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Blood Cell Phones

|Includes: Apple Inc. (AAPL), BB, CBT, NOK, SNE, SSNLF

In 2003, motivated by the savagery of civil wars in Sierra Leone and Liberia, 75 countries joined a U.N.-sponsored global initiative to prevent trade in “conflict diamonds,” popularly referred to as “blood diamonds.” Conflict diamonds are gems mined in areas afflicted by armed conflict, the proceeds of which go to purchase arms and other materiel to prolong and intensify the conflict, which is usually all about control of those same diamond deposits. This initiative, called the Kimberley Process, instituted a system of certification under which governments of both source countries and purchasing countries would collaborate to prevent conflict diamonds from being sold internationally. The Kimberley Process was endorsed by major diamond producers, including world market leader De Beers, to avoid being tainted by the blood diamond label and, perhaps coincidentally, to reinforce their market dominance by banning trade in stones of uncertain provenance.  But it was also a good-faith effort to put an end to the spread of vicious conflicts motivated and fueled by mineral resources.

Less well-known than the conflicts in West Africa is the civil war that continues to rage in parts of the Democratic Republic of Congo (NYSE:DRC), known at various points in its history as Zaire, the Belgian Congo, and the Congo Free State, which in the late 19th and early 20th centuries was the private preserve of Leopold II, King of the Belgians. The current war, which dates back to the 1994 Rwandan genocide and the overthrow of dictator Mobutu Sese Seko in 1997 and has its roots in earlier political and ethnic squabbles, is reckoned to be the deadliest armed conflict since the Second World War, claiming over five million lives between 1998 and 2008.

Disclosure: I spent two of the happiest years of my life as a Peace Corps Volunteer in Zaire in the late 1970s, have visited the country numerous times since then, and retain a strong sentimental attachment to the place.

For well over 100 years – you can, arguably, go back at even further to the 17th century Kongo Civil war in what were then Portuguese dominions, and are now parts of both Angola and DRC – foreign powers and greedy locals have exploited the country’s ethnic divisions to grab its boundless natural resource wealth for themselves. Joseph Conrad, in Heart of Darkness, called it “the vilest scramble for loot that ever disfigured the history of the human conscience,” and what he wrote in 1899 about the insane quest for rubber and ivory pretty much still applies to space-age metals dug out of riverbanks by conscript labor under the watchful eyes of local warlords and their enforcers. It’s easy enough for us in the rich countries to turn a blind eye to all this. Congo is far away, and the atrocities are perpetrated by one set of Africans against another, so what’s it got to do with us? Quite a lot, actually.

Neither the starving laborers nor the thugs pointing automatic weapons at them have much use for tantalum, a rare earth metal found in great abundance in Eastern Congo, nor for tungsten, also mined in the same area, but these turn out to be essential components of cell phones and various other high-tech devices. So if you just stood in line overnight to buy a new iPad, or if you suffer from addiction to video games or your Blackberry  smart phone, you are complicit, however unwittingly, in this vile commerce. In a memorable turn of phrase, former British parliamentarian Oona King said,”Kids in Congo [are] being sent down mines to die so that kids in Europe and America [can] kill imaginary aliens in their living rooms.”

Members of the U.S. Congress, in a rare show of bipartisanship, have introduced legislation to try to curb the trade in conflict minerals from Congo.  Representative James McDermott, Democrat of Washington state, in November 2009 sponsored H.R. 4128, the Conflict Minerals Trade Act, a bill that attracted 30 co-sponsors, including a sprinkling of Republicans. Meanwhile, arch-Republican Senator Sam Brownback of Kansas, together with co-sponsors Dick Durbin, a Democrat from Illinois, and Wisconsin Democrat Russ Feingold, has introduced a similar bill in the Senate. An impressive array of major corporations, including Dell and HP, and prominent NGOs, including Amnesty International and Human Rights Watch, have expressed strong support for the bill. The big question is whether it will work.

The track record of the Kimberley Process is not reassuring. A report by Global Watch, a British NGO, and one of the prime movers in the establishment of the Kimberley Process, warned that controls are inadequate in major diamond processing centers such as Surat in India and Antwerp, thus allowing substantial leakage of blood diamonds onto the international market. Human Rights Watch in June 2009 published a report alleging massive human rights violations in Zimbabwe’s Marange diamond fields.  It accused the Zimbabwean Army of using force “to control access to the diamond fields, and to take over unlicensed diamond mining and trading,” all to the benefit of Robert Mugabe’s ruling ZANU-PF party. Fraudulent Kimberley Process certificates are reportedly in wide circulation throughout the world’s diamond supply chain.

