Elsevier

Resources Policy

Volume 62, August 2019, Pages 674-689
Resources Policy

International mineral trade on the background of due diligence regulation: A case study of tantalum and tin supply chains from East and Central Africa

https://doi.org/10.1016/j.resourpol.2018.11.017Get rights and content

Highlights

  • Evaluation of international tantalum and tin trade data from the Great Lakes region.

  • Due diligence regulations not causing any negative impacts on trade in the long term.

  • Decreasing market concentration for tantalum imports from the Great Lakes region.

  • Due diligence implementation improves international trade data consistency.

Abstract

Over the past eight years, due diligence has become an increasingly important component of supply chain management for “conflict minerals” such as tantalum and tin. The due diligence concept has been incorporated into regulatory requirements and industry standards as far as mineral sourcing from the Democratic Republic of the Congo (DRC) and the wider East-Central African Great Lakes region is concerned. The present study investigates how this development is reflected in the trade data of tantalum and tin ore concentrates sourced from the region. The analysis is based on international import data reported by smelter countries covering the 2006–2017 period and calibrated against a supply chain framework of regionally aggregated tantalum and tin producer and transit countries. International imports of tantalum and tin ore concentrates from the Great Lakes region show correlated trends for both commodities comprising a pre-regulatory period from 2006 to 2009, a transitional period of initial due diligence implementation from 2010 to 2012, and an on-going period of streamlined due diligence implementation starting in 2013. Tantalum and tin import reductions in 2010–2011 correlate in time with publication of the conflict mineral section of the Dodd-Frank act in the United States, a temporary ban of artisanal and small-scale mining in the DRC and a de facto embargo established by a number of international mineral buyers. Following a two-year transitional period, international tantalum and tin ore concentrate imports from the region progressively recover towards and beyond pre-Dodd-Frank act levels. The market structure of smelter countries sourcing tantalum from the region changes from a China-dominated monopsonistic situation prevailing from 2006 to 2012 towards a less concentrated international market in 2013–2017. This development correlates with the region's increasing world market share in tantalum mine production. In contrast, tin supply chains reflect an oligopsonistic market that does not change systematically through time. While aggregated international import and regional export data for tantalum and tin ore concentrates used to show strong discrepancies in the past, these data are in good agreement from 2013 onward. Mineral origin declarations show progressively increasing geological and logistical plausibility likely reflecting a reduction of intra-regional smuggling and more accurate chain of custody documentation. As such, international mineral trade data become more consistent with on-going implementation of due diligence.

Introduction

The last decade has seen the emergence of due diligence as a new concept to foster ethically responsible raw material supply chains. The due diligence concept, defined in a guidance by the Organization for Economic Cooperation and Development (OECD), is based on companies evaluating risks whether their mineral supply chains are associated with serious human rights violations, forced labor, the worst forms of child labor and direct or indirect contributions to conflict financing, among others. The concept applies to the whole commodity supply chain and differentiates strategic approaches with regards to the upstream (from mine to smelter) and downstream (from smelter products to final goods) sections. As a base for implementing due diligence, companies are required to establish enabling management systems, for instance by developing risk-based mineral sourcing policies, engaging with their suppliers, documenting the chain of custody and tracking product supply chains back to the smelter or mine level (OECD, 2016). As such, due diligence implementation contributes to sustainable supply chain management practices and responsible business conduct of companies. The concept is particularly relevant for managing risks and business reputation when sourcing so-called conflict minerals that are often produced through artisanal and small-scale mining in conflict-affected and high-risk areas (OECD, 2016). In the due diligence context, conflict minerals are currently defined as tantalum ore (columbite-tantalite group minerals), tin ore (cassiterite), tungsten ore (wolframite) and gold.

