[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE COSTS AND CONSEQUENCES OF
DODD-FRANK SECTION 1502: IMPACTS
ON AMERICA AND THE CONGO
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
----------
MAY 10, 2012
----------
Printed for the use of the Committee on Financial Services
Serial No. 112-124
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
THE COSTS AND CONSEQUENCES OF
DODD-FRANK SECTION 1502: IMPACTS
ON AMERICA AND THE CONGO
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MAY 10, 2012
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-124
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PRINTING OFFICE
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
James H. Clinger, Staff Director and Chief Counsel
Subcommittee on International Monetary Policy and Trade
GARY G. MILLER, California, Chairman
ROBERT J. DOLD, Illinois, Vice CAROLYN McCARTHY, New York,
Chairman Ranking Member
RON PAUL, Texas GWEN MOORE, Wisconsin
DONALD A. MANZULLO, Illinois ANDRE CARSON, Indiana
JOHN CAMPBELL, California DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota ED PERLMUTTER, Colorado
THADDEUS G. McCOTTER, Michigan JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan
C O N T E N T S
----------
Page
Hearing held on:
May 10, 2012................................................. 1
Appendix:
May 10, 2012................................................. 45
WITNESSES
Thursday, May 10, 2012
Calder, Bruce, General Manager, Claigan Environmental Inc........ 22
Dizolele, Mvemba Phezo, Distinguished Visiting Fellow, Hoover
Institution on War, Revolution and Peace, Stanford University.. 9
Lamar, Stephen, Executive Vice President, American Apparel &
Footwear Association........................................... 18
Lola, The Most Reverend Nicolas Djomo, Bishop, Diocese of
Tshumbe, the Democratic Republic of the Congo; and President,
Catholic Bishops' Conference, the Democratic Republic of the
Congo.......................................................... 21
Pudles, Steve, Chairman, Board of Directors, IPC--Association
Connecting Electronics Industries; and Chief Executive Officer,
Spectral Response LLC.......................................... 17
Seay, Laura E., Assistant Professor of Political Science,
Morehouse College.............................................. 13
Vargo, Franklin, Vice President, International Economic Affairs,
National Association of Manufacturers (NAM).................... 15
APPENDIX
Prepared statements:
Manzullo, Hon. Donald........................................ 46
McDermott, Hon. Jim.......................................... 48
Waters, Hon. Maxine.......................................... 50
Calder, Bruce................................................ 52
Dizolele, Mvemba Phezo....................................... 158
Lamar, Stephen............................................... 169
Lola, The Most Reverend Nicolas Djomo........................ 174
Pudles, Steve................................................ 179
Seay, Laura E................................................ 187
Vargo, Franklin.............................................. 193
Additional Material Submitted for the Record
Miller, Hon. Gary G.:
Written statement of the Automotive Industry Action Group
(AIAG)..................................................... 213
Written statement of Kennametal Inc.......................... 215
``A Critical Analysis of the SEC and NAM Economic Impact
Models and the Proposal of a 3rd Model in view of the
implementation of Section 1502 of the 2010 Dodd-Frank Wall
Street Reform and Consumer Protection Act,'' prepared by
Chris Bayer, Tulane University, dated October 17, 2011..... 218
Written statement of the Retail Industry Leaders Association
(RILA)..................................................... 254
Written statement of the SBA Office of Advocacy.............. 258
Written statement of the U.S. Chamber of Commerce............ 261
McCarthy, Hon. Carolyn:
Written statement of Ntama Byalira Bahati (Jacques), Africa
Faith and Justice Network Policy Analyst................... 263
Written statement of Bennett Freeman, Senior Vice President,
Sustainability Research and Policy, Calvert Investments.... 267
Written statement of Peter Rosenblum, Columbia Law School.... 268
Written statement of Earthworks.............................. 270
Written statement of The Enough Project...................... 272
Written statement of Free the Slaves......................... 276
Written statement of Global Witness.......................... 278
Written statement of David Schatsky, Principal Analyst/
Founder, Green Research.................................... 280
Written statement of the International Corporate
Accountability Roundtable (ICAR)........................... 283
Written statement of the Social Investment Forum (SIF)....... 286
Written statement of the National Association of Evangelicals
(NAE)...................................................... 298
Written statement of Hon. Howard L. Berman, a Representative
in Congress from the State of California................... 299
Written statement of SYNERGIE, A Platform of 35 Women's
Rights Groups Standing up for Victims of Sexual Violence... 301
Written statement of STAND................................... 303
Written statement of the Group of Experts on the Democratic
Republic of Congo.......................................... 305
Written statement of United to End Genocide.................. 308
McDermott, Hon. Jim:
Partial list of companies going conflict free................ 310
Executive Order 13126 and the List of Forbidden Products for
Federal Acquisition Starting in 2001....................... 314
Partial transcript of a Foreign Affairs Committee Markup held
on April 28, 2010.......................................... 317
List of States, Cities, and Companies going conflict free.... 349
Waters, Hon. Maxine:
supplychain article.......................................... 350
Dizolele, Mvemba Phezo:
``The Democratic Republic of Congo: Taking a Stand on
Security Sector Reform''................................... 351
THE COSTS AND CONSEQUENCES OF
DODD-FRANK SECTION 1502: IMPACTS
ON AMERICA AND THE CONGO
----------
Thursday, May 10, 2012
U.S. House of Representatives,
Subcommittee on International
Monetary Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Gary G. Miller
[chairman of the subcommittee] presiding.
Members present: Representatives Miller of California,
Dold, Manzullo, Huizenga; McCarthy of New York, Moore, Carson,
and Scott.
Also present: Representatives Waters, Miller of North
Carolina, and McDermott.
Chairman Miller of California. This hearing will come to
order. Without objection, all Members' opening statements will
be made a part of the record.
I ask unanimous consent that Mr. Miller of North Carolina,
a member of the Financial Services Committee, be permitted to
sit as a member today of the Subcommittee on International
Policy and Trade for the purpose of delivering a statement,
hearing testimony, and questioning the witnesses.
We are limiting the opening statements to 10 minutes. And I
believe Mr. McDermott has shown up.
Would you like to be heard today also? Unless the Minority
side objects, I think we can agree to that.
Without objection, it is so ordered.
We have agreed the opening statements will be 10 minutes on
each side. I will start with my opening statement.
Today's hearing is entitled, ``The Costs and Consequences
of Dodd-Frank Section 1502: Impacts on America and the Congo.''
This hearing will explore the impact Section 1502 will have on
American companies and whether or not it will have a desired
effect of reducing violence in the eastern region of the
Democratic Republic of the Congo (DRC).
The hearing comes a bit late, in my opinion, as a law was
passed prior to any congressional hearing on this matter--no
legislative hearings were held on the requirement to contain
the Section 1502 before it was enacted. In fact, this provision
was added in the middle of the night by the Dodd-Frank
conference committee between the House and the Senate.
The House never passed any bill or held any hearings or
explored the issue of the policy provisions that were
ultimately included in the Dodd-Frank Act. Congress did not
have an opportunity to consider the sections implemented and
whether it would help in the conflict in the DRC, and what
effect it would have on the DRC and the companies and minerals
and manufactured goods that come from this area and go to
regions and manufacturers in the United States.
Although bills similar to Section 1502 were introduced
earlier, they were never heard. So we are going to do the
legislative due diligence that should have happened then. This
is what the American people expect of us, and is absolutely
critical in this very important issue. We owe it to the
American companies. We owe it to the people of the Congo to
ensure that policies we pass have the intended consequences and
don't have unintended consequences, as we are hearing are
happening today.
While it is puzzling to me that Section 1502 falls
completely outside the scope of the Dodd-Frank Act, that
legislation was passed as a result of the financial crisis to
add stability to the financial system. Section 1502 does
nothing to ``provide for financial regulatory reform, to
protect consumers and investors, to enhance Federal
understanding of insurance issues, or to regulate over-the-
counter derivatives markets,'' which were the stated purpose of
the Dodd-Frank Act. Section 1502 does nothing to address the
cause of the financial crisis.
Additionally, Section 1502 will cause regulation by the
SEC. This is a complex matter beyond the SEC's normal area of
expertise. The SEC's mission is to protect investors; maintain
fair, orderly, and efficient markets; and to facilitate capital
formations. This Section does not protect investors or provide
information about the financial health of companies. So
development of this well-intended law--and I will say it was a
well-intended law--seems quite irregular.
And its impacts on companies are expected to be massive. We
have been hearing from a number of companies and trade
associations expressing concern about the costs and magnitude
of this provision. Now is not the time to be placing additional
burden on the American companies.
I am incredulous that Congress would pass a mandate down on
businesses that the National Association of Manufacturers
estimates to be between $9 billion and $16 billion. While the
provision only applies to the SEC-listed companies, the truth
is it will affect non-SEC companies and small businesses all
over this country.
Companies like Kraft Foods, over 100,000 suppliers and
50,000 products that contain those minerals, not necessarily
from the region, but if the those minerals are included, they
have to review them as if they were from that region.
And it is a system where you have to prove yourself
innocent, not simply prove you are not guilty. You have to
prove that none of those minerals came from that region, which
is a very expensive process, and it is a process that is going
to be difficult to implement.
There are over a million parts in a Boeing plane supplied
by almost as many suppliers that include these minerals. These
suppliers are small businesses and they are job creators in
this country.
I am going to be very clear to my colleagues. This hearing
is about denying or downplaying the violence in the eastern
Congo because it is massive and it needs to be dealt with. Just
because a law is enacted with good intentions and is meant to
address human rights abuses does not mean the law is the right
approach to fixing the problem. The costs of implementing a law
are still relevant even when the law is meant to address human
rights issues.
So today's hearing is about the consequences of this law on
American companies, which must comply with it. We also want to
learn how Section 1502 is having its intended effect of helping
to reduce violence in the Congo. And if it is helping to reduce
the violence, we want to know that. But if it is not, and it is
adding to unemployment and the burden on those people, we also
want to know that.
During the NCC roundtable on Section 1502, and based upon
reports coming out of the Congo from the United Nations,
Section 1502 may have had the unintended consequence of
creating a de facto embargo on the conflict material minerals
covered in this section: tin; tantalum; tungsten; and gold.
Companies that source these minerals are now sourcing them
elsewhere, to the detriment of legitimate mining companies in
the rest of the Congo. This de facto embargo not only affects
the Congo, but Section 1502 also includes the Congo's
neighboring states.
The de facto embargo has apparently spread to much of
central Africa. We are also told that the de facto embargo has
spawned a growing black market trade in these minerals, which
we have heard are going to China.
This hearing is not to say that what is going on there in
human rights is not a problem; it is. But our concern is, are
we hurting the people that we say in this legislation we are
trying to help?
I yield back the balance of my time and recognize the
Ranking Member, Mrs. McCarthy.
Mrs. McCarthy of New York. Thank you, Mr. Chairman. And
thank you for having this hearing. It is very important that we
discuss what is going on in the Congo.
The conflict that has plagued the eastern divisions of the
Democratic Republic of the Congo, or the DRC, began over a
decade ago. There are many factors that contribute to the
political instability, fueling the conflict in that particular
region, such as ongoing human rights abuses, widespread
poverty, and constant conflict over control of state agencies
and fiscal resources. Armed groups continue to compete for
dominance over land rights, agriculture commodities and mineral
reserves, and mining and trade.
Conflict minerals in the eastern DRC region are mined under
extremely poor and dangerous labor conditions in mines that are
controlled by armed groups and state security force elements.
The main minerals at issue are referred to as the ``3 TGs,'' as
the chairman had mentioned: tin; tantalum; tungsten; and gold.
These minerals are used to manufacture products ranging from
electronics and cellphones to food containers and jet parts.
The sales of these minerals provide direct and indirect
profit to the controlling armed groups and allow them to grow
and extend their reach. The Congo conflict and instability has
been a constant focus in Congress through hearings and
legislation aimed to mitigate the factors fueling the conflict,
particularly between trade and the conflict in the DRC.
One such effort is a provision included in the Dodd-Frank
Act, Section 1502, that requires SEC-regulated firms that use
the ``3 TGs'' in products to publicly report whether those
minerals are from the DRC. And if so, what due diligence
standards they exercise to ensure that the purchases do not
benefit armed groups.
The SEC issued a proposed rule in December 2010 and the
final rule should have followed in April 2011. However, due to
the complexity of this issue they have repeatedly extended the
commentary period, causing a delay in final adoption. Absent a
final rule, there has been progress on conflict mineral
migration strategies in several ways.
For example, the creation of the conflicts smelter program,
which supports conflict-free mineral processing through a
vetting system that evaluates and confirms that they are clean
minerals. As well, the Department of State and the USAID
launched a public/private alliance for responsible mineral
trades made up of nonprofits and industry trades to help
establish a credible broad spectrum conflict-free minerals
supply chain system.
Industry associates and individual companies have piled the
due diligence programs based off of the OECD guidance that
provides recommendations for supply chain and a code of conduct
for sourcing minerals from these conflicts areas.
I am hopeful that today's hearing will provide a
constructive conversation on overall compliance of Section
1502, as well as the benefits the provision has had on the DRC
region thus far, absent a final rule.
I thank all the witnesses for being here. And I know some
of you have certainly traveled a long distance to be here.
I would also like to commend Representative McDermott, as
well as the members of the full Financial Services Committee,
for participating in this hearing. The Members joining us today
have been leaders on human rights and good governance issues,
and I look forward to their participation.
Mr. Chairman, I ask unanimous consent to submit into the
record a number of statements and letters from human rights,
religious, and civic society groups, and investor interests, as
well as a statement from Foreign Affairs Committee Ranking
Member Howard Berman. All of these organizations support a
strong and quick implementation of Section 1502.
Thank you.
And with that, I yield back my time.
Chairman Miller of California. Without objection, it is so
ordered.
Mr. Manzullo is recognized for 2 minutes.
