[House Hearing, 112 Congress] [From the U.S. Government Publishing Office] THE COSTS AND CONSEQUENCES OF DODD-FRANK SECTION 1502: IMPACTS ON AMERICA AND THE CONGO ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY AND TRADE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS SECOND SESSION ---------- MAY 10, 2012 ---------- Printed for the use of the Committee on Financial Services Serial No. 112-124 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] THE COSTS AND CONSEQUENCES OF DODD-FRANK SECTION 1502: IMPACTS ON AMERICA AND THE CONGO ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY AND TRADE OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS SECOND SESSION __________ MAY 10, 2012 __________ Printed for the use of the Committee on Financial Services Serial No. 112-124 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] U.S. GOVERNMENT PRINTING OFFICE 75-730 PDF WASHINGTON : 2013 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES SPENCER BACHUS, Alabama, Chairman JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts, Chairman Ranking Member PETER T. KING, New York MAXINE WATERS, California EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois RON PAUL, Texas NYDIA M. VELAZQUEZ, New York DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York JUDY BIGGERT, Illinois BRAD SHERMAN, California GARY G. MILLER, California GREGORY W. MEEKS, New York SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York JOHN CAMPBELL, California JOE BACA, California MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina KEVIN McCARTHY, California DAVID SCOTT, Georgia STEVAN PEARCE, New Mexico AL GREEN, Texas BILL POSEY, Florida EMANUEL CLEAVER, Missouri MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin Pennsylvania KEITH ELLISON, Minnesota LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana BILL HUIZENGA, Michigan ANDRE CARSON, Indiana SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware ROBERT HURT, Virginia ROBERT J. DOLD, Illinois DAVID SCHWEIKERT, Arizona MICHAEL G. GRIMM, New York FRANCISCO ``QUICO'' CANSECO, Texas STEVE STIVERS, Ohio STEPHEN LEE FINCHER, Tennessee James H. Clinger, Staff Director and Chief Counsel Subcommittee on International Monetary Policy and Trade GARY G. MILLER, California, Chairman ROBERT J. DOLD, Illinois, Vice CAROLYN McCARTHY, New York, Chairman Ranking Member RON PAUL, Texas GWEN MOORE, Wisconsin DONALD A. MANZULLO, Illinois ANDRE CARSON, Indiana JOHN CAMPBELL, California DAVID SCOTT, Georgia MICHELE BACHMANN, Minnesota ED PERLMUTTER, Colorado THADDEUS G. McCOTTER, Michigan JOE DONNELLY, Indiana BILL HUIZENGA, Michigan C O N T E N T S ---------- Page Hearing held on: May 10, 2012................................................. 1 Appendix: May 10, 2012................................................. 45 WITNESSES Thursday, May 10, 2012 Calder, Bruce, General Manager, Claigan Environmental Inc........ 22 Dizolele, Mvemba Phezo, Distinguished Visiting Fellow, Hoover Institution on War, Revolution and Peace, Stanford University.. 9 Lamar, Stephen, Executive Vice President, American Apparel & Footwear Association........................................... 18 Lola, The Most Reverend Nicolas Djomo, Bishop, Diocese of Tshumbe, the Democratic Republic of the Congo; and President, Catholic Bishops' Conference, the Democratic Republic of the Congo.......................................................... 21 Pudles, Steve, Chairman, Board of Directors, IPC--Association Connecting Electronics Industries; and Chief Executive Officer, Spectral Response LLC.......................................... 17 Seay, Laura E., Assistant Professor of Political Science, Morehouse College.............................................. 13 Vargo, Franklin, Vice President, International Economic Affairs, National Association of Manufacturers (NAM).................... 15 APPENDIX Prepared statements: Manzullo, Hon. Donald........................................ 46 McDermott, Hon. Jim.......................................... 48 Waters, Hon. Maxine.......................................... 50 Calder, Bruce................................................ 52 Dizolele, Mvemba Phezo....................................... 158 Lamar, Stephen............................................... 169 Lola, The Most Reverend Nicolas Djomo........................ 174 Pudles, Steve................................................ 179 Seay, Laura E................................................ 187 Vargo, Franklin.............................................. 193 Additional Material Submitted for the Record Miller, Hon. Gary G.: Written statement of the Automotive Industry Action Group (AIAG)..................................................... 213 Written statement of Kennametal Inc.......................... 215 ``A Critical Analysis of the SEC and NAM Economic Impact Models and the Proposal of a 3rd Model in view of the implementation of Section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act,'' prepared by Chris Bayer, Tulane University, dated October 17, 2011..... 218 Written statement of the Retail Industry Leaders Association (RILA)..................................................... 254 Written statement of the SBA Office of Advocacy.............. 258 Written statement of the U.S. Chamber of Commerce............ 261 McCarthy, Hon. Carolyn: Written statement of Ntama Byalira Bahati (Jacques), Africa Faith and Justice Network Policy Analyst................... 263 Written statement of Bennett Freeman, Senior Vice President, Sustainability Research and Policy, Calvert Investments.... 