The Detroit News editorializes on the new rules required by the Dodd-Frank financial regulation law to require publicly traded companies to report their use of select minerals that might come from the regions of Africa involved in the Congo war. The paper analyzes  “Another burden on automakers,” with the secondary headline, “Demanding the industry trace the origin of the metal used in car parts adds billions in costs”:

Proposed new rules requiring manufacturers — in particular auto parts suppliers — to identify the origin of some of the common minerals in their products could impose heavy additional costs on an industry that’s just now getting its head above water. The well-meaning goal of the rules is to limit the use of minerals from war-ravaged central Africa, but the expense could impose additional hardships here….

Rick Goss of the U.S. Information Technology Council, at a meeting on the issue in Washington last month, reportedly called the law a “sledgehammer” that could create what amounts to an embargo on mineral products from a major portion of Africa. Once the metal is refined in smelters, Goss was quoted as saying, there is no way of identifying the country of its origin. The only way to the assure the SEC that the metals don’t come from central Africa, he said, is to refuse to do business with anyone “who touches central Africa,” the Voice of America reported….

The law ought to be repealed. The auto industry and its suppliers shouldn’t be encumbered with the duty of solving the internal problems of central Africa.

At the very least, any regulations ought to allow manufacturers to report minerals as of an “indeterminate origin” until they are able to develop techniques for tracing and indentifying the raw materials in a more cost effective manner.

The National Association of Manufacturers submitted formal comments (here) to the Securities and Exchange Commission on March 2, estimating it will cost industry $9-16 billion to put the new regulations into effect.

The Detroit News reports, “Suppliers warned about ‘conflict minerals’“:

Washington — New disclosure rules for minerals from war-torn Africa could impose a major burden on auto suppliers.

Six of the largest automakers have warned suppliers to prepare for federal regulations requiring them to disclose whether they use “conflict minerals” in auto parts.

The joint letter from the heads of purchasing from General Motors Co., Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. told suppliers that the rule will require them to disclose the use of minerals from the Democratic Republic of the Congo and neighboring countries.

Conflict minerals are defined as tin, tantalum, tungsten, or gold. The Dodd-Frank Wall Street Reform and Consumer Protection Act required the Securities and Exchange Commission to propose regulations to require public companies to supply detailed reporting of their conflict mineral controls and sourcing. Challenged by the difficulty of the task — consider the complexity of global supply chains — the SEC recently delayed implementation of the rule until the second half of this year.

The National Association of Manufacturers submitted formal comments (here) to the SEC on March 2, estimating it will cost industry $9-16 billion to put the new regulations into effect and urging the SEC and Obama Administration to conduct a more rigorous analysis of the costs. The impact on supply chains — so important to the auto industry — is a key concern. As the NAM summarized in a briefing document for the SEC:

While the new reporting mandate only applies to companies required to report to the SEC, we expect these requirements will rapidly be passed through the entire supply chain. The requirements will effectively force suppliers not subject to SEC reporting to maintain extensive records of their source materials, costing them thousands of dollars to establish and maintain these records. The NAM believes that the proposed rule is a significant rulemaking and will cost U.S. industry between $9-16 billion to implement.

This memo from Dykema Gossett addresses the central issues, as well: “Conflict Minerals Act will have widespread impact on global supply chain.”

From a letter to Congress from the Coalition to Preserve Arbitration, which includes the National Association of Manufacturers:

The undersigned members of the Coalition to Preserve Arbitration strongly oppose the anti-arbitration provisions in S. 3217, the “Restoring American Financial Stability Act of 2010.” These unnecessary and unwarranted provisions will harm consumers and investors, while doing nothing to protect the strength and stability of the financial system. Therefore, we urge you to oppose these anti-arbitration provisions.

S. 3217 would authorize both the Securities and Exchange Commission (SEC) and newly created Consumer Financial Protection Bureau to regulate and even prohibit the use of arbitration in the securities and consumer financial products industries. See Secs. 921, 1028. In so doing, the bill threatens a time-honored dispute resolution system that allows investors and consumers to bring many financial claims that would otherwise be too costly to pursue in court.

The full list of supporting organizations that joined the letter:

American Bankers Association
American Financial Services Association
American Health Care Association
American Tort Reform Association
Assisted Living Federation of America
Auto Alliance
Consumer Bankers Association
International Franchise Association
International Institute for Conflict Prevention & Resolution
National Association of Home Builders
National Association of Manufacturers
Property Casualty Insurers Association of America
Securities Industry and Financial Markets Association
The Financial Services Roundtable
U.S. Chamber Institute for Legal Reform
U.S. Chamber of Commerce

On Jan. 27, the Securities and Exchange Commission (SEC) voted 3-2 to issue interpretive guidance instructing publicly traded companies to inform investors of the possible material impact of governmental reactions to possible climate change. In a statement, SEC Chairman Mary Schapiro said, “We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. Today’s guidance will help to ensure that our disclosure rules are consistently applied.” According to the SEC’s news release, the four areas that companies must take into account are:

• Impact of Legislation and Regulation
• Impact of International Accords
• Indirect Consequences of Regulation or Business Trends
• Physical Impacts of Climate Change

Commissioner Kathleen Casey, a Republican, strenuously objected: “I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection.” For the other commissioners’ statements, go to the SEC statement page.

There’s no doubt the SEC’s disclosure requirements will exacerbate the reputational risk that the litigation industry seeks to exploit, creating another point of attack in the public relations campaigns that now accompany high-profile environmental lawsuits. James Freeman, a Wall Street Journal editorial writer, called the guidance “a litigation breeder” that would consume SEC time and resources best spent on real priorities. (See WSJ News Hub video.) The New York Times summarized in a predictable editorial, “The commission, which took pains to say that it was not expressing an opinion on whether the world’s climate was changing, has long required companies to reveal financial or legal impacts from other environmental challenges — potential liabilities under the Superfund law or the Clean Water Act, for instance. It has also been petitioned by investor groups and environmentalists to add climate change to the list of those challenges.”

Yes, and that list of petitioners includes familiar promoters of litigation shakedowns against business: The California Public Employees’ Retirement System (CalPERS), Environmental Defense Fund, Friends of the Earth, California Treasurer Bill Lockyer, and New York Attorney General Andrew Cuomo among others. (The Ceres investment group, CalPERS and the Environmental Defense Fund issued a joint news release and Pax World Management also praised the SEC.) See their original petition (Sep. 18, 2007) to the SEC, and the Supplemental petition (Jun. 12, 2008).

Freeman suggests the Obama Administration is trying to achieve through its executive branch appointments what it cannot achieve in Congress, that is, implementation of regulatory regime to control greenhouse gas emissions. Probably so. What’s not subjec to dispute is that the SEC guidance will impose additional costs on companies, draw SEC resources away from other, more pressing enforcement needs, and serve the interests of the litigation industry.

• Washington Post, SEC to require disclosure of climate change risks
• Wall Street Journal “SEC Votes for Corporate Disclosure of Climate Change Risk”