Mr. Manzullo. Thank you, Mr. Chairman, for holding this
hearing. I only wish we would have had a similar legislative
hearing on this topic prior to Section 1502 becoming law.
As someone who also serves on the Foreign Affairs
Committee, I am well aware of the situation in the eastern
region of the Democratic Republic of the Congo, but I also know
that oftentimes unilateral trade sanctions backfire on the very
people that we try to help.
In addition, Congress passed the buck to the SEC to resolve
complex issues through rulemaking. We need the flexibility of
this new law so that it becomes practical to implement, but
still maintains the goal of the legislation. It is also in the
interest of the advocacy groups, because U.S. small businesses
have legal standing to challenge the SEC rule if it does not
change in court, because the rule currently violates the
Regulatory Flexibility Act.
The SEC did not perform an adequate economic analysis on
the impact of this proposed rule on small businesses. If the
SEC ignores the advice of the SBA's Office of Advocacy to
submit a new, more accurate, economic analysis, then the
affected small businesses will successfully overturn this rule
in Federal court.
I am probably one of the few Members of Congress who spends
60 to 70 percent of his time on manufacturing issues, studying
supply chain management sourcing. I actually went to
warehousing school to determine how the final product finds its
way into the showroom. And I spent my time analyzing extraction
of minerals and petroleum and gas feed stocks, which are the
basis of most manufacturing, all of which through export
controls.
With over 2,000 factories in the congressional district
that I represent, many of them using tin, it is absolutely
impossible for these companies to fill out a statement showing
the source of the minerals that they get. You can't do it,
because most are bought from brokers, and oftentimes the
brokers buy these on the open market. And so, it is the type of
law that has passed, well-intentioned, but nobody thought about
the details, and nobody thought about the tremendous impact it
is going to have upon our manufacturing sector.
Thank you, Mr. Chairman.
Chairman Miller of California. Thank you.
Ms. Moore, you are recognized for 3 minutes.
Ms. Moore. Thank you so much, Mr. Chairman.
I do want to thank all of our witnesses for taking the time
to come here to share your perspective on conflict minerals and
ways to best implement Section 1502. And I hopefully trust that
this committee supports disclosure and transparency in U.S.
capital markets, and thereby the empowerment of investors to
make sound investment decisions.
I also trust that we share the goal to stem the plague of
violence that has engulfed eastern Congo. I am so sympathetic
to the industries' concerns expressed in their comment letters
to the SEC regarding the rulemaking and implementation, and I
share their desire to have the SEC issue a final rule. Those
folks who are starting to comply with Section 1502 are already
seeing successes, and we should reward those companies which
are investing and complying with Section 1502.
And a final rule, I think, would serve investors by
providing the transparency that they expect when making an
investment, to know whether or not and to what extent the
companies in which they are investing rely on minerals sourced
from an unstable or unreliable black market, thus making the
value of those companies vulnerable to the whims of murderous
warlords.
When we talk about the costs of these regulations, I want
to make sure that we include in that equation the full parade
of horrors that have occurred in the Congo since 1996. Most are
too awful to recount. But I do want to make sure we focus on
the correct frame when we are discussing the costs of conflict
minerals, and not just the dollars and cents and extra
paperwork and extra compliance officers among our
manufacturers, or the costs of extracting these materials from
the ground.
We are talking about some of the most wretched and vile
mass abusements of humans documented today. Millions of murders
and rapes, rampant instability and de facto slavery, and the
loss of generations of hope and productivity.
We are talking about wedding days that end in the
calculated execution of the bridal party, the savage rape of
the bride, and the beheading of the groom, all as a part of a
larger campaign of terror to control mineral resources. This is
the life in conflict mineral zones. In fact, the Democratic
Republic of the Congo is the most dangerous place in the world
to be a woman, we are told.
I utterly reject attempts to say that 6 million lives are
not factored into the costs--and the modest costs--of due
diligence to outsource the war on women, or to support a notion
that this committee's jurisdiction over markets does not
include requiring the disclosure to investors of reliance on
black market or terrorist activity. I simply reject the concept
of see no evil, hear no evil, disclose no evil securities law
disclosure regime within the United States.
Some have suggested that conflict minerals are outside the
realm of what the SEC should be worried about. They are wrong.
Investor protection is absolutely the job of the SEC. The
Foreign Corrupt Practices Act was enacted to protect investors
and the integrity of markets. Section 1502 was enacted for the
same reason and in the same spirit.
The fact is that Section 1502 is working for investors and
for the people of the Congo. Businesses have already moved
swiftly to secure supply chains and to ensure smelters are
taking care to avoid smuggled conflict materials. In fact, I
understand the Conflict Smelter Program has completed the
certification review process for 23 refiners, and many more are
moving in that direction.
Motorola, for example, is creating a closed supply chain.
Chemat is also working on a closed supply chain. Kester, who
supplies 50 percent of the solder wire, a major source of tin,
has completed full traceability of their supply chain. Intel
announced that it will have a conflict-free chip in 2013.
Chairman Miller of California. The gentlelady's time has
expired.
Ms. Moore. Models exist.
Thank you so much, Mr. Chairman.
Chairman Miller of California. I yield myself 2 minutes.
I think what the gentlelady has said is honest and
appropriate. The problem is the Democratic Republic of the
Congo is controlled by warlords and thugs. Women are still
being raped when they go in the fields. You have an incredibly
high unemployment rate in this region. And it is not like the
United States, where if you lose your job in one town, you move
to the next town to get a job. There are no jobs in the next
town.
So if you say we are going to shut down business
opportunities for people in the Congo, then somehow we need to
address whether we are hurting the very people we are trying to
help by creating huge unemployment in the regions, and are we
hurting the nations around the Democratic Republic of the Congo
by this embargo?
The problem we have is, let us take something like an order
that goes into tin or gold. When an American company goes to
buy something that has tin or something that has gold in it,
you don't--you have to go prove in some way that none of the
ore in the tin or the gold came from the Democratic Republic of
the Congo. And if you can't prove that, you are guilty. That is
not reasonable.
Yes, there are atrocities occurring. Nobody is arguing that
there aren't. Nobody is downplaying that. But does taxing
American companies solve the problem in the Democratic Republic
of the Congo? I question that. Do we need to do something
there? Are human rights issues paramount? They absolutely are.
I applaud the Bishop who is here, who knows the region, and the
individuals who know the region.
But to say we are going to make life more difficult for
people trying to gain employment by making it more difficult
for them to have a job, and then implementing this complex
burden on American companies to have to prove something isn't
true that they don't know even exists in a product is very
difficult, too. So these are issues we need to deal with.
I would be happy to yield 1 minute to Mr. Scott.
Mr. Scott. Thank you very much, Mr. Miller.
I am very interested in this. And I visited the Congo. I
saw it firsthand. I went to heart of the matter, which is Goma.
And if you have ever been to Goma, you know what I am talking
about. And on that point, I would like to thank all those
volunteers who go in there.
The number one treatment in the hospital of Goma is not for
cancer, it is not for heart disease, and it is not for
tuberculosis. It is not for any of those things. The number one
treatment is for sexual violence. Sexual violence, not sexual
attacks, but violence against women.
And this is why it is important for us, in Section 1502 of
the Dodd-Frank Act, to require disclosures by all issuers who
use conflict minerals in their manufacturing processes or in
their products. And according to this section, companies must
disclose specific due diligence, measures that they have taken
to ensure that minerals that are imported from the Congo did
not contribute to conflict.
Chairman Miller of California. The gentleman's time has
expired.
Mr. Scott. Thank you, Mr. Chairman.
I just urge us to be very mindful that we are still that
shining city and that shining light on the hill and the world
looks to us to do the right thing. And the right thing is
making sure--
Chairman Miller of California. And I am not trying to cut
off my good friend. He knows that. We have votes called. I want
to let Mr. McDemott--we will extend your time a little bit to
allow him to have 1 minute also. So I am trying to be generous
to my friend, sir.
Mr. Scott. Sure. You are.
Thank you very much, sir.
Chairman Miller of California. Mr. McDermott for 1 minute.
Mr. McDermott. Mr. Chairman, I want to thank you for
allowing me to participate in this and I will use my time to
ask for unanimous consent, first of all, to have the markup of
the conflict minerals bill in 2010 from the Foreign Affairs
Committee entered into the record.
This bill was heard and was extensively worked. Many
companies were heard from and the record exists. And in fact,
this bill was written bipartisanly. If you read Ms. Ros-
Lehtinen's remarks at the Foreign Affairs markup, it is a very
strong endorsement of this bill. So it was not as though there
were no markups on this.
Second, I ask unanimous consent to submit for the record
the Executive Order from the White House, EO13126, which is a
list of the products and countries that business already must
look at. They cannot accept carpets from Nepal and Pakistan.
They can't take coffee from Cote d'Ivoire, and so forth. It is
in the record.
Third, I would ask unanimous consent that a list of
colleges, States, and cities that have already enacted this and
have begun to implement this in their purchasing agreements be
entered into the record.
Chairman Miller of California. The gentleman's time has
expired.
Mr. McDermott. And finally, the companies which are already
going conflict-free--we have a partial list and I ask unanimous
consent to submit that for the record.
Chairman Miller of California. Without objection, it is so
ordered.
Mr. McDermott. They don't want a conflict-free question to
become a boycott.
Chairman Miller of California. Thank you.
I am going to attempt to introduce the witnesses prior to
going to vote. If I completely botch these names, I absolutely
apologize beforehand. I am going to make an attempt.
Mr. Mvemba Dizolele is a distinguished visiting fellow at
Stanford University's Hoover Institute, and is currently an
adjunct professor at Johns Hopkins University. He is a native
of the Congo, and a veteran of the U.S. Marines, someone who
has been abducted and held in prison by Congolese security
police. He has a profound understanding of the complex security
situations in the Democratic Republic of the Congo today.
Dr. Laura Seay is an assistant professor of political
science at Morehouse College in Atlanta, Georgia. Her areas of
concentration include African politics, conflict, international
affairs, and a particular focus on Sub-Saharan Africa and the
Democratic Republic of the Congo. She has been studying central
Africa since 1996 and conducting extensive fieldwork in the
Kivu province of the Congo.
Mr. Frank Vargo--I think I got that one right--is vice
president of international economic affairs for the National
Association of Manufacturers. NAM is the Nation's largest
industrial trade association representing small and large
manufacturers in every industrial sector in all 50 States. NAM
is particularly well-suited to assess the cost of regulations
passed by Congress, so I am pleased Mr. Vargo is here today to
help us understand how in the Dodd-Frank provision, we
considered all costs to American businesses are estimated to be
between $9 billion and $16 billion.
Mr. Steve Pudles is chief executive officer of Spectral
Response, an employee-owned electronic manufacturing service
company located in Lawrenceville, Georgia. Mr. Pudles has also
served as chairman of the board of IPC, a global trade
association representing all facets of the electronic industry.
Mr. Pudles, thank you for being here today and sharing how this
provision has affected your industry.
Mr. Stephen Lamar is executive vice president of the
American Apparel & Footwear Association, a national association
of apparel and footwear industries, as well as their suppliers.
Mr. Lamar has several years experience working in the Executive
Branch in the Commerce Department's International Trade
Administration. Members of this panel may be surprised to see
him seated here today, because the connection between conflict
materials and apparel and footwear is not obvious. We look
forward to hearing about how the Dodd-Frank provision is
affecting your industry.
The Most Reverend Nicholas Djomo Lola, a Bishop of the
Diocese of Tshumbe, is the president of the Catholic Bishops'
Conference of the Congo. Bishop Djomo oversees all of the
Conference's national pastoral, human developments, and peace
and justice activities.
Mr. Bruce Calder is the general manager of Claigan
Environmental. He has managed material compliance programs for
many companies and is a regular speaker at the U.S. and
Canadian Business Forum.
We will now adjourn this hearing to go vote, and we should
be back in just a few minutes. If you will be patient with us,
we have two votes, and we will be right back.
The committee is temporarily adjourned.
[recess]
Chairman Miller of California. The hearing is reconvened. I
would now like to recognize Mr. Dizolele for a 5-minute opening
statement.
STATEMENT OF MVEMBA PHEZO DIZOLELE, DISTINGUISHED VISITING
FELLOW, HOOVER INSTITUTION ON WAR, REVOLUTION AND PEACE,
STANFORD UNIVERSITY
Mr. Dizolele. Chairman Miller, Ranking Member McCarthy, and
members of the Subcommittee on International Monetary Policy
and Trade, thank you for the invitation and honor to testify
before your committee today.
This hearing is the most important and pertinent discussion
yet on Section 1502 of the Dodd-Frank Act and its consequences
for the people of the Democratic Republic of the Congo. Today,
I speak before you as a Congolese and a concerned U.S. citizen
and consumer. I own two laptops, a smartphone, and several
electronic devices, which may or may not contain minerals from
the Congo.
I would like also to thank our friends in the many
organizations that promoted Section 1502. I know that it
galvanized people in the campaign to raise awareness on the
continued conflict in the Congo. Thanks to their work, many
more people know about the Congo today.
The views expressed today in this statement are mine and
mine alone. The best way to access the costs and consequences
of Section 1502 is to look at its premise, claims, and impact
on institution-building in the lives of Congolese.
In essence, Section 1502 seeks to bring peace to eastern
Congo by regulating mineral trade through U.S. law, cleaning up
the supply chain, and reducing malicious to financial through
financial means. Such a regulation will de facto curb the
violence in human rights abuses.
This approach to conflict resolution, however, is not
grounded in the sound fundamentals of political economy and
public policy; Section 1502 may work in the short run, but it
is not sustainable.
Mineral trade in eastern Congo is part of the wider world
economy, which can only be regulated either by the most
powerful armed groups working in collusion, the biggest armed
group imposing its way on the smaller ones or their backers,
seeking to maximize profit and preserve their own interests.
