Financial Reform and Conflict Minerals

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My law-professor brother tells me of an unusual provision in last year’s Dodd-Frank financial reform bill. It designates conflict minerals (gold, wolframite, and two others), the mining of which yields profits that have financed wars in the Congo, and prohibits companies from using such minerals unless their provenance is appropriate (unless they come from “compliant smelters”).

The problem is that the law applies only to corporations of a certain size (not too small) and unincorporated entities. The results are clear:  The law reduces demand for conflict minerals, thus lowering their price and probably the revenue of the conflict country suppliers, mostly affecting minerals from the Congo; but it raises demand for other sources of the minerals– from other countries, thus raising costs for American companies that do business legitimately.

My guess is that this was not the purpose of the act’s authors, nor of former Kansas Senator Sam Brownback, who initiated the reform. Nonetheless, tech companies like Apple and Intel are starting to comply. (HT: LAH)

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  1. Simon says:

    Currently the price of gold, at least, is more effected by precious metals being used as a hedge against inflation by investors.
    I believe that your thinking is right on track, less supply, higher prices. However the Congo is not a major producer of gold, possibly because the constant conflict discourages investment, so its impact on the cost of doing business should be limited at best.

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  2. Greg says:

    What does the sentence “The problem is that the law applies only to corporations of a certain size (not too small) and unincorporated entities.” have to do with the statements that follow?

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  3. Hank says:

    I don’t understand, wasn’t/isn’t the price of these resources artificially low because of the sourcing methods. Now those costs are properly born by the market.

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