Several countries representing mineral consumers and producers have established regulations providing a framework for implementing the due diligence concept. The regulatory dimension of the due diligence concept follows up on earlier attempts to influence supply chains with regards to advancing certain political or ethical goals such as the trade embargo against South Africa's former apartheid regime or the Kimberley Process Certification Scheme for diamonds (e.g., Taylor, 2012). The most widely known recent regulation in this regard is the conflict mineral section 1502 of the United States (US) Dodd-Frank act established in 2010 (US Congress, 2010) whose implementation is based on stock exchange-listed companies reporting to the US Securities and Exchange Commission (SEC). The overarching objective of section 1502 is to cut the links between conflict financing, mining and mineral trade in the eastern Democratic Republic of the Congo (DRC). Regulations with similar objectives1 have been established by the DRC and its neighbors in the African Great Lakes region at a national and regional level (e.g., Schütte et al., 2015; Diemel and Hilhorst, 2018) and, recently, by the European Union (European Parliament and Council, 2017).

The enactment of due diligence regulations for mineral supply chains has implications that are relevant to reflect for policy makers, especially if the concept is increasingly applied at a global scale, as foreseen by the European Union (European Parliament and Council, 2017). A key question debated over the past years is whether the Dodd-Frank act and, implicitly, similar conflict mineral regulations achieve one of their fundamental objectives, that is, reducing the conflict and associated human rights abuses in the eastern DRC. A common criticism with regards to the associated developments in the DRC is that these regulations tend to address a symptom, that is, mineral trade partly contributing to conflict financing, rather than the root causes of the conflict. The effectiveness of this policy approach is further reduced when illegal armed groups shift their attention and related patterns of violence from one sector to the next, in particular, from the more regulated tantalum and tin sector to largely unregulated artisanal gold mining in the eastern DRC. At the same time, tighter control of the tantalum and tin mining sector may create economic disadvantages for parts of the local population, especially for artisanal and small-scale miners working at informal mine sites (e.g., Seay, 2012; Cuvelier et al., 2014; Radley and Vogel, 2015; Vogel and Raeymaekers, 2016; Diemel and Hilhorst, 2018). These effects may be collectively referred to as unintended consequences of the conflict mineral regulation and led some scholars to conclude that the regulation, while well-intended, ultimately “backfired” (Parker and Vadheim, 2017, Stoop et al., 2018).

The SEC emphasized this notion of unintended consequences to justify a reconsideration of its conflict mineral rule implementation in 2017 (Piwowar, 2017). The public commenting period subsequently facilitated by the SEC illustrated a broad spectrum of views with regards to the impact of implementing the Dodd-Frank act. Based on a combined literature survey and analysis of the 281 stakeholder comments received by the SEC, Koch and Kinsbergen (2018) developed a typology for the unintended consequences in the DRC that were proposed in connection with the Dodd-Frank act. These authors found that one of the key aspects, namely an international de facto embargo against conflict minerals from the DRC, is frequently cited as an argument in order to demonstrate the Dodd-Frank act's unintended consequences whereas local mineral export figures illustrate a recovery trend that is rarely acknowledged (Koch and Kinsbergen, 2018; see also Salter and Mthembu-Salter, 2016).

Indeed, while much research work has focused on the consequences of the Dodd-Frank act and its conflict mineral rule with regards to the eastern DRC's socio-economic and security sector situation, international mineral trade developments on the background of the regulation and the associated due diligence schemes have been less well explored. References to policy changes by international supply chain stakeholders with regards to their mineral purchasing from the DRC tend to reflect the time period shortly after the enactment of the Dodd-Frank act (e.g., Seay, 2012; Cuvelier et al., 2014) without considering more recent, multi-year trade developments (Koch and Kinsbergen, 2018). Policy impact analyses further build on a bottom-up perspective at a subnational or national level in the DRC. This approach is necessary in order to resolve, for instance, differing developments in the socio-economic situation of local artisanal miners and communities or localized patterns of conflict-related violence (e.g., Diemel and Cuvelier, 2015; Parker and Vadheim, 2017). When evaluating mineral trade patterns, however, a subnational- or national-level analysis of the DRC alone – or any of its neighbors – risks missing a significant fraction of relevant data due to the typical formalization challenges and inherent smuggling risks associated with artisanal and small-scale mining and trade in East and Central Africa. An integrated analysis of regional-international mineral trade data, on the other hand, provides a more representative overview due to its ability to cancel out certain intra-regional smuggling effects.