As such, Section 1502 builds on a weak foundation and
requires a buy-in of the very negative actors it seeks to tame.
This approach prevents basic peace-making models and rewards
criminals and would-be spoilers.
Proponents of Section 1502 build their case on the most
widely accepted narrative of U.S-Congo policy, which defines
the predicament as a humanitarian crisis with a binary prism of
social violence and the so-called conflict minerals. Section
1502 oversimplifies the problem, and makes American taxpayers
believe that if only the challenges of sexual violence and
conflict minerals were solved, then the Congo would get back on
track and peace will follow.
But this narrative is wrong and it has led to several
ineffective initiatives, which have effectively turned U.S.-
Congo policy into a Kivu policy. The Kivu's represent no more
than 1/15th of the Congo. Their problems stem from the failure
of the state to discharge its duties, and should be treated
only as a part of the comprehensive national policy-making
This binary prism also reflected biggest image of the Congo
and disenfranchises the Congolese people before the world,
casting them as incompetent and incapable to solve their own
problems. It then becomes imperative that they be rescued from
their hopeless situation by the good people of the world. As a
result, the Congolese have been excluded from the policy
discussions around Section 1502.
This was evident last October when no Congolese was invited
to speak at the SEC's public roundtable on Dodd-Frank Section
1502, which was held here in Washington, D.C. The truth is that
no one understands mining in the Congo better than the
Congolese.
By failing to engage the Congolese in an honest dialogue on
the relationship between conflict and mining, proponents of
Section 1502 failed to spur a national ownership of the
initiative through a true partnership with the Congolese. The
Congo may be a dysfunctional state, but the Congolese are among
the world's most resourceful peoples.
Over the past several years, they have quietly and
effectively undertaken landmark initiatives that are positively
changing the mining landscape in their country. These
initiatives include the Ndandula report, which exposed the OPEC
exploitation of mineral resources and led to the comprehensive
review of mining contracts. As a result, several western
companies, including Canada's First Quantum, lost the
exploitation title.
Pressured by a local civil society organization, the
parliament pushed for the restructuring of the Chinese barter
investment deal, reducing its terms and downgrading its value
from $9 billion to $6 billion. The Senate recently published a
report by the Moussambani Commission, which audited the mining
sector and documented millions of dollars of financial loss by
the Congolese state incurred due to mismanagement and bad
governance.
Today, as we discuss Section 1502, the Parliament, the
Federation des Enterprises Congolaise, which is the equivalent
of the U.S. Chamber of Commerce and civil society
organizations, is supported by international groups such as the
Open Society Foundation, are engaged in discussions setting the
guidelines for the new mining code that will be enacted in the
near future.
The current mining code, which was written over a decade
ago as part of a World Bank project, disproportionately favors
foreign investors at the expense of the Congolese state and the
Congolese people. So far, the proponents of Section 1502 have
marched to their own beat, antagonizing corporations,
inculpating consumers, and ignoring Congolese initiatives.
If they really want to effect positive change in the
Congo's mining sector, there is an opportunity here for them to
join the debate on policymaking in Kinshasa to ensure that the
new mining code addresses their concerns. This is the best way
to empower the Congolese, strengthen the local institutions,
and induce national ownership of the transparency they seek.
This conflict, which has indirectly caused the deaths of
over 6 million Congolese, has gone on for too long, and is now
a scourge on the face of the planet. As we struggle to solve
this calamity, we will be better served by looking into the
Congo's early history.
Between 1885 and 1908, the Congo, then known as the Congo
Free State, was the private estate of Belgian King Leopold II,
and was the theatre of yet another holocaust, driven not by
mineral exploitation, but by the world's hunger for another
commodity. The Industrial Revolution demanded rubber, and more
of it. Business' insatiable need for rubber and King Leopold's
immeasurable greed pushed the Belgians to design one of the
world's most repressive forced labor structures.
The king's agency established a quota system, which
required that each village produce a specific amount of rubber
over a specific time. Forced public troops were then used to
enforce the quota and demand taxes of the population.
Failing to meet the quota or tax requirement led soldiers
to chop off limbs of the unlucky Congolese who fell below the
mark. Villages were torched, women raped, and the people left
to starve to death or die of disease. By 1924, over 10 million
Congolese had perished under the yoke of the Leopoldian regime.
The similarity to the current situation is eerie. Like the
conflict minerals, which are primarily exploited in the east,
rubber was only exploited in some areas of the Congo Free
State. Both problems were symptoms of larger systemic and
regime perversions, thus subjugating an entire country.
But there is a big difference between the approach the
activists took to expose and denounce King Leopold's crimes,
and the way we choose to deal with the calamity today. At a
time when there was no computer, no Internet, no fax, and the
telephone was still a curious invention, a shipping clerk in
Liverpool decided to expose the mighty king and launched a
campaign that would not end until Leopold relinquished
possession of the colony and the regime and the system changed.
Working under great stress, those activists could have
easily chosen the easy route to fundraising on behalf of
victims: send them medicine and physicians to mend their
wounds. They could have also elected to set a blood-free pre-
certification scheme to ensure that the rubber that reached
Europe and America was clean.
No. They knew that such a timid campaign would make them
Leopold's accomplices' enablers, and prolong the suffering of
the Congolese. Instead, they set out to destroy and change the
repressive regime, and took the necessary time to accomplish
their goal.
Today, at the time of instant satellite imagery, Internet,
Instant Messaging, and other technological advances, our
activism is lackluster and devoid of moral courage in the face
of the unnecessary suffering of the Congolese. We hedge our
action and refuse to see the reality before us by covering our
faces like little children hoping it will go away.
Instead, we search for enemies where they do not exist.
Last month, over 300 Congolese civil society groups and their
international counterparts showed great courage and published
the report on security sector reform in the Congo. This report
calls for an end to the conflict through a comprehensive reform
of security institutions, which include the military, law
enforcement institutions such as the police and the courts, as
well as customs and revenue agencies.
Mr. Chairman, with your permission, I would like to submit
a copy of that report for the record.
Chairman Miller of California. Without objection, it is so
ordered.
Mr. Dizolele. Thank you, sir.
In the Congo, businesses are not the enemies. Armed groups
and their international local backers are. If we are serious we
should go after them and help restore safe authority, so that
the Congolese government can finally meet its obligation
towards the people. This means that together we need to end
impunity at all levels of the polity. Only then can the
Congolese know real peace.
The Congolese people want and deserve peace. We should
empower them to that end. The Congolese government's inability
to protect its people and control its territory undermines
progress on everything else. A competent, professional
military, which is organized, resourced, trained, and vetted is
essential to solving problems from displacement, recruitment of
child soldiers, gender-based violence, economic growth, and the
trade in conflict minerals.
In the absence of a strong Congolese state to protect its
interests, Section 1502 will effectively certify the looting of
the Congo's minerals, not only by its neighbors, but by
everyone else.
Thank you.
[The prepared statement of Mr. Dizolele can be found on
page 158 of the appendix.]
Chairman Miller of California. Thank you.
Dr. Laura Seay is recognized for 5 minutes.
STATEMENT OF LAURA E. SEAY, ASSISTANT PROFESSOR OF POLITICAL
SCIENCE, MOREHOUSE COLLEGE
Ms. Seay. Thank you, Mr. Chairman.
Chairman Miller, Ranking Member McCarthy, and members of
the subcommittee, thank you for this opportunity and the honor
of speaking before you today. I do need to emphasize that I am
speaking only as an individual and not for Morehouse College or
in any official capacity in that way.
The rules for adopting Section 1502 have yet to be
released, but the policy is having unintended consequences and
unanticipated consequences that I am not certain could have
been foreseen by those who pushed for its passage and worked to
make it happened.
Beginning in September of 2010 the Congolese government
placed a ban on all mineral exports from the Kivu and Maniema
Provinces in eastern Congo. This ban lasted approximately 6
months, through March of 2011. And it actually resulted in
increased militarization of the mineral sector in the Congo.
So there were some mines in the eastern Congo that were not
militarized prior to the development of this ban, but the
Congolese National Army used that as an opportunity to take
over these mines, and to begin carrying out human rights abuses
against people in those areas. A good example of this is the
Kamituga mine in south Kivu.
The Kabila government ended its ban on mining in March of
2011, but it was quickly replaced by what has come to operate
as a de facto boycott of the mineral sector in the eastern
Congo. Since April of 2011 and continuing until today, many
major purchasers of Congolese minerals have declined to
purchase those minerals. They have made this choice because
they believe that given the circumstances in the Congo, they
cannot verify that the minerals they are sourcing are conflict-
free.
So, rather than on mitigation strategies or on supply chain
tracing, they have chosen instead to just withdraw from the
Congo altogether. When Malaysia Smelting Corporation pulled
out, they had previously been buying 80 percent of Congolese
tin exports. After their decision to stop buying in April of
2011, 10 exports from the Congo dropped by 90 percent.
So what are the consequences of these issues, in that there
is little reason to believe that either the ban or the boycott
would have happened had it not been for the passage of Section
1502? It provided the impetus to be seen as taking action for
good or for bad. It has had devastating effects in mining
communities in the eastern Congo. People lost their jobs,
people who had been working in the mines.
And I do want to emphasize that the conditions in the mines
are absolutely horrific. None of us would want to work there.
None of us would want our children to have to work there. But
there are no other economic alternatives in the eastern Congo.
Subsistence level agriculture does not provide a way to earn a
living, and the only alternative is to join a militia. So for
many Congolese miners, mining is the least worst choice of very
limited, bad options.
We don't know exact numbers on how many people have been
put out of work. I am actually headed to the Congo next month
to do some research on this and try to get some data. But it
certainly ranges somewhere from the tens of thousands. Local
civil society activists in the Congo have estimated that up to
2 million people were put out of work by the ban and the de
facto boycott.
This had devastating consequences. Congolese have large
families. Most people have five to six dependents. So we are
talking, if those numbers that the civil society activists have
come up with are accurate, this could have affected 10 to 12
million people in a negative way.
What else has happened as a consequence of these bans that
stem from Dodd-Frank's Section 1502 passage? We have seen many
miners move into the gold mining sector, which is completely
unregulated, and where traceability is not yet possible. We
just don't know how to do it in a way that will prevent
smuggling.
And according to the 2011 U.N. Group of Experts Reports,
smuggling has increased. Minerals are still getting out. We are
still seeing high export numbers from Rwanda, which does not
have significant domestic mineral reserves, which is a strong
indication that smuggling is still going on.
And contrary to the promises made by those who pushed for
the passage of Section 1502, violence in Kivu in the absence of
this mining, and where armed groups are not making as much
money as they previously were off of the mineral trade,
violence is getting worse. And we have seen that most recently
over the course of the past 3 weeks with a mutiny within the
ranks of the Congolese Army by former members of the CNDP
militia who have now re-christened themselves as something
called M23.
Quality of life has diminished. People cannot afford to pay
their children's school tuition, to pay for health care, to pay
for basic necessities. And in many of the most remote mining
areas, basic necessities, even if people had money to buy them,
are no longer available, as those necessities are not being
flown in, because the planes would come in with materials and
fly out with minerals and now they are not able to do that.
Chairman Miller of California. Could the lady--
Ms. Seay. To be fair--
Chairman Miller of California. Could the lady conclude? Her
time is--
Ms. Seay. Yes, yes. To be fair, there has been positive
change, though it is not clear that this is a result of what we
think it is. The DCA mine was demilitarized. The Congolese Army
withdrew from it, but the DCA mine is almost tapped out. They
have just about hit the water table, and it is not clear that
the Congolese Army would have left were that not the case.
My written testimony contains several remarks on what I
think went wrong. I agree with Mvemba that the gross
oversimplification of the story is the major problem here. The
mineral trade--the militarized mineral trade--is not the cause
of conflict in the eastern Congo. It is a symptom of a much
deeper disease. It is a problem that we need to clean up, but
treating the symptom will not cure the disease. And instead, we
need to focus on governance, security sector reform, and
rebuilding the rule of law.
[The prepared statement of Dr. Seay can be found on page
187 of the appendix.]
Chairman Miller of California. Mr. Vargo, you are
recognized for 5 minutes.
STATEMENT OF FRANKLIN VARGO, VICE PRESIDENT, INTERNATIONAL
ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS (NAM)
Mr. Vargo. Thank you, Mr. Chairman.
The National Association of Manufacturers (NAM), is the
Nation's largest industrial association, and it is America's
manufacturers who will be the most affected by Section 1502.
Let there be no doubt that the NAM and America's manufacturers
support the intent of the law to reduce the atrocities that are
being committed. We believe the SEC's regulations can implement
the law in a manner consistent with the goals, but without
unduly burdening American industry, American competitiveness,
or American jobs.
But to do this, we believe modifications are necessary to
their draft regulations, and we hope this subcommittee will
agree and will communicate that to the SEC. We are pleased with
the care with which the SEC has been proceeding, and we hope
for rules that are consistent with the reality we face.
First of all, it is vital that there be a phase-in period
for the regulations. The currently existing extreme limitation
of information about the source of metals and minerals makes it
impossible for all but a very few companies to submit
meaningful reports. For example, the Electronic Industry
Citizenship Coalition, the EICC, has been working at this for
years. Their Web site this week says that only 11 smelters have
been certified as DRC conflict-free, all of them in Tampulu. An
independent audit of the EICC concluded that despite their best
efforts, ``companies cannot assert 100 percent sourcing
certainty.''
The draft rules unfortunately currently provide only two
choices: you state with certainty that you are DRC conflict-
free; or even if you have done a lot of due diligence and you
just don't know, you have to say no, they are not DRC conflict-
free. That would do terrible damage to company brands and
investor relations and would do no good whatsoever to advance
the humanitarian objectives in the DRC.
During the phase-in period there must be a temporary
category of indeterminate origin, but to utilize it companies
would have to meet SEC requirements to demonstrate that they
were undertaking a good faith effort, and were not just
delaying.
