Many people in the fashion industry have kept a close eye on the developing Conflict Mineral debate, which could potentially have a big impact on certain sectors of the garment and accessories business.
Recent legislative changes, specifically the “Dodd-Frank Act,” seek to put an end to the trade in so-called Conflict Minerals. Defined as “all gold, wolframite, columbite-tantalite and cassiterite, or their derivatives (e.g., tungsten)” originating in the Democratic Republic of the Congo or adjoining countries.
The fear is that the mining and sale of these Conflict Minerals is “helping to finance conflict characterized by extreme levels of violence in the eastern Democratic Republic of the Congo (DRC), particularly sexual and gender-based violence, and contributing to an emergency humanitarian situation.”
While there is no doubt that the situation in the DRC is increasingly untenable, there is some debate as to whether the recent legislation, as written, will help to alleviate the social and environmental woes in Central Africa. In fact, some feel the new rules will adversely affect companies from a number of manufacturing sectors, while doing little to curb the humanitarian crisis at hand.
Under the law, companies that already file annual reports with the Securities and Exchange Commission (SEC) will have to disclose whether or not their products contain conflict minerals. Companies would be required to submit reports that describe due diligence measures used to determine whether or not any of their gold or tungsten has been sourced from the conflict regions. For those companies that source from the DRC or adjoining countries, the reports would be independently audited, filed with the SEC and posted on the company’s website.
The Fashion Jewelry and Accessories Trade Association (FJATA), and other trade organizations, have jointly submitted comments to the SEC, regarding its proposed rules for the implementation of the conflict minerals ban. FJATA/conflict-minerals
Among other issues, the FJATA says that it is impossible to trace the country of origin of recycled/scrap minerals. Gold derived from recycled and scrap materials constituted approximately 40% of the world gold supply in 2009. The original geographic location of extraction cannot be determined for recycled gold since it is produced from old jewelry, or the scrap material captured during the refining or manufacturing processes. In addition, there are large inventories of existing gold stock now in the hands of refineries, manufacturers, banks and other links in the global supply chain that will be virtually impossible to trace. Due to verification difficulties, most public companies covered by the Commission’s rules will only be able to report that they are “unable to determine” the source of their gold and tungsten. It may take at least two or three years, according to the FJATA, for jewelry and watch companies to develop reliable, auditable diligence systems.
Consumers in the jewelry market are increasingly aware of social and environmental compliance issues, and any company fitted with an “unable to determine” label may experience a very negative backlash, and take a hit to their image and reputation, whether or not they are sourcing their raw materials in the DRC.
Other sectors will be impacted as well. Fashion, footwear and garment makers who use metal buttons, metallic coatings, or other incidental components will be subject to the Dodd-Frank Act as well. This legislation will create a whole new set of data tracking requirements for companies that may have only a tangential relationship to the Conflict Mineral market. Conflict Minerals Regulations
Since there is little chance of a complete repeal of the Dodd-Frank Act, this is a subject that American manufacturers will have to come to grips with in the very near future. For many, it will mean collecting, collating and analyzing a mountain of raw data that was previously considered inconsequential. It is possible that some smaller businesses will simply fold, or completely refocus their manufacturing process so as to avoid being subject to the new legislation.
For those who must verify compliance, there will be serious data tracking requirements. And with severe fines, corporate reputation, and public image on the line, there is no room for error. Excel spreadsheets will probably be insufficient for the task. It is likely that any jewelry or accessory manufacturer that is not already utilizing a PLM software system will soon be looking into a PLM investment to track their compliance, and protect their business.
In today’s regulatory climate, businesses must be proactive about compliance measures and verifiability requirements. Without a centralized way to collate and review that data, they risk major fines and possibly even legal action by the government. Without a well-implemented PLM system in place, the task seems almost impossible. So, if your company uses any kind of metal, be it gold, tungsten or tin, it may be time to investigate a Product Lifecycle Management system, specifically one that has a proven track record and a high implementation success rate.
By JW Yates
New York City