267 Written statement of Peter Rosenblum, Columbia Law School.... 268 Written statement of Earthworks.............................. 270 Written statement of The Enough Project...................... 272 Written statement of Free the Slaves......................... 276 Written statement of Global Witness.......................... 278 Written statement of David Schatsky, Principal Analyst/ Founder, Green Research.................................... 280 Written statement of the International Corporate Accountability Roundtable (ICAR)........................... 283 Written statement of the Social Investment Forum (SIF)....... 286 Written statement of the National Association of Evangelicals (NAE)...................................................... 298 Written statement of Hon. Howard L. Berman, a Representative in Congress from the State of California................... 299 Written statement of SYNERGIE, A Platform of 35 Women's Rights Groups Standing up for Victims of Sexual Violence... 301 Written statement of STAND................................... 303 Written statement of the Group of Experts on the Democratic Republic of Congo.......................................... 305 Written statement of United to End Genocide.................. 308 McDermott, Hon. Jim: Partial list of companies going conflict free................ 310 Executive Order 13126 and the List of Forbidden Products for Federal Acquisition Starting in 2001....................... 314 Partial transcript of a Foreign Affairs Committee Markup held on April 28, 2010.......................................... 317 List of States, Cities, and Companies going conflict free.... 349 Waters, Hon. Maxine: supplychain article.......................................... 350 Dizolele, Mvemba Phezo: ``The Democratic Republic of Congo: Taking a Stand on Security Sector Reform''................................... 351 THE COSTS AND CONSEQUENCES OF DODD-FRANK SECTION 1502: IMPACTS ON AMERICA AND THE CONGO ---------- Thursday, May 10, 2012 U.S. House of Representatives, Subcommittee on International Monetary Policy and Trade, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 10:04 a.m., in room 2128, Rayburn House Office Building, Hon. Gary G. Miller [chairman of the subcommittee] presiding. Members present: Representatives Miller of California, Dold, Manzullo, Huizenga; McCarthy of New York, Moore, Carson, and Scott. Also present: Representatives Waters, Miller of North Carolina, and McDermott. Chairman Miller of California. This hearing will come to order. Without objection, all Members' opening statements will be made a part of the record. I ask unanimous consent that Mr. Miller of North Carolina, a member of the Financial Services Committee, be permitted to sit as a member today of the Subcommittee on International Policy and Trade for the purpose of delivering a statement, hearing testimony, and questioning the witnesses. We are limiting the opening statements to 10 minutes. And I believe Mr. McDermott has shown up. Would you like to be heard today also? Unless the Minority side objects, I think we can agree to that. Without objection, it is so ordered. We have agreed the opening statements will be 10 minutes on each side. I will start with my opening statement. Today's hearing is entitled, ``The Costs and Consequences of Dodd-Frank Section 1502: Impacts on America and the Congo.'' This hearing will explore the impact Section 1502 will have on American companies and whether or not it will have a desired effect of reducing violence in the eastern region of the Democratic Republic of the Congo (DRC). The hearing comes a bit late, in my opinion, as a law was passed prior to any congressional hearing on this matter--no legislative hearings were held on the requirement to contain the Section 1502 before it was enacted. In fact, this provision was added in the middle of the night by the Dodd-Frank conference committee between the House and the Senate. The House never passed any bill or held any hearings or explored the issue of the policy provisions that were ultimately included in the Dodd-Frank Act. Congress did not have an opportunity to consider the sections implemented and whether it would help in the conflict in the DRC, and what effect it would have on the DRC and the companies and minerals and manufactured goods that come from this area and go to regions and manufacturers in the United States. Although bills similar to Section 1502 were introduced earlier, they were never heard. So we are going to do the legislative due diligence that should have happened then. This is what the American people expect of us, and is absolutely critical in this very important issue. We owe it to the American companies. We owe it to the people of the Congo to ensure that policies we pass have the intended consequences and don't have unintended consequences, as we are hearing are happening today. While it is puzzling to me that Section 1502 falls completely outside the scope of the Dodd-Frank Act, that legislation was passed as a result of the financial crisis to add stability to the financial system. Section 1502 does nothing to ``provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, or to regulate over-the- counter derivatives markets,'' which were the stated purpose of the Dodd-Frank Act. Section 1502 does nothing to address the cause of the financial crisis. Additionally, Section 1502 will cause regulation by the SEC. This is a complex matter beyond the SEC's normal area of