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‘Conflict Mineral’ Strategy Emerging

The Automotive Industry Action Group is working to identify materials to ensure they don’t come from nefarious sources.

Auto makers and suppliers have until Jan. 31 to make comments or submit recommendations aimed at establishing regulations to weed out ill-gotten materials from today’s new vehicles.

Many materials are considered “conflict minerals” by the industries that use them, as well as the U.S. Securities and Exchange Commission.

The term refers to tantalum, tin, gold, tungsten and other materials mined in nations plagued by socioeconomic strife, such as the Democratic Republic of the Congo.

Some mines in these countries use forced labor or employ underage workers, who often are exposed to unsafe conditions.

And much of the resulting revenue is used by militants to fund armed conflict, according to the SEC, which recently issued the “Conflict Minerals Provision” to the U.S. Exchange Act.

Now open to commentary from stakeholders, the provision would require industries using conflict materials to disclose “products manufactured or contracted to be manufactured” that are not “conflict-free.”

If a company concludes its conflict minerals originated in a suspect country, or is unable to determine this, the company agrees to:

  • Disclose this conclusion.
  • Note the “Conflict Minerals Report” is furnished as an exhibit to the annual report.
  • Furnish the report.
  • Make available the report on its website.
  • Disclose that the report is posted on its website.
  • Provide the Internet address of that site.

Comments and recommendations will be considered during a rule-making process aimed at eliminating traffic in conflict minerals.

Against this backdrop, the Automotive Industry Action Group is working to identify material origins to ensure they don’t come from nefarious sources.

J. Scot Sharland, executive director of Michigan-based AIAG, a not-for-profit association of industrial companies, says the problems stem from the “dark side of global sourcing,” where there is a “lack of transparency throughout the supply chain.”

In addition to the DRC, other countries on the “watch list” are China, Mexico, Turkey, Brazil and India.

Concerns include environmental issues, such as mining methods that destroy endangered habitats and negatively impact water supplies.

To adequately track the use of conflict minerals in automotive components, OEMs and their supplier partners not only have to look at individual parts, but also their material content.

In many cases, this means identifying the smelter where the materials were processed, since even trace amounts of a conflict mineral is unacceptable.

But getting access to smelters, particularly in war-torn areas such as the DRC, can be a thorny issue, Sharland says.

“Some of these guys who have control over mines are armed to the teeth and take a dim view of people going in there and telling them what to do,” he tells Ward’s. “So there are practical concerns about how we’re going to do that.”

And once the smelting process is complete, it’s practically impossible to detect potential conflict minerals, Sharland adds. “It’s extremely difficult to do even with chemical analysis.”

Compounding the problem is that new, technologically advanced vehicles greater amounts of the so-called conflict materials, driving up demand.

Rare-earth minerals increasingly are used in modern vehicles equipped with advanced batteries.

“Now there are rare-earth shortages and 92% (of the supply) is in China,” Sharland says.

Ultimately, AIAG is attempting to address the problem by developing a common protocol that will enable its member companies to trace a part’s development from the beginning of the supply chain.

“OEMs are taking a more proactive approach to do their due diligence to understand what’s happening at the sub-tier level (suppliers),” Tanya Bolden, AIAG program manager of corporate responsibility, tells Ward’s. “And we’re taking the holistic approach in how we develop reporting tools that we can use.”

Once guidelines are established, they will be filtered down to all supplier tiers.

AIAG has turned to other industries, including electronics, for assistance in crafting mineral-tracing procedures, Sharland says. “They’re a little bit ahead of us, so we’re closely engaged with them to understand the processes and practices they have in place,” he says.

According to the Geneva-based International Labor Organization, more than 250 million children worldwide are working in occupations “detrimental to their physical, mental and emotional well-being.”

The ILO also estimates 2 million work-related fatalities and 330 million work-related accidents occur each year. For instance, it says 2,631 coal miners died in 1,616 accidents in China last year.

Meanwhile, other metals used in automotive production, other than conflict minerals, also are in short supply.

According to Reuters, prices of automotive metals such as germanium, selenium and molybdenum oxide are skyrocketing as demand outpaces supply.

“Unlike two years before, this year everybody is crazily concluding long-term contracts to secure raw materials,” a commodity trader tells the news service. “They are expecting fairly normal production, close to capacity (next year) and for this, they need to secure material.”

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