Studying international mineral trade patterns and evaluating their connection to the observed de facto embargo does not only fulfill a complementary function to national-level analyses of policy and regulatory effects in the DRC. In illustrating trends on the changes in volume and direction of mineral trade over a relevant time period, it may additionally provide insights with regards to possible market reactions for mineral sourcing from other conflict-affected and high-risk areas as a result of new policy interventions. From a downstream supply chain perspective, mineral trade developments in the wake of conflict risks and new regulations may not only have an implicit impact on business reputation but also on raw material criticality in cases where production or trade are interrupted (e.g., Hatayama and Tahara, 2018) or where trade is monopolized by those smelters willing to accept minerals produced under low ethical standards (UN Group of Experts on the DRC, 2011).

Evidence-based monitoring of mineral trade data at the international scale may therefore inform further calibration of supply chain regulation as an instrument to enforce the due diligence concept, for instance when evaluating whether mandatory due diligence requirements should be established for additional minerals such as cobalt. The present study aims to support this process by investigating how international mineral trade data for tantalum and tin ore concentrates reflect the onset and implementation of due diligence in the African Great Lakes region. Up to now, with the exception of an early study by Bleischwitz et al. (2012) and a smelter-focused tantalum substance flow analysis by Achebe (2016), these data have not been systematically evaluated taking into account the full regional and international mining and supply chain logistical framework. Out of the four so-called conflict minerals targeted by section 1502 of the US Dodd-Frank Act and the recent regulation by the European Union, this study focuses on tantalum and tin ore concentrates because their international trade is significantly affected by due diligence regulations while they also have a high local social and economic relevance in the Great Lakes region.2 The time span investigated in this study corresponds to the period from 2006 to 2017, encompassing a pre-due diligence baseline period as well as mineral trade developments post-dating the enactment of due diligence regulations. In doing so, implications can be drawn to evaluate the extent to which a de facto embargo and other market factors are reflected in aggregated trade data from an international supply perspective.

Section snippets

Context parameters for mineral trade data analysis

Four context parameters define the background of the mineral trade data analysis presented in this study. These parameters comprise (1) the time period of evaluation, (2) mineral trade data resolution and aggregation, (3) regional supply chain and international market structures, and (4) individual trade data reporting parameters. This chapter outlines these parameters in more detail and, where applicable, specifies the associated limitations and assumptions.

Mineral trade data extraction

Mineral trade data for this study were obtained from the UN Comtrade database (United Nations, 2018). Only import data with a weight of more than 100 kg for a given year and country were considered. Lower tonnages were excluded as they likely do not form part of the commercial supply chain but rather represent ore samples sent to international laboratories or buyers for chemical analysis. Extracted trade data refer to the HS code categories 261590 (tantalum, niobium and vanadium ores and

International offtake of tantalum and tin from the Great Lakes region

Import trade data computations are illustrated in Fig. 3 and the underlying country-specific annual data are shown in Table A1 and Table A2. Total reported imports of tantalum and tin ore concentrates from the Great Lakes region show similar trends for both commodities: an import peak in the 2007–2009 period (tin) and 2008–2009 period (tantalum) is followed by a significant reduction on the order of 45% in 2010–2011. Starting 2012, mineral imports from the region show a systematic recovery

Conclusions

Since 2010, the due diligence concept has increasingly been established as an industry standard in supply chains of conflict minerals such as tantalum and tin. Regulations in several mineral producer and consumer countries require mandatory due diligence implementation, in particular along upstream supply chains from mine to smelter. The rapid uptake of due diligence implementation and associated regulations calls for the monitoring of its impact on the modalities of international mineral

Acknowledgements

The author gratefully acknowledges informative discussions on the subjects of due diligence and commodity supply chains with technical cooperation partners in Rwanda, the DRC and Burundi as well as with Caspar von Wedemeyer, Uwe Näher, Bali Barume, Sophie Damm, Mirko Liebetrau and Yannick Weyns. The manuscript benefited from thoughtful journal reviews by two anonymous reviewers as well as an informal review by Gudrun Franken. This research did not receive any specific grant from funding

Declarations of interest

None.

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