expertise. The SEC's mission is to protect investors; maintain fair, orderly, and efficient markets; and to facilitate capital formations. This Section does not protect investors or provide information about the financial health of companies. So development of this well-intended law--and I will say it was a well-intended law--seems quite irregular. And its impacts on companies are expected to be massive. We have been hearing from a number of companies and trade associations expressing concern about the costs and magnitude of this provision. Now is not the time to be placing additional burden on the American companies. I am incredulous that Congress would pass a mandate down on businesses that the National Association of Manufacturers estimates to be between $9 billion and $16 billion. While the provision only applies to the SEC-listed companies, the truth is it will affect non-SEC companies and small businesses all over this country. Companies like Kraft Foods, over 100,000 suppliers and 50,000 products that contain those minerals, not necessarily from the region, but if the those minerals are included, they have to review them as if they were from that region. And it is a system where you have to prove yourself innocent, not simply prove you are not guilty. You have to prove that none of those minerals came from that region, which is a very expensive process, and it is a process that is going to be difficult to implement. There are over a million parts in a Boeing plane supplied by almost as many suppliers that include these minerals. These suppliers are small businesses and they are job creators in this country. I am going to be very clear to my colleagues. This hearing is about denying or downplaying the violence in the eastern Congo because it is massive and it needs to be dealt with. Just because a law is enacted with good intentions and is meant to address human rights abuses does not mean the law is the right approach to fixing the problem. The costs of implementing a law are still relevant even when the law is meant to address human rights issues. So today's hearing is about the consequences of this law on American companies, which must comply with it. We also want to learn how Section 1502 is having its intended effect of helping to reduce violence in the Congo. And if it is helping to reduce the violence, we want to know that. But if it is not, and it is adding to unemployment and the burden on those people, we also want to know that. During the NCC roundtable on Section 1502, and based upon reports coming out of the Congo from the United Nations, Section 1502 may have had the unintended consequence of creating a de facto embargo on the conflict material minerals covered in this section: tin; tantalum; tungsten; and gold. Companies that source these minerals are now sourcing them elsewhere, to the detriment of legitimate mining companies in the rest of the Congo. This de facto embargo not only affects the Congo, but Section 1502 also includes the Congo's neighboring states. The de facto embargo has apparently spread to much of central Africa. We are also told that the de facto embargo has spawned a growing black market trade in these minerals, which we have heard are going to China. This hearing is not to say that what is going on there in human rights is not a problem; it is. But our concern is, are we hurting the people that we say in this legislation we are trying to help? I yield back the balance of my time and recognize the Ranking Member, Mrs. McCarthy. Mrs. McCarthy of New York. Thank you, Mr. Chairman. And thank you for having this hearing. It is very important that we discuss what is going on in the Congo. The conflict that has plagued the eastern divisions of the Democratic Republic of the Congo, or the DRC, began over a decade ago. There are many factors that contribute to the political instability, fueling the conflict in that particular region, such as ongoing human rights abuses, widespread poverty, and constant conflict over control of state agencies and fiscal resources. Armed groups continue to compete for dominance over land rights, agriculture commodities and mineral reserves, and mining and trade. Conflict minerals in the eastern DRC region are mined under extremely poor and dangerous labor conditions in mines that are controlled by armed groups and state security force elements. The main minerals at issue are referred to as the ``3 TGs,'' as the chairman had mentioned: tin; tantalum; tungsten; and gold. These minerals are used to manufacture products ranging from electronics and cellphones to food containers and jet parts. The sales of these minerals provide direct and indirect profit to the controlling armed groups and allow them to grow and extend their reach. The Congo conflict and instability has been a constant focus in Congress through hearings and legislation aimed to mitigate the factors fueling the conflict, particularly between trade and the conflict in the DRC. One such effort is a provision included in the Dodd-Frank Act, Section 1502, that requires SEC-regulated firms that use the ``3 TGs'' in products to publicly report whether those minerals are from the DRC. And if so, what due diligence standards they exercise to ensure that the purchases do not benefit armed groups. The SEC issued a proposed rule in December 2010 and the final rule should have followed in April 2011. However, due to the complexity of this issue they have repeatedly extended the commentary period, causing a delay in final adoption. Absent a final rule, there