Second, once the rules are in full effect, there must be
flexible due diligence provisions recognizing that companies
have widely differing supply chains. Companies need, for
instance, to be able to use contract flow-down provisions to
comply. In particular, the OECD guidelines should be expressly
stated by the SEC as a safe harbor for companies that implement
those guidelines. But that should not be the only way to
comply.
I want to stress, this is an extremely costly requirement
on American manufacturers. The NAM has estimated the cost at $9
billion to $16 billion, 100 times larger than estimated by the
SEC. The cost is not limited to listed companies subject to the
SEC regulation, and hundreds of thousands of small, privately
owned companies will be affected because they are in the supply
chain.
Our estimate is largely corroborated by the competently
done Tulane University study called for by Senator Durbin. We
are aware of a further report done by Claigan Environmental,
who is testifying today. We have examined their report
carefully and believe it is a severe underestimate, for several
reasons.
First, it assumes everyone can use the simple spreadsheet
developed by the EICC, when most of our large companies say it
is much too simple and unusable. The EICC spreadsheet template
will hopefully work for companies with simpler supply chains,
who are closer upstream to smelters, but it will not work for
large diversified manufacturers. With millions of parts, they
need a much more sophisticated, and unfortunately, more
expensive system.
Second, it seriously underestimates the number of companies
in today's global supply chain, saying there are hundreds in
the supply chain, when in fact there are thousands. One of our
members has 100,000 companies in their supply chain. Mr.
Pudles, who is going to testify next, has a $40 million
company, not one of America's largest, but he sources from
3,000 different manufacturers.
The report also mistakenly believes smaller companies are
legally bound to comply with Section 1502 so that companies
don't have to have contractual obligations. Unfortunately, that
is not true. They are not bound. The report also believes that
once agreements are reached, no further action is necessary--
totally overlooking the fact that supply chains are not static;
they are dynamic. Suppliers are always being added and dropped
as companies seek more efficient supply chains with better
prices.
Finally, the report somehow concludes that analysis of the
European Union's Restriction of Hazardous Substances directive
shows that conflict materials compliance can be done cheaply.
That is puzzling, because we use the same report. And we put it
into our report to the SEC. That report says it costs an
average of $2.5 million for companies to comply. So if we apply
that to the number of companies the SEC says will be affected
by Section 1502, that is a cost of $16 billion, even higher
than our estimate.
So there is no question this is an extremely important
program and the SEC needs to get it right.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Vargo can be found on page
193 of the appendix.]
Chairman Miller of California. Thank you.
Mr. Pudles?
STATEMENT OF STEVE PUDLES, CHAIRMAN, BOARD OF DIRECTORS, IPC--
ASSOCIATION CONNECTING ELECTRONICS INDUSTRIES; AND CHIEF
EXECUTIVE OFFICER, SPECTRAL RESPONSE LLC
Mr. Pudles. Chairman Miller, Ranking Member McCarthy, and
members of the subcommittee, I am pleased to be here today to
discuss the SEC's proposed rule on implementation of Section
1502 of the Dodd-Frank Act.
I am Steve Pudles, CEO of Spectral Response, an employee-
owned electronics manufacturing services company located in
Lawrenceville, Georgia. We employ 135 people, providing
services ranging from electronics assembly, to product builds,
to third-party logistics. And our customers range from small
startups to large publicly traded corporations.
I am here today as well in my capacity as chairman of the
board of IPC, the association connecting electronics
industries. The IPC represents over 3,000 companies, the
majority of which are small businesses like mine. IPC's members
include companies that design, manufacture, and assemble
printed circuit boards, which are vital to the operation of all
electronics products.
The subject of this hearing is critically important to IPC
members who collectively manufacture products that incorporate
all four of the key metals refined from conflict minerals. At
the outset of my testimony, I would definitely like to
recognize the good intentions of those Members of Congress who
authored Section 1502.
By all accounts, the human rights situation in the
Democratic Republic of the Congo is grave. IPC supports the
underlying goal of Section 1502, but quite frankly, I am
concerned that the SEC's draft regulations will have unintended
negative consequences.
I am by no means an expert on the issues that plague the
DRC. In my testimony today, I will discuss how the draft rule
is likely to impact my business and the electronics industry.
Members of the subcommittee, make no mistake, the regulations
proposed by the SEC will impose a significant cost on my
company and companies like mine.
My company is not an SEC issuer. However, the forthcoming
regulations will impact us through the due diligence needs of
our customers, over a quarter of which are SEC issuers.
Over the last several months, my customers have asked me
about auditing my supply base. My company has over 15,000 part
numbers. Determining and verifying the content and origin of
minerals in each part is a Herculean task. I will have to hire
additional staff, an audit company, lawyers and accountants,
and purchase software for data management.
A variety of cost analyses has been conducted on the
proposed rule. An independent analysis of the costs conducted
at Tulane University estimated total costs of $7.9 billion,
which is over 100 times the SEC's estimate.
An IPC survey of our members indicated median compliance
costs in excess of $230,000 per year. This is a significant
expenditure for companies like mine. As the leader of a small
business, I work hard to keep my company profitable in
difficult economic times.
I am troubled that the SEC's analysis on the impact of the
regulation significantly underestimates the impact and costs to
U.S. manufacturers and negatively impacts our global
competitiveness. Given a few key regulatory changes and a
reasonable implementation period, we would greatly decrease the
burdens associated with the regulations without undercutting
their effectiveness.
I would like to use the remainder of my time to highlight a
few of these key recommendations, which are further detailed in
IPC's comments to the SEC. The most valuable change the SEC
could make is the inclusion of a reasonable phase-in period.
This would give companies a transition period to understand the
final regulations and examine the origin of conflict minerals
in our supply chains.
According to a United Nations report, the implementation of
traceability systems in the DRC is severely lacking. A number
of companies have sought to avoid conflict-associated minerals
by altogether avoiding procurement from the region. A phased
implementation of the regulations will better align regulatory
requirements with the developing traceability and transparency
systems.
The requirement for each issuer to report on the same
schedule as their annual SEC report will require my company to
constantly reply to customer inquiries. The SEC can
significantly reduce the burden on the supply chain by
implementing a single reporting date.
Moreover, many electronics companies use recycled materials
in order to reduce the amount of virgin materials required in
the manufacturing process. The final rule should include an
alternative approach for recycled sources that is practical and
does not overburden recycled materials so as to discourage
their use.
Additional suggestions which I do not have time to discuss
in detail include reporting exemptions for products outside our
control, provision of a de minimis level to focus on the
significant uses of conflict minerals, and provisions of
nonbinding examples of due diligence are detailed in my written
testimony and IPC's comments to the SEC.
In conclusion, on behalf of my company and IPC's over 3,000
members, I urge the SEC to implement the requirements of
Section 1502 in a manner that supports the goals of the statute
without unduly burdening U.S. manufacturing industries or
causing unnecessary disruptions of the legitimate minerals
trade, which is vital to the livelihood of the people of the
DRC.
Thank you for the opportunity to address you today.
[The prepared statement of Mr. Pudles can be found on page
179 of the appendix.]
Chairman Miller of California. Thank you.
Mr. Lamar, you are recognized for 5 minutes.
STATEMENT OF STEPHEN LAMAR, EXECUTIVE VICE PRESIDENT, AMERICAN
APPAREL & FOOTWEAR ASSOCIATION
Mr. Lamar. Thank you providing us a chance to testify, and
thank you for holding a hearing on this important issue.
The American Apparel & Footwear Association is the national
trade association of the apparel and footwear industries and
their suppliers. Our members include publicly traded and
private companies, as well as suppliers to both. Our industry
employs about 4 million U.S. workers, about 3 percent of the
U.S. workforce.
Our industry is among the most globalized in the world. As
a result, even the smallest companies have complicated supply
chains that stretch across continents, countries, and
factories. They have to manage a diverse array of compliance
challenges covering labor, health, environment, product safety,
and chemical management. We strongly support the goals of the
conflict minerals provisions in the Dodd-Frank Act.
Collectively and individually, our members have
participated in similar kinds of initiatives to ensure that our
sourcing does not inadvertently support undesirable practices,
such as forced child labor toiling in the cotton fields in
Uzbekistan, leather from cattle raised on illegally cleared
rainforest land in Brazil, or wool from mules sheep in
Australia.
While we support the efforts to prevent conflict minerals
from entering the global supply chains, we remain deeply
concerned over several elements of this provision and their
impact on our industry.
Let me explain. First, the impact of Section 1502 on the
business community is deceptively large. The fact that I am
testifying here today on a bill that was largely intended to
focus on the electronics industry is one indicator of that
fact. Although the law initially targets about 6,000 publicly
traded companies, it also affects those companies' suppliers,
in many cases small, privately held businesses, as they are
being increasingly notified by their customers that they will
have to certify that their own supply chain is conflict free.
Many companies in our industry initially thought they were
not covered, but are only now finding out, in some cases in the
past few weeks, that they are impacted. Many others still don't
even know. Many businesses in our industry probably don't
realize that their products may contain one of the four
conflict minerals. When you think of a garment or a shoe, you
think of the fabric, the fit, the design, or maybe the price.
But you usually don't think of wearing tin unless perhaps you
are watching the Wizard of Oz.
Companies are now learning that tin, for example, can be a
filler in certain PVC used in soles of shoes, or metal
components in buttons, zippers, and heel tips. Other examples
are the electronic components that you might see in a light-up
shoe. Use of tin has actually increased in recent years to
replace metals like lead or cadmium which had been targeted by
recent product safety initiatives, including the Consumer
Product Safety Improvement Act (CPSIA), which Congress passed
in 2008.
Second, the provisions have a major effect on those in the
business community who are least able to effect change in the
conflict zones in Africa. In our industry, the use of these
minerals are de minimis, even after accounting for greater uses
in recent years. Yet, the smallest apparel or footwear company
will be equally liable as a company that is a major consumer of
larger quantities of these minerals.
Tin is confined in our industry to very, very small
quantities that are encountered inconsistently across a great
many styles and brands. Compounding this is the simple fact
that fashion changes all the time. In one year, a company may
find that four products out of thousands trigger Section 1502
reporting. The following year may be zero and the year after
that may be 20. Compare this to an electronics company that
sources millions of the same components over several years with
no design or input changes.
Just as important, the electronic or accessory components
that we might use in the manufacture included in a footwear
item--in many cases, these will have been purchased off the
shelf from a supplier which is itself many steps removed from
the mines or even the smelters where the minerals originate.
The bottom line is that the pressure to create and promote
conflict-free mineral supply chains will not come from our
industry, even if we could somehow declare ourselves to be 100
percent conflict-free.
While the apparel and footwear industries are leaders in
social compliance in many areas, we simply don't have the
purchasing power or business relationships to effect change in
this area.
Third, the costs associated with Section 1502 are enormous.
Here again, we believe the costs are far larger than the
authors expected. Some estimates put the costs at $8 billion or
$9 billion, respectively. We think they can be far higher as we
start including the impact on other industries like ours in
those calculations.
Fourth, the lack of tracing technology and infrastructure
means that companies don't have a clear or affordable path
forward for compliance. The draft regulations do not allow
companies to simply declare that they do not know if they have
conflict minerals in their supply chain because there are
insufficient tools to answer that question properly. Yet, the
reality is affecting most companies today.
Our industry is still struggling to create verifiable and
effective tracing technologies for materials that make up a
central part of our supply chains, like wool or cotton, while
learning that even greater challenges exist in the minerals
industry, which account for far smaller parts of our sourcing.
A couple of quick recommendations. We need to make sure the
infrastructure and technology exists to allow companies to come
into compliance. We need to make sure there is a comprehensive
cost-benefit analysis that enables policymakers to understand
how these regulations work well. We need to make sure these
regulations are phased in to those industries where consumption
of the minerals will have the biggest impact. We need to
include things like a de minimis provision.
And once the regulations are in place, we need to make sure
there is flexible enforcement accompanied by education to make
sure complicated supply chains have the time and the capability
and the capacity to come into compliance.
Thank you very much. I will conclude right here.
[The prepared statement of Mr. Lamar can be found on page
169 of the appendix.]
Chairman Miller of California. Thank you.
The Most Reverend Nicolas Djomo Lola, Bishop of Tshumbe, is
recognized for 5 minutes.
STATEMENT OF THE MOST REVEREND NICOLAS DJOMO LOLA, BISHOP,
DIOCESE OF TSHUMBE, DEMOCRATIC REPUBLIC OF THE CONGO; AND
PRESIDENT, CATHOLIC BISHOPS' CONFERENCE, DEMOCRATIC REPUBLIC OF
THE CONGO
Bishop Djomo. I want to thank Chairman Miller and Ranking
Member McCarthy for the opportunity to testify today. I ask
that my written testimony be entered into the record.
I do not come as a businessman, nor a financial expert. I
am a religious leader, a pastor, who is deeply disturbed by the
type of violence and suffering that has dominated life in
eastern Congo since 1996. This violence has destroyed families,
villages, and communities.
One prominent driver of the violence is the illicit mining
committed by the many armed groups in the eastern Congo. To
protect our people from the misery of minerals, the Church in
the Congo publicly supported the passage of Section 1502 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act. I
traveled to the United States last year to bring that message
to the Congress, the State Department, and the Securities and
Exchange Commission.
Our message was simple. First, establish regulations that
are robust enough to correctly show the origin of the minerals.
Second, finalize the regulations as soon as possible and set
specific dates by which companies start reporting. Third,
include all companies. And fourth, ensure that key information
provided by the companies is made available to the public and
to Members of Congress.
Since colonial times, our nation has fallen prey to the
``resource curse.'' Throughout the Congo's long history, the
Catholic Church has stood by the Congolese people. The Church
is one of the largest and most trusted institutions in the
country. Our network of schools, health care, and development
centers is the largest, and frequently works where the
government cannot.
