Coltan from Central Africa, International Trade and Implications for Any Certification !

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Coltan from Central Africa, International Trade and Implications for Any Certification ! ! ! Raimund Bleischwitz, Monika Dittrich, Chiara Pierdicca Coltan from Central Africa, international trade and implications for any certification ! Originally published as: Raimund Bleischwitz, Monika Dittrich, Chiara Pierdicca (2012): Coltan from Central Africa, international trade and implications for any certification In: Resources Policy, 37, 1, 19-29 DOI: 10.1016/j.resourpol.2011.12.008 ! ! ! Raimund Bleischwitz a,*, Monika Dittrich, Chiara Pierdicca b Coltan from Central Africa, international trade and implications for any certification Case Study a Wuppertal Institute for Climate, Environment and Energy, Germany b College of Europe, European Economic Studies Department, Belgium * Corresponding author: Raimund Bleischwitz, Wuppertal Institute for Climate, Environment and Energy, Döppersberg 19, 42103 Wuppertal, Germany E-mail: [email protected] Phone: +49-(0)202-2492-256 Fax: +49-(0)202-2492-108 ! Raimund Bleischwitz,1 Monika Dittrich, Chiara Pierdicca+ !"#$%&'()"*!!"#$%&'()*%+,&!"#$%&'$(%#)$(*"%'(+&"($+"#!"#$%&'$()*+,(-+ !"#$%&'()*)%!()+"! !"#"$%"&'()*'()++*',##"-."/'01&'-2%34#,.415'45!"#$%&'()$%"*&+,)-"6738"94"&*':;<",&'4$-,#.' 0,#.1&'+=+>)?' Abstract The exploitation of coltan in Central Africa can be considered a case of conflict minerals due to its nature. Many international organizations and bodies, national governments and private sector or- ganizations seek to address this conflict, in particular via transparency, certification and accounta- bility along the material supply chain. This paper analyses the international trade dimension of coltan and gives evidence on the dimension of illicit trade of coltan. The authors start from the hypothesis that illicit trade of coltan sooner or later will enter the market and will be reflected in the statistics. The paper is structured in the following manner: first, a short section gives a profile of coltan production and markets; second, an overview of the mining situation in the Democratic Republic of Congo (DRC) and related actors. The third section addresses mechanisms, actors and measurement issues involved in the international trade of coltan. The final part draws lessons for certification and conflict analysis and offers some guidance for future research. The paper identifies two main possible gateways to trace illegal trade in coltan: the neighboring countries, especially Rwanda, and the importing countries for downstream production, in particu- lar China. Our estimation is that the value of such illicit trade comes close to $ 27 million annually (2009), roughly one fifth of the world market volume for tantalum production. With regard to any certification the paper concludes that this will become challenging for business and policy: (a) Central Africa currently is the largest supplier of coltan on the world market, many actors profit from the current situation and possess abilities to hide responsibility; (b) China will need to accept more responsibility, a first step would be the acceptance of the OECD guidelines on due diligence; (c) better regional governance in Central Africa comprises of resource taxation, a resource fund and fiscal coordination. An international task force may provide more robust data, however more research will also be needed. Keywords: coltan, certification, central africa, raw materials conflict, international trade JEL-Code: F14, K42, N50, O19, Q33 1 Corresponding author, address: Wuppertal Institute for Climate, Environment and Energy, Döppersberg 19, 42103 Wuppertal, Germany, email: [email protected]. We wish to thank Gudrun Franken, Philip Schütte, Frank Melcher (all BGR), John F. Papp (USGS), Natalie Harms, and Stacy VanDeveer as well as an anonymous reviewer for useful comments; Raimund Bleischwitz appreciates support from the Transatlantic Academy in Washington DC in 2011-12. + College of Europe, Bruges/Belgium. 1 ./0(&1')0,&/" Coltan mining in Central Africa and especially in the Eastern Kivu region of the Democratic Republic of Congo (DRC) has often been viewed as a case for a conflict over the control of raw materials in a fragile state2. Although the DRC see to advance in some key areas lately, e.g. in macro-economic management, education enrolment or improving drinking water sup- ply (UNEP, 2011), it remains one of the poorest countries world-wide (UNDP, 2011). Rebel groups and others go on fighting over access to minerals and profit from illicit trade, and the state still fails to provide sufficient social order resulting in unchecked criminal activities. The easy access to coltan and other minerals, combined with weak property rights in a country with weak basic institutions and a long history of civil war, and