has been progress on conflict mineral migration strategies in several ways. For example, the creation of the conflicts smelter program, which supports conflict-free mineral processing through a vetting system that evaluates and confirms that they are clean minerals. As well, the Department of State and the USAID launched a public/private alliance for responsible mineral trades made up of nonprofits and industry trades to help establish a credible broad spectrum conflict-free minerals supply chain system. Industry associates and individual companies have piled the due diligence programs based off of the OECD guidance that provides recommendations for supply chain and a code of conduct for sourcing minerals from these conflicts areas. I am hopeful that today's hearing will provide a constructive conversation on overall compliance of Section 1502, as well as the benefits the provision has had on the DRC region thus far, absent a final rule. I thank all the witnesses for being here. And I know some of you have certainly traveled a long distance to be here. I would also like to commend Representative McDermott, as well as the members of the full Financial Services Committee, for participating in this hearing. The Members joining us today have been leaders on human rights and good governance issues, and I look forward to their participation. Mr. Chairman, I ask unanimous consent to submit into the record a number of statements and letters from human rights, religious, and civic society groups, and investor interests, as well as a statement from Foreign Affairs Committee Ranking Member Howard Berman. All of these organizations support a strong and quick implementation of Section 1502. Thank you. And with that, I yield back my time. Chairman Miller of California. Without objection, it is so ordered. Mr. Manzullo is recognized for 2 minutes. Mr. Manzullo. Thank you, Mr. Chairman, for holding this hearing. I only wish we would have had a similar legislative hearing on this topic prior to Section 1502 becoming law. As someone who also serves on the Foreign Affairs Committee, I am well aware of the situation in the eastern region of the Democratic Republic of the Congo, but I also know that oftentimes unilateral trade sanctions backfire on the very people that we try to help. In addition, Congress passed the buck to the SEC to resolve complex issues through rulemaking. We need the flexibility of this new law so that it becomes practical to implement, but still maintains the goal of the legislation. It is also in the interest of the advocacy groups, because U.S. small businesses have legal standing to challenge the SEC rule if it does not change in court, because the rule currently violates the Regulatory Flexibility Act. The SEC did not perform an adequate economic analysis on the impact of this proposed rule on small businesses. If the SEC ignores the advice of the SBA's Office of Advocacy to submit a new, more accurate, economic analysis, then the affected small businesses will successfully overturn this rule in Federal court. I am probably one of the few Members of Congress who spends 60 to 70 percent of his time on manufacturing issues, studying supply chain management sourcing. I actually went to warehousing school to determine how the final product finds its way into the showroom. And I spent my time analyzing extraction of minerals and petroleum and gas feed stocks, which are the basis of most manufacturing, all of which through export controls. With over 2,000 factories in the congressional district that I represent, many of them using tin, it is absolutely impossible for these companies to fill out a statement showing the source of the minerals that they get. You can't do it, because most are bought from brokers, and oftentimes the brokers buy these on the open market. And so, it is the type of law that has passed, well-intentioned, but nobody thought about the details, and nobody thought about the tremendous impact it is going to have upon our manufacturing sector. Thank you, Mr. Chairman. Chairman Miller of California. Thank you. Ms. Moore, you are recognized for 3 minutes. Ms. Moore. Thank you so much, Mr. Chairman. I do want to thank all of our witnesses for taking the time to come here to share your perspective on conflict minerals and ways to best implement Section 1502. And I hopefully trust that this committee supports disclosure and transparency in U.S. capital markets, and thereby the empowerment of investors to make sound investment decisions. I also trust that we share the goal to stem the plague of violence that has engulfed eastern Congo. I am so sympathetic to the industries' concerns expressed in their comment letters to the SEC regarding the rulemaking and implementation, and I share their desire to have the SEC issue a final rule. Those folks who are starting to comply with Section 1502 are already seeing successes, and we should reward those companies which are investing and complying with Section 1502. And a final rule, I think, would serve investors by providing the transparency that they expect when making an investment, to know whether or not and to what extent the companies in which they are investing rely on minerals sourced from an unstable or unreliable black market, thus making the value of those companies vulnerable to the whims of murderous warlords. When we talk about the costs of these regulations, I want to make sure that we include in that equation the full parade of horrors that have occurred in the Congo since 1996. Most are too