Our people in eastern Congo blame the insecurity fueled by
illicit mining for their poverty. Eighty percent of people are
subsistence farmers. The violence has caused massive
displacement of people. No future development can occur without
an end to the fighting. In addition, the illicit mines operate
under deployable and dangerous conditions.
Many international institutions are working to end illicit
mining. These include the Organization for Economic Cooperation
and Development (OECD), the European Union, USAID, and a Great
Religious Region Group. Section 1502 of that plank places the
first offload behind this other effort.
In March of this year, the Congolese government passed a
law that requires all mine and mineral trading companies in the
Congo to carry out due diligence in line with OECD standards.
This law is fingering various initiatives to educate traders
and miners about due diligence. Now is the time to strengthen
these efforts with regulations that will legalize mining
operations.
First, the business community can and will join us to
protect the life and human dignity of the Congolese people by
conducting legal, transparent, and accountable international
commerce. We are confident that they do not want to be part of
the misery that has plagued eastern Congo for years.
We urge the U.S. business community to account for the
gruesome social costs of the illicit mining as they calculate
their costs for compliance with Section 1502. These
calculations are not just cost estimates on a spreadsheet.
There is a social balance sheet that places value on the lives
that can be saved.
We have full confidence in the goodwill of the Congress,
the SEC, and the business sector to resist watering down SEC
regulations through half measures that may save money, but cost
lives. What the people of the Congo need and the U.S.
Government and the American companies can provide are
responsible actions that increase transparency and embody the
moral values that made the United States a respected world
leader.
Thank you, Mr. Chairman, and Madam Ranking Member, for your
kind attention.
[The prepared statement of Bishop Djomo Lola can be found
on page 174 of the appendix.]
Chairman Miller of California. Thank you, sir.
And Mr. Calder is recognized for 5 minutes.
STATEMENT OF BRUCE CALDER, GENERAL MANAGER, CLAIGAN
ENVIRONMENTAL INC.
Mr. Calder. Chairman Miller, Ranking Member McCarthy, and
members of the subcommittee, I am pleased to be invited here
today to discuss the Securities and Exchange Commission's
proposed rule on implementation of Section 1502 of the Dodd-
Frank Act.
My name is Bruce Calder, and I am the general manager of
Claigan Environmental. I am responsible for Claigan's conflict
minerals program. We work with companies across industries on
conflict minerals program management, cost management, and we
provide compliance assistance and information to over 200
small, medium, and large companies on conflict minerals.
I would like to first start off by saying we have never,
ever seen such widespread early adoption by industry of a
transparency law. In 10 years of working with restricted
materials compliance, including global regulations, such as
Europe's hazardous substance law, its restricted chemicals law,
and California's toxins and safe drinking water law, I have
never, ever seen so many companies claim that they are going to
be compliant, becoming compliant, and declaring they are
committed before the final rule is even published.
If you look at the 100-plus pages of our appendix, it is
single pages of public declaration by companies committing
themselves to being conflict free, and committing their
suppliers to being conflict free. And you can flip from page to
page to page and see company after company--U.S. companies,
Chinese companies, Japanese, Korean, large, small--all
committing themselves and their suppliers.
Their issue right now is that they do not have a single
clear rule to implement their desires and what they want to do.
Being transparent on mineral sourcing not only can be done, it
is being done. One key element to the success is the success of
the conflict-free smelter program, a program that is
implemented by industry in advance of a final rule making them
implement.
The conflict-free smelter program has completed the
certification review process, including full country of origin
traceability, for 23 refiners, plus there are another 32 in
process. Kester, an Itasca-based Illinois company, which
provides 60 percent of the solder wire in North America--solder
wire being the main source of tin in electronics, and the
solder being the main use of tin--has completed full
traceability through the smelters which they moved through the
certification process all the way back to the mine.
So when we look at a circuit board, and you look at
potentially hundreds of different components and many different
suppliers who are in scope because of the tin solder they use,
it only comes back to a handful of solder suppliers, of which
Kester is one of the largest.
We have previously submitted estimates on the costs of
Section 1502 on the industry and the supply chain. One of the
big elements, of course, always a big difference in the
conversation, is why is ours different than other estimates?
One of the most significant reasons is our cost estimates are
based on actual industry programs, not projections, not
extrapolations. This is what they are doing.
It is also based on conversations with the SEC on what they
intend. The SEC has done themselves and industry a disservice
by not stating anything publicly in terms of rules since way
back basically in 2010. The other piece, and it is very, very
important, is the use of ``intentionally added.''
``Intentionally added'' is a very, very, very important piece
of this.
And the reason is over de minimis is steel. Tin exists in
most common alloys of steel, but it is not supposed to be
there, it is not intended to be there. It is a by-product. It
is a part of the process. It is harmless and nobody has cared.
If you put a de minimis value in, the actual amount of tin in
our most common steels is well over any standard de minimis
level, and it would bring almost all major steels in play.
A lot of small suppliers who make products that have
washers and screws, etc., suddenly will be in scope, and then
we know if they have tin. They would have to set up a test lab.
I have a test lab and it is a wonderful business, but I don't
think that is fair. Going for ``intentionally added'' will keep
most common alloys of steel, which significantly reduces the
cost to industry, and particularly small business.
The SEC's staff has indicated that the conflict-free
smelter program would meet a lot of the due diligence required,
especially third-party auditing, which would be excellent. We
also assume, and in--to the SEC it makes sense, that the
auditing will be more based on auditing to ensure that
companies have done what they said they have done.
And I think it is extremely important that companies who do
good and wonderful things, who can't get all the way through to
their smelter, should be allowed to say clearly and truthfully,
they have done good and wonderful things.
So, one of the last pieces on this is not if it will be
implemented. These industries are implementing it. The biggest
burden right now, especially on small companies, is they don't
have to comply with the SEC's rules; they have to comply with
the rules that each one of these companies at how they have
extrapolated the law. What they really need now for cost
containment is a single rule so they can meet one standard and
the standard of every customer they have.
Thank you.
[The prepared statement of Mr. Calder can be found on page
52 of the appendix.]
Chairman Miller of California. Thank you. I appreciate your
testimony.
I now recognize myself for 5 minutes. Mr. Pudles, you
represent business interests and you were very much aboveboard
on that. Mr. Calder, you provide consulting services to
companies regarding implementation of Section 1502; is that
correct? And you are an expert on conflict material minerals?
Mr. Calder. Yes.
Chairman Miller of California. Just so everybody is clear,
you make a profit on implementation of Section 1502? That is
your business.
Mr. Calder. Yes, that is so.
Chairman Miller of California. Okay. I just--because we
have business interests, I want everybody to know who is
testifying before us today. And I think that is very important.
Mr. Lamar, you talked about buttons in suits, so I am
probably wearing a conflict button on my suit.
Mr. Lamar. I don't know that.
Chairman Miller of California. But if you don't know that,
that means I probably am, because you have to say if I can't
prove I am not.
Mr. Lamar. That is the concern we have with the way the
regulations are coming forward.
Chairman Miller of California. And that is my concern.
Mr. Vargo, you talked about if you can't certify, like I
really can't certify and he can't certify, and Nordstrom's
can't certify who sold me the suit. So what do you have to do
if you are going to sell me this suit? What do you have to post
if you can't certify that these are not conflict-free?
Mr. Vargo. The way the draft SEC rule is written, you would
have to say, this is not DRC conflict-free, and you would have
to bear that on your Web site and the public would look and
say, oh, this company is bad. It is not DRC conflict-free when
there is no information and the company does its due diligence.
We are not saying that you need an indeterminate origin
category forever, just during the period that the
infrastructure is being developed.
Chairman Miller of California. That is a concern for me.
And I know my good friends talked earlier about the fact that
hearings were held, I believe in the Foreign Affairs Committee,
but you never did anything. But the problem was legislation was
enacted in this committee and we never heard anything. And that
is a real problem for me.
Mr. Dizolele, is life better and going to be better next
year and the year after for people in the region because of
what we are doing here?
Mr. Dizolele. Mr. Chairman, my personal view with my
extensive experience in the field is that even if this powerful
chamber were to pass this legislation, implement it, give our
friends on the other side of the debate a magic wand, the next
day when women in Tubembe--this is in south Kivu--go back to
the field, nothing would change for them.
They will be raped, and they will be abducted, because we
will not have dealt with the real problem, which is the
presence of the militias. The militias will not disappear
because of Dodd-Frank or Section 1502. We are not going after
the source of the problem. We are putting a veneer on it.
So the question really is, what difference does it make for
the ladies in Tubembe? In my view, not much. In my view, the
Panzi Hospital will stay open, because rape will continue.
Maybe the American consumer will assuage his conscience. Maybe
the activists will have felt that they have done something, but
that is not the slam dunk.
Chairman Miller of California. Ms. Seay, are minerals the
only commodity used to fuel this conflict over there?
Ms. Seay. Absolutely not. And I think that is a key point
that goes back to the question you just asked Mr. Dizolele,
which is, the armed groups in the eastern Congo have multiple
sources of revenue. They tax every trade that there is:
bananas; timber; charcoal; and traffic on the road.
Are these sources as lucrative as the mineral trade? No. Do
they find ways to make it more lucrative? Yes. They will raise
taxes. And what we have seen is that militias don't stop
fighting because they lose access to one stream of revenue.
What they do instead is turn to preying on the population even
more than they already were before.
Chairman Miller of California. And are more people
unemployed than they were before this started?
Ms. Seay. I think we can say that more people are
unemployed in the mining sector, for sure, as well as in
sectors in mining communities. So for example, if a miner
doesn't have money he can no longer afford to pay the grocer
for basic goods. And so, that person is also in trouble
financially.
Chairman Miller of California. And Mr. Dizolele, when that
miner is unemployed, where do they go to get a job?
Mr. Dizolele. Sir, in the DRC, we have a lot of statistics.
And statistics often do not even reflect the beginning of it.
In the DRC, we don't talk about unemployment, we talk about
underemployment. The underemployment is about 82 percent. This
means people don't have jobs. They leave every morning, because
they have to do something to feed their families, but they
don't have any jobs. And so, one of the little jobs that is
lost is not going to be replaced.
You cannot just move to move from Katutu neighborhoods and
say I have lost my job in Katutu and I am going to go to Nguma
and find a new job. We are talking about the DRC and we are
talking about the eastern Congo. This is not Switzerland or
America.
Chairman Miller of California. So their life is worse than
it was before this implementation in many cases, because they
have no job now. Women are still getting raped in the fields,
which is horrible. It is inexcusable.
And maybe the Foreign Affairs Committee should have done
something on that, rather than passing the burden onto the
business sector in this country about what do we do in a region
like that that is abusing their people and allowing it to
happen.
My time has expired.
I yield 5 minutes to Ranking Member McCarthy.
Mrs. McCarthy of New York. Thank you, Mr. Chairman.
I want to thank everybody for their testimony. You have to
realize that this committee really has a very daunting task in
front of us. Obviously, we want to make sure that our
businesses are able to continue doing business without added
costs. But we also have a situation for the people who are
working in these mines, and the children.
Now, the rules for Section 1502 have not really been
implemented yet, so we are not exactly sure where we are going
to be going on this. I know that when people got together on
the blood diamonds, there were a lot of outcries that people
wouldn't be able to afford the diamonds, diamonds that are used
for other things besides wearing on a ring. And yet, they have
come through the years to be able to make sure that those
diamonds are certified now and not coming and hurting people.
That is going to be the problem that we are going to be
facing here. To come up with a solution, hopefully work with
the SEC. Obviously, they are having a difficult time with this,
because they have not come out with the final rules.
But Mr. Calder, reading your testimony, your cost analysis
on company compliance with Section 1502 varies from some of the
other estimates that we have heard and read in the testimonies.
Please explain some of the cost differences, such as large
versus small companies, and what factors and methodology are
being used to compile your cost analysis that are different
than the other cost estimates that have been done.
I know a lot of the larger manufacturers are trying to do
the right thing. They have started going to the smelters to
basically get it certified. They have already started ahead
before Section 1502. But it is the small companies that
probably will be facing a burden.
So if you could quickly answer that question for me?
Mr. Calder. One of the big things about having a final rule
is it will allow the small companies to comply to one rule
instead of many. One of the really big burdens the smaller
companies have is they have to try to comply to an
interpretation to each company. And it is already out of the
barn.
Now these companies know their products could have
benefited from slave or child labor, they are not turning back.
It is in place. So the best thing to do for small businesses is
give them one single rule, then give us the GE they can give to
any customer they have, so they can move forward and move
effectively.
Mrs. McCarthy of New York. Bishop, in your testimony, and I
know you weren't able to read your whole testimony, when you
talk about the people, obviously that is very heartfelt because
you are there. You are working with the people who are in the
mines.
But the question came up, if we cut back completely and
there is no work, you mentioned agriculture, but you also
mentioned in your testimony that the areas where the mines are
has already killed the land. So agriculture wouldn't be
possible there. And we are probably talking about a very long-
term solution.
But with that being said, if the rule is put in place, what
would the people do as the adjustment comes through to be able
to make a living? Are outside groups going to come in and
support them? Will those that are the gangs, as we call them,
terrorists, if you want to call them, the armed, how are we
going to--that is not going to be up to this committee,
unfortunately.
But with that being said, how does that change, and how
long would it do it? What kind of suffering would come more to
your people?
Bishop Djomo. [The following testimony was delivered
through an interpreter.] The majority of the population in the
Kivus lives off of agriculture. The majority of the people in
the Kivus do not work in the mines and do not live off of their
work in the mines. The mines, and the militias that run these
mines, block the production of agriculture in these areas.
In the short term, there may be some people who will lose
some work and some income, but in the long term, if you close
the illegal illicit mines and cut connection between the mines
and the violence, the violence stops. People can go back to
their lives and back to a better agricultural system.
The studies and the work of the Church institutions in the
area show very clearly that the violence follows the same roads
as the minerals from the mines. Better laws will protect the
legalization and ensure the legalization of these mines, and
thus protect agriculture.
