Monday, March 12, 2012

A Trade-related Warning for "Kony2012" Advocates

Since the world remains enraptured by the disturbing Kony2012 video and global reaction to it, it's probably a good idea for me to find some sort of trade-related angle in order to siphon off a few cheap Google hits.  Fortunately, Reason's recent recap of the video provides the perfect one, and it's a great warning to anyone hoping to help Kony's victims via trade sanctions or other forms of well-intentioned regulatory protectionism:
While Invisible Children has noble intentions to bring justice and closure for those victimized by the L.R.A., Kony 2012 could have a similar fate to another botched advocacy campaign in eastern Africa. In 2010, Congress passed the Dodd-Frank financial regulation act. Thanks to activists, the law included a provision that forces companies in the United States to disclose where they obtained their metals and minerals in the Congo. The Economist explains the motivation:
The intention behind the law was good. Congolese militias and rogue army units, whose members rape and murder with abandon, finance themselves through mining and extortion from miners. The law tries to shame big buyers, such as Apple and Motorola, who use Congolese coltan, into dealing only with bona fide suppliers. But the effect has been to frighten them away from Congo altogether.
As a result, the disclosure requirement became a de facto embargo on Congolese mining. This has been disastrous for that nation's already troubled economy. Some Congolese mines have seen output plummet by 95 percent, while anywhere from tens of thousands to upwards of two million Congolese miners have lost their jobs. Meanwhile, militia leaders have formed smuggling networks and bribed officials to bypass the disclosure requirement. In addition, since American demand has dropped, morally flexible Chinese firms have invested heavily in these mines, obtaining commodities at huge discounts.
I've commented before on the misguided and painful effects of Dodd-Frank's protectionist conflict minerals provisions, noting that "a little-know provision of a national financial reform law has caused imports of African minerals to collapse. Meanwhile, this regulatory protectionism, and the carnage in Congo that it was intended to prevent, continues." Since that time, more bad news has emerged, including new estimates on the huge compliance costs imposed by the regulation on many US companies:
Some expected that the big new SEC regulations on industrial users of tin, tungsten, tantalum and gold would mostly affect electronics and jewelry makers, but the actual net being cast is far wider. Manufacturers in general must investigate the supply chains of their products in order to comply with the disclosure requirements, no small matter at a firm like Kraft with 40,000 products and 100,000 suppliers. (Kraft found that the minerals may turn up in pouch packaging of juice products.) No wonder the SEC’s absurd initial estimates of a mere $70 million economy-wide compliance cost have given way to estimates a hundred times higher or more. In an echo of the infamous CPSIA statute, “the rule provides no de minimis exemption for trace amounts.”
Yet the SEC still hasn't issued its "final rule" on conflict minerals and Dodd-Frank, even though the law was effectuated in mid-2010:
A recent letter from Senator Patrick Leahy (D-VT) created expectations that the U.S. Securities and Exchange Commission (“SEC”) had drafted and circulated its long-awaited final rule on conflict minerals. These expectations now seem to have been premature.

In mid-February, Senator Leahy and other co-sponsors of the conflict minerals provision -- Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act -- sent a letter to the SEC that was interpreted to imply that the SEC had drafted a final rule and shared it with lawmakers, which caused a flurry of speculation regarding the content and timing of the final rule....

The SEC has since stated that it has not produced a final conflict minerals regulation, nor has it shared such a document with any lawmakers.
Without the final rule, uncertainty continues to prevail, much to the detriment of African miners and US businesses.  The lesson for supporters of aggressive US action in response to the Kony2012 video is, as Reason concludes, straightforward:

"Sometimes, doing nothing is better than doing something."

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