awful to recount. But I do want to make sure we focus on the correct frame when we are discussing the costs of conflict minerals, and not just the dollars and cents and extra paperwork and extra compliance officers among our manufacturers, or the costs of extracting these materials from the ground. We are talking about some of the most wretched and vile mass abusements of humans documented today. Millions of murders and rapes, rampant instability and de facto slavery, and the loss of generations of hope and productivity. We are talking about wedding days that end in the calculated execution of the bridal party, the savage rape of the bride, and the beheading of the groom, all as a part of a larger campaign of terror to control mineral resources. This is the life in conflict mineral zones. In fact, the Democratic Republic of the Congo is the most dangerous place in the world to be a woman, we are told. I utterly reject attempts to say that 6 million lives are not factored into the costs--and the modest costs--of due diligence to outsource the war on women, or to support a notion that this committee's jurisdiction over markets does not include requiring the disclosure to investors of reliance on black market or terrorist activity. I simply reject the concept of see no evil, hear no evil, disclose no evil securities law disclosure regime within the United States. Some have suggested that conflict minerals are outside the realm of what the SEC should be worried about. They are wrong. Investor protection is absolutely the job of the SEC. The Foreign Corrupt Practices Act was enacted to protect investors and the integrity of markets. Section 1502 was enacted for the same reason and in the same spirit. The fact is that Section 1502 is working for investors and for the people of the Congo. Businesses have already moved swiftly to secure supply chains and to ensure smelters are taking care to avoid smuggled conflict materials. In fact, I understand the Conflict Smelter Program has completed the certification review process for 23 refiners, and many more are moving in that direction. Motorola, for example, is creating a closed supply chain. Chemat is also working on a closed supply chain. Kester, who supplies 50 percent of the solder wire, a major source of tin, has completed full traceability of their supply chain. Intel announced that it will have a conflict-free chip in 2013. Chairman Miller of California. The gentlelady's time has expired. Ms. Moore. Models exist. Thank you so much, Mr. Chairman. Chairman Miller of California. I yield myself 2 minutes. I think what the gentlelady has said is honest and appropriate. The problem is the Democratic Republic of the Congo is controlled by warlords and thugs. Women are still being raped when they go in the fields. You have an incredibly high unemployment rate in this region. And it is not like the United States, where if you lose your job in one town, you move to the next town to get a job. There are no jobs in the next town. So if you say we are going to shut down business opportunities for people in the Congo, then somehow we need to address whether we are hurting the very people we are trying to help by creating huge unemployment in the regions, and are we hurting the nations around the Democratic Republic of the Congo by this embargo? The problem we have is, let us take something like an order that goes into tin or gold. When an American company goes to buy something that has tin or something that has gold in it, you don't--you have to go prove in some way that none of the ore in the tin or the gold came from the Democratic Republic of the Congo. And if you can't prove that, you are guilty. That is not reasonable. Yes, there are atrocities occurring. Nobody is arguing that there aren't. Nobody is downplaying that. But does taxing American companies solve the problem in the Democratic Republic of the Congo? I question that. Do we need to do something there? Are human rights issues paramount? They absolutely are. I applaud the Bishop who is here, who knows the region, and the individuals who know the region. But to say we are going to make life more difficult for people trying to gain employment by making it more difficult for them to have a job, and then implementing this complex burden on American companies to have to prove something isn't true that they don't know even exists in a product is very difficult, too. So these are issues we need to deal with. I would be happy to yield 1 minute to Mr. Scott. Mr. Scott. Thank you very much, Mr. Miller. I am very interested in this. And I visited the Congo. I saw it firsthand. I went to heart of the matter, which is Goma. And if you have ever been to Goma, you know what I am talking about. And on that point, I would like to thank all those volunteers who go in there. The number one treatment in the hospital of Goma is not for cancer, it is not for heart disease, and it is not for tuberculosis. It is not for any of those things. The number one treatment is for sexual violence. Sexual violence, not sexual attacks, but violence against women. And this is why it is important for us, in Section 1502 of the Dodd-Frank Act, to require disclosures by all issuers who use conflict minerals in their manufacturing processes or in their products. And according to this section, companies must disclose specific due diligence, measures that they have taken to ensure that minerals that are imported from the Congo did not contribute to conflict. Chairman Miller of California. The gentleman's time has