Rep. McDermott’s bill seeks to avoid some of these risks by reducing the burden of compliance on governments of poor diamond producing countries, which often lack both the means and the will to stop the trade. It also takes a dimmer view of international cooperation in general, which seems to make sense, since the more parties involved the more cracks for things to fall through. Instead, it requires the U.S. State Department to pay greater attention to the minerals issue in its annual reports on human rights practices in DRC and neighboring countries. More important, it puts the burden of proof on “enterprises under U.S. jurisdiction” to exercise due diligence “to ensure that their purchases of minerals or metals are not originating from mines and trading routes that are used to finance armed groups in the Democratic Republic of the Congo.” The bill would also require the U.S. tariff code to identify items potentially containing conflict minerals and would require importers to certify that their imports of those items are conflict mineral free. Since every company that uses these minerals has a substantial operation in the U.S., the bill would place a significant part of the world trade in these substances under U.S. jurisdiction.

The law should be passed, if for symbolic reasons only. It could help attract the attention of U.S. consumers, who in turn would put their own pressure on importers and manufacturers to comply.  Consumer pressure on companies like Nike and Wal-Mart have done more to curb unsafe and exploitative working conditions in shoe and garment factories in developing countries than any number of government regulations  and trade restrictions could have done. If consumers start demanding that Apple and RIM do more to keep conflict minerals out of their iPhones and Blackberries it could prove far more potent than whatever sanctions the law may impose.

The immediate practical effect of the legislation is more doubtful. The minerals in question are completely fungible and easy to transport and hide. Not as easy as a pocketful of diamonds, but total world production of tantalum is less than 1,000 tons a year. Even at currently depressed tantalum prices of $35 a pound, a small truck full of coltan (tantalum-bearing ore), representing a small fortune to a trader or a warlord, can easily cross an international border for a few dollars in bribes.

That is exactly what happens. According to official trade statistics, Rwanda exports more tantalum than DRC, even though its reserves and the scale of its mining operations are a fraction of those of its huge neighbor. The bulk of Rwanda’s exports are reckoned to come from Congo, but with minimal processing in Rwanda and with every additional transformation and transaction the stuff becomes harder to trace to its source. The recession put a damper on demand, but the price could spike with introduction of any new technology that uses the stuff.  The introduction of the Sony Playstation 2 in 2001 caused the price to go from less than $50 to $275 a pound almost overnight. Though Sony claims to have abandoned use of tantalum from Congo, some analysts have suggested that this is almost impossible, given Congo’s probable real share of world supply. Since Sony and Nokia and Samsung and other consumer electronics companies buy their minerals from intermediaries, they can’t be certain of their real provenance, and it can be equally hard for intermediaries like Cabot Corporation, the world’s largest processor of tantalum, to know for sure.

Cabot, for its part, states “We do not and will not mine any material containing Tantalum, including coltan, in the Democratic Republic of the Congo. We reject any new offer of ore if there is any possibility that the source is the DRC…We employ several controls to ensure that we do not purchase ore from the DRC, including the requirement of a government issued certificate of origin to ensure the ore we purchase is not sourced from the DRC.” It also claims it does not purchase tantalum from neighboring countries, including Rwanda, Burundi, Congo-Brazzaville, and Zambia.

There is no reason to doubt Cabot’s seriousness of purpose, but as international traffic in arms, people, drugs, gems, endangered species, laundered money, and stolen works of art demonstrates, a government-issued certificate often isn’t worth the paper it’s written on. That’s no reason to dismiss the proposed legislation, which should be passed.  But the real solution lies elsewhere.

Alternative sources of tantalum and other high-value minerals can be found, even if Congo remains the mother lode. Australia, Venezuela, Colombia, Mozambique, Canada, and Brazil all have important tantalum deposits, though some of those countries have potential conflict issues of their own. Ceramic capacitors, though currently in short supply, have some important advantages over tantalum in appliances like laptop computers. But these are longer-term fixes. To make this year’s crop of electronic marvels the world will still depend on the Congolese coltan mines. And Congo is such an important source of other strategic minerals that wiping out the tantalum trade will not end armed conflicts and human rights abuses connected with other high-value minerals, including gold, copper, cobalt, and, yes, diamonds.

The only real answer, of course, is for Congo to have a reasonably strong, reasonably representative government that can control its borders, guarantee its people a modicum of freedom, and wipe out internal armed insurrection. That’s a tall order, and something never before seen in Congo’s history. The rest of the world could help by putting an end to its meddling, armed or otherwise, and imposing sanctions on any country that refuses to do so. This too is not easy with such riches at stake.

When I lived in Congo in the late seventies, people had grown fed up with Mobutu’s brutality and vainglory and were fond of saying that any change in the status quo would be an improvement. The subsequent thirty-plus years have proven them tragically wrong. Still, I recoil at the notion that the Mobutu regime is as good as it gets for the Congolese. The legislation now before the U.S. Congress represents just the tiniest step towards a better future for Congo, but it’s a step that must be taken. And if that means we don’t get a new cell phone this year or next it would be a small price very much worth paying.



Disclosure: No positions