A much better legalization of the mines will also permit a
better, more legal, taxation of the citizens in the area. It is
impossible to understand that illegal, illicit exploitation is
a good for the people.
Chairman Miller of California. The gentlelady's time has
expired.
Mr. Dold is recognized for 5 minutes.
Mr. Dold. Thank you, Mr. Chairman.
Mr. Dizolele, if I can just start with you for a moment.
You have complimented the activists for drawing attention to
the Congo, but have criticized them for oversimplifying the
causes of the conflict in the Congo, and the solutions to that
conflict.
And after listening to a number of the testimonies here
today, I think it is clear that we all have similar objectives:
to try to reduce the violence inflicted on the Congolese people
and help them achieve better quality of life. But I also think
it is clear that the problems here are complex and that there
is no simple solution.
With that in mind, how can the following groups better
address the problems in the Congo, whether it be western
activists, the NGOs, companies affected by Section 1502, and
finally, the SEC and the United States Government as a whole? I
know that is a big question, but if you can be somewhat brief?
Mr. Dizolele. Thank you, Congressman.
I think we need to start by changing our narrative. I said
earlier that the narrative that we have has been shaped through
a binary prism of sexual violence and conflict minerals. If we
do that, then we set our attention on the one sector of the
Congo's territory, which is the size of the eastern United
States.
I submit to you that life is absolutely worse in some areas
of the Congo that don't have conflict. Anybody who has been
through Equateur Province, through the Kasai Province, through
Bandundu Province, was apt to be shocked that people were still
living almost like it was still 1920 today.
So what do we do? I think we need to have the courage to go
after the real problem. And that courage happens in the very
response--opportunity, which amazed me. I was an observer, an
election observer, last December in Kinshasa. The international
community did not stand with the Congolese people during the
election. We chose the easy route.
This was the chance for the Congolese people to really be
supported by everyone, including the activities here so that
the election would be accepted. Today, the elections, because
they were botched, has created a legitimacy crisis.
So if we tie what is going on in the east with the chaos in
Kinshasa and the lack of legitimacy of the current government,
we actually are in a conundrum, meaning we cannot really find a
solution, because the people don't have the legitimacy of
their--the people in power don't have the legitimacy of the
country at large, are not going to solve the crisis, because
they draw the raison d'etre in this environment.
So I think we need to revert to what happened, and I
referred to King Leopold's days; there is no instant
gratification in the Congo. When we approach the Congo, we need
to know that as we approach the Congo, it is for a long haul,
and the long haul may take 10 years, building one step on top
of the other until we get there.
Mr. Dold. Thank you so much.
Mr. Dizolele. Thank you, sir.
Mr. Dold. Mr. Vargo, a question for you. When a company
joins an initiative to buy clean minerals from the DRC region,
does that automatically trigger the expensive reporting
requirements in Section 1502?
Mr. Vargo. We don't know what the reporting requirements
will be. We are looking for a flexible standard that industry
can work with that will be parallel to the way that we enforce
export controls, we keep slave labor products out of our supply
chains, etc.
Companies typically work with what is called a flowdown,
where you turn to your suppliers, and there may be thousands of
them, and you put into your purchasing contract a requirement
that they do due diligence to stay free of conflict minerals,
as well as other things.
So that is why we are pressing for a very flexible rule. We
have estimated $9 billion to $16 billion. If the SEC were to
issue a more restrictive rule, it could be higher than that.
But if the SEC had a very workable rule, it could be lower than
that, sir.
Mr. Dold. Sure. I guess my concern is that when a company
like, for instance, Motorola, which has a presence in the 10th
District of Illinois, when they invest in the DRC by setting up
a closed pipeline of conflict-free minerals, I believe they
will have to file at least a very expensive due diligence
report. However, if the company were to invest, say, in
Australia, that is not going to require them to invest in what
is going to be a very expensive report.
So the net result is that we are going to have companies
making a cost-benefit analysis: Do I want to invest in the
Congo, or do I want to go elsewhere? And I think people are
going to take a very calculated approach and say, you know
what, we are not going to invest any in the Congo, and
therefore, we are going to see the life in the Congo get
potentially even worse than what it is now, and we are going to
go somewhere else.
So I just wondered if you might be able to comment on that?
Mr. Vargo. Congressman, that is absolutely correct. And
companies are looking and saying if I source out of Canada or
Australia or Ukraine, I don't even have to file a report. The
report is expensive. It certainly is a disincentive for
companies to do business in the region; yes, sir.
Mr. Dold. Thank you, sir.
And my time has expired, Mr. Chairman. I yield back.
Chairman Miller of California. Thank you.
Ms. Moore is recognized for 5 minutes.
Ms. Moore. Thank you so much.
And I want to thank the witnesses again for appearing. This
has been very, very informative.
Let me start out by asking Mr. Dizolele some questions, the
distinguished visiting fellow at Stanford University's Hoover
Institution on War, Revolution and Peace.
I am very curious about your testimony, and I wanted to
know if you could tell me a little bit more about the Lutundula
report that the stakeholders in the Congo, some of the many
organizations people have put together to stop the
exploitation--the mineral exploitation--through the examples
you give in your testimony are with Canada and China, where
they changed the contracts.
I am thinking also of something Mr. Vargo said just a few
moments ago, when he said that they wanted to make sure that
there was no slave labor connected with the supply chain.
So I am wondering what can you just tell the committee a
little bit--and I don't want to use up all my time--the
substance of these Lutundula contract changes that were made?
Mr. Dizolele. Thank you very much, Congresswoman.
Lutundula used to be a member of parliament. He was an MP
in the transitional period between 2003 and 2006. I met him in
2006, indeed. What happened was with the privatization in 1990,
the structural adjustment to the World Bank and the IMF, the
government of Zaire at the time was forced to privatize its
mining industry, which was the bedrock of the economy.
When they privatized that, it totally collapsed the entire
economy. Meaning instead of having strong mining companies, you
had smaller, private investors, especially westerners, taking
ahold of the situation and totally destroying the system as it
was because they needed to maximize their profits.
Ms. Moore. Okay, thank you. I just wanted a little bit more
information about that.
So I guess my question is leading to this observation, that
without some sort of regulatory framework, and who knows, maybe
Section 1502 is not it, but there is potential for exploitation
with Canadian companies, Chinese companies, U.S. companies,
exploitation of the ``resource curse.'' Exploitation without
some sort of monitoring that the Congolese people are not
getting their just due, that there were to be slave labor, as
Mr. Vargo would suggest.
And so, I guess I appreciate the information that you have
given us that it is not just the mineral rights, that there are
needs to reform the police forces, and to have reforms within
government. But I was concerned that you were minimizing the
potential exploitation that mineral rights inherently bring.
Mr. Dizolele. Congresswoman, if I may, the Lutundula report
was adopted by the parliament of the DRC. We set out a series
of hearings, just like what we are having today, and brought in
the law of the DRC to start investigating and reopening all
those contracts. So I have been to the mines. I have been to
south Kivus. I have seen children in the mine. I have 10-hour
footage of this.
There is a problem, but that problem, the reason there are
children in the mines is because there is no state strong
enough to assert its authority. Dodd-Frank Section 1502 is not
building the state. It is a sideshow that is not hooked to the
national policymaking.
Ms. Moore. Right, I understand that. So I guess what I am
saying is that if we were to eliminate the exploitive partners
on the other end, that would help spawn some changes.
I can see that I am sort of running out of time on this
issue.
I see Dr. Seay is dying to say something. No?
Mr. Calder, do you have any comment on this?
Mr. Calder. One thing we have definitely seen from the data
now, it is not the Western countries are pulling out. They
pulled out back in 2004, 2005, ever since the U.S. operations
at Kabot got a lot of pressure in the media because of a--buy
they did through Rwanda.
All the purchases right now you are seeing are from
Chinese, Malaysian, and ex-Soviet republics, or that region. In
particular, when a Chinese entity, which was a nonentity 5 or 6
years ago had used the fact that he can get cheaper material
from that region where the U.S. companies cannot buy, and they
are able to take away the market share from the other two big
players, which are U.S.-based during this period. So they have
been able to use this cheaper price and buy materials that the
U.S. companies cannot to increase their market share.
Chairman Miller of California. The gentlelady's time has
expired.
Ms. Moore. I am so sorry, because I wanted to figure out
what the difference was between the Bishop's testimony and Mr.
Dizolele's.
Chairman Miller of California. I was going to say that was
my question exactly.
Ms. Moore. But I hope that somebody else will ask that,
because they just don't seem to coincide.
Chairman Miller of California. Mr. Manzullo is recognized
for 5 minutes.
Mr. Manzullo. Thank you.
A couple of points. If you take a look at the statements
put out by a couple of the corporations in the documents
furnished by Mr. Calder, you will see language to this effect.
And I don't want to name the company, because it wouldn't be
fair. But this company ``does not knowingly use these minerals
and by-products as specified in the Conflict Minerals Trade
Act.''
That doesn't comply under the SEC on the Form 10K. If you
file, there is liability attached to it, as opposed to simply
furnishing information to the SEC. And the documents here from
several corporations ostensibly are in compliance with Section
1502. Just looking at the face of them, they are not in
compliance.
You can't say this company does not knowingly use the
materials, and another company says that we will not
``knowingly purchase any material from any minefield with
social problems.'' And so, it is not a matter of knowing
something; it is a matter of being responsible, even if you
don't it. The term ``knowingly'' does not take you out of
compliance with the SEC.
The second thing is in our congressional district, we have
lost a couple of circuit board makers, and Mr. Pudles, you and
I talked about this. The little guys who have to get in tin for
the soldering and others of those, if there is a company
overseas that makes the circuit board that has these materials
in them and its exported to the United States, and the company
in the United States that does not have to register with the
SEC, then isn't it a fact that there is no violation of the
law?
Mr. Pudles?
Mr. Pudles. That is correct. Any company outside of the
United States that is selling to a non-SEC issuer will have no
reporting requirements and therefore can buy their tin and
their gold anywhere they want to buy it.
Mr. Manzullo. And if a completed product is made overseas
and exported to the United States, does the company that is
doing the importing in the United States have to certify as to
every product coming in that it is conflict-free?
Mr. Pudles. If their customers and their supply chain are
all non-SEC issuers, there will be no requirement on any of
them to report any content in that product; correct.
Mr. Manzullo. Okay. And then, as I read the statute, it
says--the language says that conflict-free is defined to mean
``the products that do not contain minerals that directly or
indirectly finance or benefit armed groups in the Democratic
Republic of the Congo.'' How is somebody supposed to know that?
Dr. Seay, how many mines are in the Congo?
Ms. Seay. I don't know the exact number, Congressman, I am
sorry, but it is hundreds. And many of them are informal. So I
think one of the important things to note is that even if you--
I am very skeptical of this idea of a closed pipeline coming
out of the DRC. I think you can have a closed pipeline coming
out of other countries, but in the DRC, even if you are able to
mine outside the influence of minerals, you cannot leave an
airstrip, you cannot cross roads without paying off militias.
It is just under the circumstances, with the lack of
governance, with the lack of anybody really being in control,
it is going to be impossible to verify that those minerals have
no association and are not tainted by association with armed
groups in the Congo.
Mr. Manzullo. And that is where the problem starts. If
there is no way to verify it at the source of the mines, how
could a company certify under a civil if not possible criminal
penalty that they are conflict-free?
Ms. Seay. It is really going to be difficult. There are
these programs that we call bag-and-tag, where you tag the
minerals at the location and seal them in bags. But even then,
the transportation becomes an issue and it is going to be very,
very difficult to verify that.
You should never underestimate the entrepreneurial
creativity of the Congolese. They will find a way around these
regulations, because it is a matter of survival. It is a matter
of survival to smuggle out minerals, to find a way. And so, I
think focusing on the government issue is a great idea.
Mr. Manzullo. And then, are there ever products from
different mines that are combined?
Ms. Seay. Oh, sure. Absolutely. There are processing in the
Kivus as well. I think we have the idea that all the minerals
are flown out as raw, and that is not true. In Bukavu, there is
a facility that separates out Kesterite and Coltan, which tend
to be found in nature together. And they don't associate what
comes from where; they just dump it all into their products and
send it out as one product.
Mr. Manzullo. Okay.
Chairman Miller of California. The gentleman's time has
expired.
Mr. Manzullo. Thank you, Mr. Chairman.
Chairman Miller of California. Mr. Carson returns for 5
minutes.
Mr. Carson. Thank you, Mr. Chairman. Thank you for
convening this hearing.
The eastern portion of the Democratic Republic of the Congo
has long been the site of one of the world's worst humanitarian
crises. We know this. Since 1998, an estimated 5 million people
have died as a result of the conflict.
Several organizations, including GAO in a September 2010
report, and a U.N. group of experts in several reports,
documented that illegal armed groups, as well as some corrupt
units of the Congolese National Military, are continuing to
commit mass killings, rapes, and other severe human rights
violations. And these groups profit from illegal exploitation
of the minerals trade in eastern DRC.
Recognizing the continuing urgency of the human rights
situation, Congress as we all well know, included in the Dodd-
Frank Act provisions to reduce violence caused by these groups
by targeting their illegal trade in conflict minerals.
Mr. Vargo, do you agree, sir, that cutting the trade in
conflict minerals could decrease violence in the eastern DRC by
limiting the funding that is fueling the groups and units
involved with these human rights violations?
Mr. Vargo. Mr. Carson, frankly I don't know. I have heard
testimony on both sides, a lot of press articles that say this
is not working. I don't know. I represent America's
manufacturers, and the law says that we have to do due
diligence to try to reduce--eliminate our purchases from DRC
conflict mines and we are going to do our best to do that.
Mr. Carson. Okay.
Mr. Lamar, do you think, sir, that companies that source
conflict material minerals have a responsibility as a part in a
real sense of their corporate responsibility to avoid funding
these groups and units that commit horrific human rights
violations in the eastern DRC?