expired. Mr. Scott. Thank you, Mr. Chairman. I just urge us to be very mindful that we are still that shining city and that shining light on the hill and the world looks to us to do the right thing. And the right thing is making sure-- Chairman Miller of California. And I am not trying to cut off my good friend. He knows that. We have votes called. I want to let Mr. McDemott--we will extend your time a little bit to allow him to have 1 minute also. So I am trying to be generous to my friend, sir. Mr. Scott. Sure. You are. Thank you very much, sir. Chairman Miller of California. Mr. McDermott for 1 minute. Mr. McDermott. Mr. Chairman, I want to thank you for allowing me to participate in this and I will use my time to ask for unanimous consent, first of all, to have the markup of the conflict minerals bill in 2010 from the Foreign Affairs Committee entered into the record. This bill was heard and was extensively worked. Many companies were heard from and the record exists. And in fact, this bill was written bipartisanly. If you read Ms. Ros- Lehtinen's remarks at the Foreign Affairs markup, it is a very strong endorsement of this bill. So it was not as though there were no markups on this. Second, I ask unanimous consent to submit for the record the Executive Order from the White House, EO13126, which is a list of the products and countries that business already must look at. They cannot accept carpets from Nepal and Pakistan. They can't take coffee from Cote d'Ivoire, and so forth. It is in the record. Third, I would ask unanimous consent that a list of colleges, States, and cities that have already enacted this and have begun to implement this in their purchasing agreements be entered into the record. Chairman Miller of California. The gentleman's time has expired. Mr. McDermott. And finally, the companies which are already going conflict-free--we have a partial list and I ask unanimous consent to submit that for the record. Chairman Miller of California. Without objection, it is so ordered. Mr. McDermott. They don't want a conflict-free question to become a boycott. Chairman Miller of California. Thank you. I am going to attempt to introduce the witnesses prior to going to vote. If I completely botch these names, I absolutely apologize beforehand. I am going to make an attempt. Mr. Mvemba Dizolele is a distinguished visiting fellow at Stanford University's Hoover Institute, and is currently an adjunct professor at Johns Hopkins University. He is a native of the Congo, and a veteran of the U.S. Marines, someone who has been abducted and held in prison by Congolese security police. He has a profound understanding of the complex security situations in the Democratic Republic of the Congo today. Dr. Laura Seay is an assistant professor of political science at Morehouse College in Atlanta, Georgia. Her areas of concentration include African politics, conflict, international affairs, and a particular focus on Sub-Saharan Africa and the Democratic Republic of the Congo. She has been studying central Africa since 1996 and conducting extensive fieldwork in the Kivu province of the Congo. Mr. Frank Vargo--I think I got that one right--is vice president of international economic affairs for the National Association of Manufacturers. NAM is the Nation's largest industrial trade association representing small and large manufacturers in every industrial sector in all 50 States. NAM is particularly well-suited to assess the cost of regulations passed by Congress, so I am pleased Mr. Vargo is here today to help us understand how in the Dodd-Frank provision, we considered all costs to American businesses are estimated to be between $9 billion and $16 billion. Mr. Steve Pudles is chief executive officer of Spectral Response, an employee-owned electronic manufacturing service company located in Lawrenceville, Georgia. Mr. Pudles has also served as chairman of the board of IPC, a global trade association representing all facets of the electronic industry. Mr. Pudles, thank you for being here today and sharing how this provision has affected your industry. Mr. Stephen Lamar is executive vice president of the American Apparel & Footwear Association, a national association of apparel and footwear industries, as well as their suppliers. Mr. Lamar has several years experience working in the Executive Branch in the Commerce Department's International Trade Administration. Members of this panel may be surprised to see him seated here today, because the connection between conflict materials and apparel and footwear is not obvious. We look forward to hearing about how the Dodd-Frank provision is affecting your industry. The Most Reverend Nicholas Djomo Lola, a Bishop of the Diocese of Tshumbe, is the president of the Catholic Bishops' Conference of the Congo. Bishop Djomo oversees all of the Conference's national pastoral, human developments, and peace and justice activities. Mr. Bruce Calder is the general manager of Claigan Environmental. He has managed material compliance programs for many companies and is a regular speaker at the U.S. and Canadian Business Forum. We will now adjourn this hearing to go vote, and we should be back in just a few minutes. If you will be patient with us, we have two votes, and we will be right back. The committee is temporarily adjourned. [recess] Chairman Miller of California. The hearing is reconvened. I would now like to recognize Mr. Dizolele for a 5-minute opening statement. STATEMENT OF MVEMBA PHEZO DIZOLELE, DISTINGUISHED VISITING FELLOW, HOOVER INSTITUTION