a high demand on world mar- kets can be assumed as main determinants of insecurity and conflicts, especially in the eastern Congo (Nest 2011: 71ff.). There is a clear pledge for international action from various sides. The United Nations have established evidence and given recommendations by means of several Expert reports. The most recent one (S/2010/596) and the ensuing UN Security Council resolution (S/RES/1952) of late 2010 call on governments, markets and companies to establish sound systems of sup- ply chain management as well as to impose asset freezes and travel bans for groups and indi- viduals involved in the conflict. In a similar spirit, the G8 resolution of Heiligendamm has started a process to establish certified trading chains in minerals production (CTC); a first activity has been the development of a new geochemical method called ‘Analytical Finger- printing’ (AFP) since 2006 that will allow exact pinpointing of the extraction source of a min- eral used in products. Initiatives have also been taken by the private sector aiming at transpar- ency and improving the traceability along their supply chains. The annex of this paper con- tains a number of such initiatives. Needless to say, however, all these initiatives are voluntary, pledges and the few commitments are not yet implemented. The willingness to take serious action seems low compared with the pressing situation. However the Dodd-Frank Act in the USA3 proposes registration requirements for conflict minerals including coltan from that re- gion. In Europe, the European Commission has quite recently introduced a similar proposal4 for a country-by-country reporting for large listed and unlisted companies in the extractive and logging sectors. In order to learn more about the challenges towards transparency and certification, it is the intention of this paper to analyse the international trade dimension of this conflict. The au- thors acknowledge the work that has been done to analyse the regional conflict and to provide evidence for an involvement of different actors. Doing new analysis on the Kivu region how- ever is beyond the scope of this paper. Based on latest findings and focussing on the interna- tional trade dimension, our paper raises the thesis that any certification scheme is faced with a number of challenges. In doing so we address the following issues: What is the dimension of illicit trade? What actors are involved in the international supply chain? What levels of gov- ernance need to be addressed? With evidence on the significant amount of illicit trade and the heterogeneity of actors we conclude on activities that would (a) strengthen the institutional 2 According to the World Bank, fragile states are low-income countries scoring 3.2 and below on the Country Policy and Institutional Assessment (CPIA). The term is used for countries with weak institutional capacity, poor governance, and political instability (World Bank 2009). One also finds the term ‚failing states‘ in the literature; however this indicates a trend towards failing and given some progress in the DRC lately we prefer the term fragile state for the DRC. Stewart and Brown (2009) view the DRC among the worst performers with failure on two dimensions: lack of (1) authority to protect the citizens from violence and (2) provision of access to basic services, with clear implications in terms of poverty reduction. An exhaustive literature review on State fragility is provided in Hannan and Besada (2007). 3 http://www.sec.gov/spotlight/dodd-frank.shtml 4 http://ec.europa.eu/internal_market/accounting/other_en.htm 2 robustness of certification and (2) accompanying governance mechanisms that deem neces- sary. These issues will be addressed in the following manner: the next two sections will give brief and up-to-date overviews about coltan markets and the mining situation in the DRC. A subse- quent section will deal more extensively with international trade of coltan. It addresses mech- anisms, actors and measurement issues. The last part will draw lessons for certification scheme and better resource governance and offers some guidance for future research. Going beyond coltan, a study by the World Economic Forum (2011: 23) refers to illicit trade of minerals in general as a major geopolitical risk with a market size of some US $ 20,000 million annually. Thus we believe that such research is of relevance and part of a larger agen- da on resources policy, international economics and sustainable resource management. *(&2,+,/3")&+04/" Coltan is a term commonly used to refer to columbite-tantalite, a mineral extracted in Central Africa and belongs to a group that is internationally known as tantalum.5 This element of the 5th group of the 6th period of the chemical periodical system occurs in the Earth crust with a share of roughly 2 ppm (parts per
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