Mr. Lamar. I think in the business community, there are a
number of compliance professionals who want to make sure that
their supply chains are not inadvertently creating or
contributing to any problems, whether it is the conflicts in
Africa or any of the other problems around the world.
And so, I think what you will see is that companies will do
their best to be in compliance with either regulations or
efforts, initiatives, to make sure their supply chains are not
inadvertently contributing to or creating problems. And I would
sort of echo what Mr. Vargo said about the relationship between
this and the underlying conflicts.
Mr. Carson. Bishop Djomo, do you agree, sir, that cutting
the trade in conflict minerals could decrease violence in the
eastern DRC by limiting the funding that is basically fueling
those groups and units involved in human rights violations?
Bishop Djomo. [The following testimony was delivered though
an interpreter.] Certainly that will diminish the violence,
because the armed groups persist in their violence because they
receive revenue from the minerals. Their largest source of
revenue is through this illegal sale of minerals. If they
collect taxes through the anarchy of informal taxation, it is
because they have first, the financing from the minerals, and
the arms to do it.
Mr. Carson. Thank you, Mr. Chairman, I yield back.
Thank you.
Mr. Huizenga [presiding]. The gentleman yields back. Thank
you.
I actually get an opportunity to recognize myself for 5
minutes. And that is unusual, being recognized so.
But first, Bishop, to you and Mr. Dizolele, as a person who
has been watching this, I want to tell you personally that for
myself, many people that I know, we are praying for you and
your citizenry. Our hearts go out to you. As a fellow believer,
I know the work that the Church does. And I commend you for
that. And for being here. And I just wanted to first convey
that.
I have also asked that we put up a map of the country. It
is a bit of an unknown for many in the Western world, exactly
where it is and where it lies. And I was hoping that Mr.
Dizolele and Dr. Seay, if you could maybe talk a little bit
about where those conflicts are and then, Dr. Seay, I would
like you to expand on that a little bit about what the conflict
origination is.
We are hearing from the Bishop that he believes that all
roads lead to the mines, or those roads to the violence lead to
the mines I believe was sort of the phrase that he was talking
about. And we can maybe explore a little bit about the
differences on that. So if you could maybe point out what part
of the world we are talking about?
Mr. Dizolele. Thank you, sir, Congressman, for your prayer
for the Congolese, and for this opportunity.
So we see to the left--to the right there--above the big
lake, which is Lake Tanganyika, which is Bujambura and Bakavu,
and then just above that where it says Burungungu, that is the
area we are talking about, which is Lake Albert, so it is just
that section that we are talking about.
Mr. Huizenga. The Mount Stanley area, and that area up
there?
Mr. Dizolele. That is the area up there.
Mr. Huizenga. Yes.
Mr. Dizolele. But the challenge is that the conflict in
that area is fed by what is not happening in the rest of the
country. I think it is very dangerous for us to talk about the
Kivus in isolation. This is not an independent sovereign
nation. This is a collection of three provinces that are paying
the price of a lack of leadership in Kinshasa, to the west, to
the capital.
So putting a Band-Aid on the problem in Bukavu is not going
to lead us to peace. I am afraid to say so. It might allow for
temporary relief of sorts, but it is just not sustainable.
Thank you.
Mr. Huizenga. And thank you.
Ms. Seay. Thank you, Congressman.
Mr. Huizenga. And if we could very quickly, because I do
want to hear from the Bishop--
Ms. Seay. Sure.
Mr. Huizenga. --as well, and then I actually want to get to
my real question. So, quickly?
Ms. Seay. Sure. So I think it is important to understand,
mineral--the militarizing in the mineral trade is a symptom,
rather than a cause, rather than the disease itself. So it is
definitely something that fuels some of the conflict. It is
definitely a problem and I don't want to give the impression
that it shouldn't be cleaned up. I just don't think Section
1502 is going to do it.
But the real issue underlying conflict in this part of the
country is land rights and citizenship rights. The question of
who gets to be Congolese and who has the right to own land? In
the area, the north Kivu area that Mr. Dizolele was describing,
is some of the most fertile agricultural land in the world. It
produces three harvests per year. And it is hotly contested
because it is so valuable and has been.
And it is really important to note, these conflicts have
been going on since before the DRC war started, and before
there was high demand for Congolese minerals. But it is not
homogenous. The armed groups are different; they are not all
fighting on minerals. They don't depend on minerals to the same
extent. It is really complex.
Mr. Huizenga. So this isn't just the LRA that we may be
seeing in the media? This is local?
Ms. Seay. They are not even in the area.
Mr. Huizenga. Yes, this is local and--
Ms. Seay. And you also have significant mining areas where
there is no conflict, like the Kasai and the Katanga.
Mr. Huizenga. Bishop, quickly, if you would maybe respond
to that?
Bishop Djomo. [The following testimony was delivered
through an interpreter.] The Church lives everywhere where the
population lives as well. We have come to realize that the
largest, the most important part of the instability are the
economic reasons. The ethnic rivalries are manipulated, are
used as instruments for this conflict. The Church believes that
the international and national regulations, if done gradually
over time, will solve these problems.
I mentioned in my testimony that the Congolese government
is in the process of passing some of these laws. It is certain
that stability in the Congo depends on many factors, but the
illegal exploitation of resources is a major factor. That is
why the Church asked the international community and the
national leaders in the Congo to regularize these laws and to
implement them.
The tensions, the ethnic tensions that exist are
manipulated, are instruments of this conflict and are fueled by
the minerals and the mines.
Mr. Huizenga. I appreciate that testimony.
And Mr. Lamar, I wanted to briefly get to you, and I don't
know that I really have the time. My time has expired. But I am
concerned, so I guess to the panel, my concern is whether it is
out of the apparel and manufacturing, whether it is out of tier
one automotive suppliers that are in the 2nd District of
Michigan, who are dealing with requirements in NAFTA that for
them to go through a tier one and we see it costs hundreds of
thousands of dollars to that process, they are looking at it
being millions of dollars if they are having to go down five
tiers.
And I think the crux of the question is, will this solve
the conflict in the DRC? Will this solve the issues that we are
dealing with in that northeastern corner of a very conflicted
world?
And obviously, Rwanda and other areas that are in that area
have seen violence for so long, and I hope you understand that
is what the intent is for me personally and I believe the rest
of this panel is to look at how we are making sure that the
problem is really truly solved and is not a veneer, I think as
Mr. Dizolele talked about.
So with that, my time has expired. I appreciate that.
With that, the Chair recognizes Mr. Scott for 5 minutes.
Mr. Scott. Thank you.
As I mentioned in my opening statement, I traveled over
there into the Congo and I have seen firsthand and I have
witnessed a lot of this. And it was very disturbing. It is just
terrible.
Let me start with you, Bishop. Is it true, in your opinion,
that this trade in conflict minerals has funded the cycle of
conflict in the Congo? You said yes?
Bishop Djomo. [The following testimony was delivered
through an interpreter.] That is exactly what the Bishops of
the Congo have been saying.
Mr. Scott. All right.
Now, Mr. Dizolele, has this mineral--conflict mineral--
spawned this conflict? And I am asking you the same question I
asked the Bishop.
Mr. Dizolele. To a certain extent, yes, Congressman. I
think though the way forward, if we can take the example of
Sierra Leone. Everybody here we heard today information on the
Kimberly process, black diamonds, and so on and so forth. What
helped Sierra Leone and Liberia was a confluence of actions.
Black diamond containment was just the topping on the cake. And
we don't have that in the Congo. We are putting the cart before
the horse.
Mr. Scott. Okay. What I want to do here is, because we have
a conflict right here with the panel. I want to get at a
measure here and in the midst of one myself, who was there, and
as an African-American, I can't begin to tell you how much that
experience touched me.
And if these minerals are the source of the funding for the
conflict, which the end result becomes this dehumanizing
mutilation of the sexual reproductive system of the women of
Africa, then we must with all deliberate speed take every step.
So if you agree, and if there is a consensus that this--that
dealing in these minerals is causing this, what more important
thing can we do than to, as the United States, the most
powerful country on earth, with the riches of our economy, to
say to our companies that you cannot do business here.
It is clearly in conflict with what we stand for. That
seems to me to right now be the least we could do. It will not
solve the problem, but it seems to me that it will be a big
step going forward. So if we got that consensus there, on what
grounds would you deny and say the United States should not do
this?
Mr. Dizolele. Congressman, I think it is an important
question. It gets to the heart of the matter. This mighty
country, for which I served as a Marine, has the power to go
after the militias. If we want to help the poor women, I have
seen pictures, I have been to Panzi. I have seen pictures of
mutilated genitalia. And I have seen these women. If we mean to
help them--the question they would ask this chamber if they
were here is, why don't you come after these militias? That is
the question they would ask you.
Mr. Scott. No, but the point to me is what I am trying to
get at is that, no, I don't think. I think it is a cultural
thing. I think that once they do that act there is something
else at work there. But the point of the matter that we have as
a country in the United States, should we be contributing to
that?
It is not that we could stop it, but cannot--should our
companies be allowed to contribute to this, if you agree with
the Bishop that these conflict minerals are in effect getting
us to the end line of this brutalization of women sexually and
violently, physically in that country? And I think that is the
core of our pushing forward Section 1502. Do you see my point?
I think that that really gets to where we are.
And I see my time is up. Thank you, Mr. Chairman.
Chairman Miller of California. Thank you.
We are probably going to try to do a line of questioning
for Members not on the subcommittee, so I will start with
myself, then I will go to Mr. Miller next.
Mr. Dizolele, would you say that fewer women are going to
be violated after the implementation of Section 1502?
Mr. Dizolele. Mr. Chairman, two things. First, I would like
to say that sexual violence is not part of the culture. There
is no religious edict or any tradition of this. This is just as
appalling and new to most Congolese.
Then two, I don't think it is going to reduce the violence
on women, because as long as those militias are still there and
the justice system does not work, and there is no military
solution to go after them, then, as I said early on, the women
have to be the one to go to the field, they will still be
raped.
So we are not getting--I think we are tepid and timid in
our approach with Section 1502. I think this chamber and this
Congress has the power to enact bolder regulation than this,
what I again call a veneer. Because this serves to assuage
Western consumers, but it doesn't get to really help the
victims.
Thank you.
Chairman Miller of California. It appears from testimony
that maybe American companies are moving out of the mines, but
Chinese companies and others are moving back in. Is that true,
Ms. Seay?
Ms. Seay. Yes, it absolutely is. I mentioned in my
testimony that 10 exports have gone down by about 90 percent
from the Kivu provinces. That other 10 percent is entirely
being bought by China through 2 or 3 of the trading houses in
the cities. It is essentially the main consumer now.
Chairman Miller of California. So is there any record we
have that Chinese companies are better on human rights issues
than American companies?
Ms. Seay. I don't believe--the evidence of which I am aware
does not suggest that they are.
Chairman Miller of California. So if we are saying that we
are pulling American companies out of a region that is heavily
impacted, it is like many of our trade issues we face. If goods
aren't produced here, they are produced in China. And it seems
like other countries are going to pick up the shortfall and
take advantage of the availability that is going to exist in a
region if we pull out. Is that--what is your opinion on that?
Ms. Seay. I think that is a reasonable opinion. And I think
it mirrors the efforts that the Chinese are making on the
political side of things. China, as Mvemba mentioned in his
testimony, has a multi-billion dollar deal with the Congo. And
they don't care about human rights violations. They don't care.
The Chinese do not put any pressure on the government. And
losing sources of leverage by our companies pulling out, I
think is a challenge for things like democracy, for things like
having free and fair elections that accurately reflect the will
of the Congolese, which they do not enjoy today.
Chairman Miller of California. Mr. Dizolele, you heard the
testimony of the Honorable Bishop. Do you agree with that?
Mr. Dizolele. I am sorry, sir?
Chairman Miller of California. You heard the testimony of
the Honorable Bishop. Do you agree with his testimony that this
is going to have a positive impact on the people in the region,
the implementation of this? And it is not really a big jobs
issue for them?
Mr. Dizolele. I think only partly, because I think in the
bigger picture, this will actually not have a positive. If the
goal--early in my statement, I said if you are going to assess
this, we have to assess this on the claim, the premise of
Section 1502. The claim was it is going to extensively reduce
the violence. I do not think so.
To buy an AK-47, you don't need to sell minerals. AK-47s
are pretty cheap and violence can happen with machetes, as we
saw in Rwanda. No AK-47s were used in the genocide. If the
conflicts are not addressed, if we don't go after the militia,
they are still free agents to do whatever they will.
Again, we don't have an enforcement mechanism on the
Congolese side. This law has made the enforcement mechanism on
the corporations in the United States. But where is the other
side of the coin? Who enforces this in the Congo?
Chairman Miller of California. It seems like we have placed
the burden on American businesses. And I am not minimizing the
problem over there, but having--we have met with the African
Development Bank multilevel development banks who play a
significant role in this region.
Wouldn't their involvement be much more beneficial to this
issue to increase stability than the way we are trying to
create it, Ms. Seay?
Ms. Seay. I am a bit skeptical about the African
Development Bank. Their power is limited. But I think that you
do have regional and domestic mechanisms that are aware of the
conditions and have a much more sort of pragmatic approach to
the problem than the one reflected in Section 1502.
So you have--there are partnerships going on. These are
evolving. Some of them are working with the OECD guidelines.
But eventually we are going to get a mining code in the DRC
maybe. And we are going to have these regional initiatives, and
I think providing support to regional actors who know the
terrain, who speak the languages, who understand the culture,
and who understand the challenges of operating in an
environment in which there is absolutely no regulation and
absolutely no rule of law is really important.
Chairman Miller of California. So we can feel good that we
have probably turned it over to Chinese companies to deal with
the mines and the other companies and that is going to probably
make their situation better in that part of the world, which I
highly doubt.