ON WAR, REVOLUTION AND PEACE, STANFORD UNIVERSITY Mr. Dizolele. Chairman Miller, Ranking Member McCarthy, and members of the Subcommittee on International Monetary Policy and Trade, thank you for the invitation and honor to testify before your committee today. This hearing is the most important and pertinent discussion yet on Section 1502 of the Dodd-Frank Act and its consequences for the people of the Democratic Republic of the Congo. Today, I speak before you as a Congolese and a concerned U.S. citizen and consumer. I own two laptops, a smartphone, and several electronic devices, which may or may not contain minerals from the Congo. I would like also to thank our friends in the many organizations that promoted Section 1502. I know that it galvanized people in the campaign to raise awareness on the continued conflict in the Congo. Thanks to their work, many more people know about the Congo today. The views expressed today in this statement are mine and mine alone. The best way to access the costs and consequences of Section 1502 is to look at its premise, claims, and impact on institution-building in the lives of Congolese. In essence, Section 1502 seeks to bring peace to eastern Congo by regulating mineral trade through U.S. law, cleaning up the supply chain, and reducing malicious to financial through financial means. Such a regulation will de facto curb the violence in human rights abuses. This approach to conflict resolution, however, is not grounded in the sound fundamentals of political economy and public policy; Section 1502 may work in the short run, but it is not sustainable. Mineral trade in eastern Congo is part of the wider world economy, which can only be regulated either by the most powerful armed groups working in collusion, the biggest armed group imposing its way on the smaller ones or their backers, seeking to maximize profit and preserve their own interests. As such, Section 1502 builds on a weak foundation and requires a buy-in of the very negative actors it seeks to tame. This approach prevents basic peace-making models and rewards criminals and would-be spoilers. Proponents of Section 1502 build their case on the most widely accepted narrative of U.S-Congo policy, which defines the predicament as a humanitarian crisis with a binary prism of social violence and the so-called conflict minerals. Section 1502 oversimplifies the problem, and makes American taxpayers believe that if only the challenges of sexual violence and conflict minerals were solved, then the Congo would get back on track and peace will follow. But this narrative is wrong and it has led to several ineffective initiatives, which have effectively turned U.S.- Congo policy into a Kivu policy. The Kivu's represent no more than 1/15th of the Congo. Their problems stem from the failure of the state to discharge its duties, and should be treated only as a part of the comprehensive national policy-making This binary prism also reflected biggest image of the Congo and disenfranchises the Congolese people before the world, casting them as incompetent and incapable to solve their own problems. It then becomes imperative that they be rescued from their hopeless situation by the good people of the world. As a result, the Congolese have been excluded from the policy discussions around Section 1502. This was evident last October when no Congolese was invited to speak at the SEC's public roundtable on Dodd-Frank Section 1502, which was held here in Washington, D.C. The truth is that no one understands mining in the Congo better than the Congolese. By failing to engage the Congolese in an honest dialogue on the relationship between conflict and mining, proponents of Section 1502 failed to spur a national ownership of the initiative through a true partnership with the Congolese. The Congo may be a dysfunctional state, but the Congolese are among the world's most resourceful peoples. Over the past several years, they have quietly and effectively undertaken landmark initiatives that are positively changing the mining landscape in their country. These initiatives include the Ndandula report, which exposed the OPEC exploitation of mineral resources and led to the comprehensive review of mining contracts. As a result, several western companies, including Canada's First Quantum, lost the exploitation title. Pressured by a local civil society organization, the parliament pushed for the restructuring of the Chinese barter investment deal, reducing its terms and downgrading its value from $9 billion to $6 billion. The Senate recently published a report by the Moussambani Commission, which audited the mining sector and documented millions of dollars of financial loss by the Congolese state incurred due to mismanagement and bad governance. Today, as we discuss Section 1502, the Parliament, the Federation des Enterprises Congolaise, which is the equivalent of the U.S. Chamber of Commerce and civil society organizations, is supported by international groups such as the Open Society Foundation, are engaged in discussions setting the guidelines for the new mining code that will be enacted in the near future. The current mining code, which was written over a decade ago as part of a World Bank project, disproportionately favors foreign investors at the expense of the Congolese state and the Congolese people. So far, the proponents of Section 1502 have marched to their own beat, antagonizing corporations, inculpating consumers, and ignoring Congolese initiatives. If they really want to effect positive change in