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North Korea: Witness to Transformation

More Grist for the Sanctions Mill

by | June 6th, 2014 | 07:30 am

In the past decade Anglophone NGO activists have managed to elevate natural resource governance issues to the center of the international political agenda, spearheading the Kimberley Certification Process Scheme on conflict diamonds, the Extractive Industries Transparency Initiative initially in oil and mining, and most recently the Conflict Minerals Trade Act (CMTA), addressing the role of conflict minerals in mass violence in the Eastern Congo and the Great Lakes region more generally. North Korea’s minerals trade is now coming under scrutiny.

As Cullen Hendrix and I discuss in our book, Confronting the Curse: the Economics and Geopolitics of Natural Resource Governance, released earlier this week, the relative success of the Kimberley Process in mitigating the horrors of conflict diamonds  encouraged an NGO campaign called the Enough Project to begin agitating in 2007 for a similar system , mobilizing Western consumers to pressure electronics firms over the inputs used in their devices.

The Conflict Minerals Trade Act was originally introduced in the US Senate in 2009 by Sen. Sam Brownback (R-KS) and in the House by Rep. Jim McDermott (D-WA) along with 56 co-sponsors, including Rep. Frank Wolf (R-VA). The legislation passed the Senate but stalled in the House. When the Dodd-Frank Bill came up for consideration, Brownback and Wolf were able to get their proposal inserted as an amendment. The bill was approved and signed into law by President Obama with the Conflict Minerals Trade Act included as Section 1502.

The law requires firms to submit public reports to the Security and Exchange Commission (SEC) describing the measures undertaken with respect to due diligence regarding sourcing and chain of custody of potential conflict minerals together with a certified, independent, SEC-compliant audit. Violations are subject to penalties meted out by the SEC.

Four specific minerals were identified in the legislation, though the legislation allows the State Department to expand the list if necessary. The four minerals are:

  • Columbite-tantalite, also known as coltan, is a corrosion resistant conductor of heat and electricity, used particularly in capacitors for cell phones, automobile electronics, computers, and digital cameras;
  • Cassiterite (tin oxide), another corrosion-resistant conductor used in a variety of products including an increasing array of electronics goods;
  • Wolframite (tungsten ore) is used in a variety of industrial applications requiring hard, high-density, high-melting point products, and is also used in some semiconductors and cell phone parts; and
  • Gold, which has a variety of uses, including jewelry.

Sometimes these metals are collectively known as 3Ts (tantalite or tantalum, tin, tungsten), or, if gold is included, 3TG. While these minerals constitute a significant portion of the economy of the eastern Congo, there are alternative sources of supply for the 3Ts, including significant deposits in Australia, the United States, and Brazil, and as we were reminded this week, North Korea.

As Jamila Trindle reports on FP.com, when the first set of supply chain reports were submitted to the SEC, a broad swath of American firms reported supply chain involvement with North Korea, mostly via smelting operations of minerals subsequently incorporated into intermediate inputs produced in China or simply traded internationally as gold bullion. IBM, for example, reported that North Korean gold was used to make its memory-storage systems, according to Joel Schectman in the Wall Street Journal.

The House Foreign Affairs Committee recently reported out the “North Korea  Sanctions Enforcement Act.” The proposed legislation currently has no Senate sponsors, but if North Korea were to do something nasty (like a fourth nuclear test) I’m sure that Congressman Royce would not have trouble finding some. In the financial sector, the proposed legislation already uses the Patriot Act to put foreign counterparties of North Korean entities under the microscope and it is not hard to imagine the Senate adding similar provisions emanating from the CMTA/Section 1502. The House would probably be happy to go along in conference.