Ms. Seay. I don't feel good about that.
Chairman Miller of California. Mr. Miller, you are
recognized for 5 minutes.
I am going by the Ranking Member's list. It wasn't my
preference, it was--
Mr. Miller of North Carolina. All right. Thank you, Mr.
Chairman.
Mr. Scott said that the conflict, the violence in the Congo
was appalling for African-Americans. It is also appalling for
White folks, I can tell you. The chairman at the beginning said
that the conflict, that the violence in the Congo was the
result of warlords and thugs. That lets the developed world off
pretty lightly.
It is very clear that the conflict in the Congo is largely
motivated by the opportunity to steal from the people of the
Congo, to steal the revenue that comes from conflict minerals.
And that the revenue from conflict minerals are funding all the
sides in the conflict.
When Mobutu was deposed in 1997 by Laurent Kabila, Kabila
said Mobutu had $5 billion waiting for him in foreign bank
accounts from what he had stolen when he was the head of the
Congo.
Kabila said to a local reporter that all it took to put
together a rebellion was $10,000 and a satellite thing--$10,000
was enough to hire an army in the Congo, given how extreme the
poverty was there.
And the satellite thing meant that he could negotiate with
all the buyers of the minerals to further fund his army. And
supposedly by the time he reached Kinshasa, he had already
contracted--he had half a billion in contracts with the buyers
of the minerals in the Congo.
There have now been 5.4 million people who have died since
1998. Rape is a weapon of war there and at least 200,000 women
have been raped. But what is going on in the Congo is horrific
and all of humanity should take responsibility for it.
The Enough Project's concerns have been kind of dismissed,
sneered at even, I think, some today. They say they are not
urging a boycott of Congo minerals. They are urging that there
be legitimate supply chains with tracing and auditing to make
sure that the buyers of those minerals know what they are
getting, and they are not conflict minerals. And it is not
impossible to do. In fact, there appear to be some supply
chains, legitimate supply chains, already.
Mr. Calder, is it going to be impossible to develop
legitimate supply chains? And what now exists?
Mr. Calder. A good part of the data we have now is the
Conflict-Free Smelter Program, and a very key part of their
data about whether it is possible. One of the also key parts is
now it is very clear. We have talked about U.S. companies
pulling out. They pulled out a long time ago. They pulled out
in 2004, 2005.
It has been mostly purchased--everything has been purchased
up to more recently, the status quo before this law came out,
it was Chinese, Malaysian, Soviet Republics. I am not talking
about the Chinese moving in now. They moved in a long time ago
and they have been able to use this cheaper material to
actually gain marketshare over the U.S. companies.
This is before this law. This law finally levels the
playing field. Is it possible? Now we know this incredible
traceability, which companies have been buying, because of
these smelter programs. These were done before we have a final
rule, that they have done on their own initiative.
Is it possible? We have a number of examples in here of
companies that say it is possible. One of them being quoted
here is also Nordstrom. So it is very key. These companies are
quoted it is possible. And some companies like Kester, which
buys most of the solder, or a majority in the United States,
have completed it.
Mr. Miller of North Carolina. All right.
Dr. Seay, you have said that rather than try to trace
conflict minerals, you are very skeptical about the
practicality of doing that. But do you say instead say there
should be government's promotion in security sector reform?
I spent a couple of days in Kinshasa. I don't claim to be a
Congo hand as a result of spending a couple of days in
Kinshasa. But we met with--our delegation met with the--it was
in MINOC. I think it is now called UNESCO, the United Nations
mission in the Congo. And they said they were simply
overwhelmed.
They could not begin to govern or to provide security in
the Congo. They got just shy of 20,000 uniformed personnel,
another 4,000 or 5,000 civilians, and can't begin to touch the
problem. They can't begin to get at real governance or rule of
law, because they are simply spending all of their resources
providing security. And that security is massively resource-
intensive and long term.
Dr. Seay, where are you suggesting--how much are you
suggesting that it cost to provide the necessary security in
this massive ungoverned area? How long are we going to be
there, and who is going to provide those resources?
Chairman Miller of California. The gentleman's time has
expired.
Dr. Seay, you may give a brief answer.
Ms. Seay. Thank you, Congressman, for the question. I am
not suggesting that all the security be provided by UNESCO.
Although I do agree, it is vastly underresourced. It is
absolutely ludicrous to think that a peacekeeping force of
17,000 people can protect civilians in a territory the size of
the United States east of the Mississippi. That mission was
underresourced and underfunded from the beginning. And it has
never been properly--
Mr. Miller of North Carolina. It apparently--
Chairman Miller of California. The gentleman's time--
Mr. Miller of North Carolina. --has the best resources--
Chairman Miller of California. The gentleman's time has
expired.
I will allow the witness to respond, but the gentleman's
time has expired.
Mr. Miller of North Carolina. Okay.
Ms. Seay. Okay. So on your question regarding how much it
is going to cost and how long, I think the key is not getting
more peacekeepers in, which is unrealistic by any measure,
financial or political. But rather, to strengthen the capacity
of the Congolese military, and to turn it away from being a
force that is the largest abuser of human rights in the Congo
and responsible for more rapes and more looting or institution
or armed group.
And instead, to professionalize those soldiers, to punish
and remove from the army those who commit human rights abuses,
and to pay soldiers a living wage so that they do not have an
excuse to go out and loot and cause other problems.
Chairman Miller of California. Thank you.
I ask unanimous consent that the gentlelady from California
be recognized for 5 minutes.
Without objection, the gentlelady from California is
recognized.
Ms. Waters. Thank you very much. I know that this time, Mr.
Chairman, is reserved for questions. And I want to thank you
for this hearing. I don't really have any questions. My mind is
made up.
I am a supporter of the continent, the entire continent of
Africa. I want you to know that I have spent part of my career
working on getting rid of apartheid in South Africa, and
helping Nelson Mandela to get out of prison.
I want you to know that I am applauding the fact that
Charles Taylor is going to be sentenced to a long time in
prison for what he did in Sierra Leone. And in Liberia and the
diamonds that were conflict diamonds there. I want you to know
that I have been in Angola and I was so glad when we finally
got rid of the war that was funded with Savimbi coming out of
the bush, using conflict diamonds.
I want you to know that I have been to the Democratic
Republic of the Congo long before Laurent Kabila ever became
president, and I understand all of this very well. And I want
you to know for anybody to say whatever we are doing does not
help, we should not do it, and look what China is doing, does
not hold water with me.
We have a moral responsibility to deal with these issues,
and we have a moral responsibility to provide that leadership.
I don't care if it helps but a little, we keep working, we keep
building on the idea that the exploitation and the devastation
of this wonderful continent has to stop. And some of us are
committed to that for the rest of our lives.
And so, I am sorry that there are those who think it is
going to interfere with their business, that they won't be able
to make as much money. First of all, give the SEC the
opportunity, give them the chance. Give them the opportunity to
put together the regulations. I worked on Dodd-Frank. I was on
the conference committee, and I supported Sections 1502 and
1504, and I will continue to do that.
Now, this hearing is fine, because it gives people an
opportunity to respond to the allegation that we didn't have a
hearing on these issues prior to Dodd-Frank. So this is the
hearing. But we should not reach any conclusions about it being
unfair to businesses. It is possible. I want to tell you, I am
reading abut a supply pipeline that is closed. Motorola is
doing it. They are able to comply. And they lay it all out
here. So this business of possible, not able to comply, you
can't verify, excuses, excuses, excuses.
And I wanted you to know that for as long as I am an
elected official and a Member of Congress who understands what
has happened on that continent, not only from those of us in
the United States who were part of that exploitation, but from
other countries all over the world.
I am not worried that somehow China is going to beat us
out. China is all over the world doing what China does. But
some of us are even looking at our trade negotiations to see
how we can include these kinds of questions in our trade
negotiations with China and other places.
So I am very appreciative that you are here. Bishop, I want
you to go back and I want you to tell the other Bishops that
there are people here who love the continent, who love Africa,
who are going to fight for Africa, who understand what is going
on with these conflict minerals, and we are not worried about
competition, we are not worried about loss of dollars. We can
have a closed pipeline where we can monitor this. And there are
some of us who are committed to doing it.
So I don't have questions, and perhaps there are some
people who can say, well, how is it she can say that she knows
so much that she doesn't have to answer any questions?
And again, I am telling you, I am not a stranger to the
Democratic Republic of the Congo. I was there. I am not a
stranger to Angola, I have been there. I am not a stranger to
Liberia and Sierra Leone.
I am not talking from afar. I am not some privileged
African-American legislator in this country, or a privileged
White person in this country who can sit back and talk about
how we are disadvantaged, because when you say that you don't
understand the rape and the murder and the killings and the
devastation and the loss of lives that has taken place.
It is easy to speculate or to talk about this is
uncomfortable for me, this is inconvenient for me, this may
interfere with my profits. Shame on us. Shame on us. We are
better people than that.
I have one second left? I yield back the balance of my
time. I have said all I need to say.
[applause]
Chairman Miller of California. Mr. McDermott, you are
recognized for 5 minutes and 1 second.
Personal items are not permitted during a congressional
hearing. I am sorry.
Mr. McDermott, you are recognized for 5 minutes.
Mr. McDermott. Mr. Chairman, I am going to begin with a
confession.
I lived in Kinshasa for 9 months. I worked there for the
State Department. I have been all over Goma. I know all the
people in Kivu who are involved in this. And what is necessary
here today is to decide, are you going to repeal it, or are you
going to let the SEC go forward and write a rule?
The problem here is most of the argument is about an
imaginary rule. We have not seen the rule. People are
responding to an imaginary rule. The SEC should move forward.
And I will stipulate that this decision will not end all the
problems in the Congo. I was recently in Brussels and went to
the Leopold museum. And when you realize this kind of conflict
has been going on since 1890, that nothing is going to come in
and be the silver bullet that fixes it.
This question goes to Mr. Scott's point: Does our
continuing to put money into the Congo minerals black market
feed the war? Now, every Member of this Congress knows that the
Vietnam War ended when Congress cut off the money. And the war
in Afghanistan will stop when this Congress cuts off the money.
That is what we are talking about here is, ``How do you cut off
the money?'' Now, it won't fix everything, but it is going to
fix it for a lot of people.
Let me go to one other point that there has been a lot of
confusion here about. And I was pleased to see a map, because
most people, if you handed them a map, they couldn't find the
Congo on it, first of all. Then they couldn't find Kivu if
their life depended on it. But the fact is that those
provinces, North and South Kivu, are the area right next to
Rwanda, from which the genocide moved right across the border.
And all of the problems created by those people back in
Berlin 100 years ago when they drew lines in Central Africa
about who lived where and who was who, is going on today as it
was 100 years ago. And everyone who talks about that, or who
understands the place, knows that. The fact is, there are
conflict-free mines now. In Katanga Province, immediately south
and west, which is where all the copper and tin comes from,
that is what created all of the business when we sent in our
troops in 1960, all of it was about copper in those days.
Now, there are conflict-free mines. There is a place down
on 18th and L Streets, I think, called PACT. It is a group of
conflict-free mining experts working for the tin and tantalum
society, who can give you the name of 146 conflict-free mines
in the DRC and 406 conflict-free mines in Rwanda today. They
put out 500 tons a month of conflict-free minerals. And it is
all sold. There is no shortage. These companies who talk about,
``Oh God, we won't know where to get our stuff.'' That is
nonsense. The minerals industry has already moved to clarify
this situation, because they realized the justice in it.
It is so clear that they have already moved. And my belief
is that the question here is really, is the Congress going to
use its power of money to change the situation over there, or
are they not? We can throw up our hands and say, it is
hopeless, it is impossible, there are all these people, it has
been going on forever, and we won't do anything.
Congo has been free for 50 years, since 1960. I was there
in 1987 and 1988. And the policemen were not paid. People would
stop you in the street and say, give me money. That is how the
policemen were paid. That is how the army is paid. There is no
civil service. There is no organized government. We all know
that.
But the question is, is the Congress going to allow
industry, for profit, to continue to buy from this source? It
is changing, it has changed dramatically as we already have
testimony from Mr. Calder, that because once the companies saw
the justice in it, they said no, we are going to find a clean
place to buy our minerals.
And I could tell you, I can assure you, Mr. Miller, that
Nordstrom, whose name is on this list from my city, will not
sell you a suit with a button that is filled with conflict
minerals. They don't want that reputation, and they will make
sure that they are all clean.
I would like to hear from Mr. Calder a little bit about
the--
Chairman Miller of California. The gentleman's time has
already expired before he asked a question.
Mr. McDermott. Time flies when you are having a good time.
Chairman Miller of California. It does.
Without objection, I would like to submit for the record
the following: a letter from the U.S. Chamber of Commerce; a
letter from the Retail Industry Leaders Association; a
statement from Kinnemont-Link based in Latrobe, Pennsylvania; a
letter from the SEC, from the SBA Office of Advocacy; and a
letter from the Automotive Industry Action Group signed by
executives from Chrysler, Ford, GM, Honda, Nissan, and Toyota
to their suppliers alerting them that they will need to comply
with Section 1502, even though they are not SEC registrants.
Ms. Waters. Mr. Chairman, may I ask unanimous consent?
Chairman Miller of California. I already did that.
Ms. Waters. For the supply chain?
Chairman Miller of California. Oh, without objection, the
supplychain letter will be submitted also.
Ms. Waters. Thank you.
Chairman Miller of California. I would like to thank the
panel for your time, for your expertise, for your patience, and
for the travel many of you have made to be here. And let us
hope that the government and the region does something about
this problem, deals with the human rights. I hate to see the
burden placed on the back of American businesses. It is not
Congress paying; it is American businesses paying.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to these
witnesses and to place their responses in the record.
And with that, this hearing is adjourned.
[Whereupon, at 12:52 p.m., the hearing was adjourned.]
A P P E N D I X
May 10, 2012
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