year, the initiative planned audits by key stakeholders.

Despite progress on many fronts, some called for a higher level of collaboration among companies, governments, and NGOs. The Enough Project said that the "missing link" was a common certification program for conflict minerals. It called for a "high-level negotiation process aimed at building multi-stakeholder consensus for a scheme to unite current initiatives around common standards and certify conflict-free minerals from Congo from mine to end product."

3. What steps could be taken by governments, NGOs, and companies to strengthen the process to exclude conflict minerals from the global supply chain?