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ACA Fights Rule on Conflict Minerals

Monday, January 28, 2013

Coating makers have joined the opposition to a U.S. rule that would expand disclosure of the use of so-called "conflict minerals" in various products.

The American Coatings Association (ACA) is working with other affected industry associations on a friend-of-the-court (amicus) brief in support of a lawsuit that asks the U.S. Securities and Exchange Commission (SEC) to set aside its Conflict Minerals Rule, adopted last August. The brief is due Wednesday (Jan. 23).

Patricia Jurewicz / Responsible Sourcing Network

"Conflict minerals" include tin, tungsten, tantalum and gold derived from the Democratic Republic of Congo (DRC) and surrounding countries.

The brief is aimed at bolstering a federal lawsuit filed in August 2012 by the U.S. Chamber of Commerce and the National Association of Manufacturers. the suit seeks a review of the rules, which are required under the 2010 Dodd-Frank financial reform law.

Conflict Minerals

The rule requires that publicly traded companies disclose certain conflict minerals or derivatives used in their production processes. "Conflict minerals" include tin, tungsten, tantalum and gold derived from the Democratic Republic of Congo (DRC) and surrounding countries.

Tin is used during the chemical processes for manufacturing PVC and certain high performance paints/coatings.

The rule requires companies that manufacture products that use these minerals to report whether its products were produced from sources that benefit armed groups.

The Organization for Economic Cooperation and Development published its guidance on conflict minerals for members in 2011.

Companies are required to provide an annual report that includes:

• Measures taken to determine the source and chain of custody of the minerals, including an independent private sector audit of the report, and
• A description of the products manufactured or contracted to be manufactured that are not DRC conflict free, the entity that conducted the independent private sector audit, the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location or origin with the greatest possible specificity

'Woefully Inadequate'

The industry coalition filed their opening brief on the merits of the case on Jan. 16, saying that the rule "may have been motivated by good intentions" but the SEC's analysis is "woefully inadequate."

The groups contend that the SEC failed to meet its statutory obligation to consider the effects of the rule by failing to determine if the rule would benefit the DRC, and by underestimating the rule’s costs.

"Further, and of particular importance to ACA member companies, by refusing to create a de minimis exception, the SEC expanded the scope of the rule adding significant burdens and costs to U.S. industry without demonstrating any benefit for the DRC or the Congolese people," ACA reports.

The industry coalition also challenged provisions of the rule requiring companies to undertake what it termed "an onerous 'reasonable country of origin inquiry,' expanding the rule’s scope to non-manufacturers, and providing for an irrational transition period."

The coalition also asserts that the rule violates the companies' First Amendment rights by requiring them to report on their website and to the SEC if any of their products are “not DRC conflict free.” The industry coalition said requiring this disclosure is “as unfounded as it is politically charged.”