the Congo's mining sector, there is an opportunity here for them to join the debate on policymaking in Kinshasa to ensure that the new mining code addresses their concerns. This is the best way to empower the Congolese, strengthen the local institutions, and induce national ownership of the transparency they seek. This conflict, which has indirectly caused the deaths of over 6 million Congolese, has gone on for too long, and is now a scourge on the face of the planet. As we struggle to solve this calamity, we will be better served by looking into the Congo's early history. Between 1885 and 1908, the Congo, then known as the Congo Free State, was the private estate of Belgian King Leopold II, and was the theatre of yet another holocaust, driven not by mineral exploitation, but by the world's hunger for another commodity. The Industrial Revolution demanded rubber, and more of it. Business' insatiable need for rubber and King Leopold's immeasurable greed pushed the Belgians to design one of the world's most repressive forced labor structures. The king's agency established a quota system, which required that each village produce a specific amount of rubber over a specific time. Forced public troops were then used to enforce the quota and demand taxes of the population. Failing to meet the quota or tax requirement led soldiers to chop off limbs of the unlucky Congolese who fell below the mark. Villages were torched, women raped, and the people left to starve to death or die of disease. By 1924, over 10 million Congolese had perished under the yoke of the Leopoldian regime. The similarity to the current situation is eerie. Like the conflict minerals, which are primarily exploited in the east, rubber was only exploited in some areas of the Congo Free State. Both problems were symptoms of larger systemic and regime perversions, thus subjugating an entire country. But there is a big difference between the approach the activists took to expose and denounce King Leopold's crimes, and the way we choose to deal with the calamity today. At a time when there was no computer, no Internet, no fax, and the telephone was still a curious invention, a shipping clerk in Liverpool decided to expose the mighty king and launched a campaign that would not end until Leopold relinquished possession of the colony and the regime and the system changed. Working under great stress, those activists could have easily chosen the easy route to fundraising on behalf of victims: send them medicine and physicians to mend their wounds. They could have also elected to set a blood-free pre- certification scheme to ensure that the rubber that reached Europe and America was clean. No. They knew that such a timid campaign would make them Leopold's accomplices' enablers, and prolong the suffering of the Congolese. Instead, they set out to destroy and change the repressive regime, and took the necessary time to accomplish their goal. Today, at the time of instant satellite imagery, Internet, Instant Messaging, and other technological advances, our activism is lackluster and devoid of moral courage in the face of the unnecessary suffering of the Congolese. We hedge our action and refuse to see the reality before us by covering our faces like little children hoping it will go away. Instead, we search for enemies where they do not exist. Last month, over 300 Congolese civil society groups and their international counterparts showed great courage and published the report on security sector reform in the Congo. This report calls for an end to the conflict through a comprehensive reform of security institutions, which include the military, law enforcement institutions such as the police and the courts, as well as customs and revenue agencies. Mr. Chairman, with your permission, I would like to submit a copy of that report for the record. Chairman Miller of California. Without objection, it is so ordered. Mr. Dizolele. Thank you, sir. In the Congo, businesses are not the enemies. Armed groups and their international local backers are. If we are serious we should go after them and help restore safe authority, so that the Congolese government can finally meet its obligation towards the people. This means that together we need to end impunity at all levels of the polity. Only then can the Congolese know real peace. The Congolese people want and deserve peace. We should empower them to that end. The Congolese government's inability to protect its people and control its territory undermines progress on everything else. A competent, professional military, which is organized, resourced, trained, and vetted is essential to solving problems from displacement, recruitment of child soldiers, gender-based violence, economic growth, and the trade in conflict minerals. In the absence of a strong Congolese state to protect its interests, Section 1502 will effectively certify the looting of the Congo's minerals, not only by its neighbors, but by everyone else. Thank you. [The prepared statement of Mr. Dizolele can be found on page 158 of the appendix.] Chairman Miller of California. Thank you. Dr. Laura Seay is recognized for 5 minutes. STATEMENT OF LAURA E. SEAY, ASSISTANT PROFESSOR OF POLITICAL SCIENCE, MOREHOUSE COLLEGE Ms. Seay. Thank you, Mr. Chairman. Chairman Miller, Ranking Member McCarthy, and members of the subcommittee, thank you for this opportunity and the honor of speaking before you today. I do need to emphasize that I am speaking only as an individual and not for Morehouse College or in any official capacity in that way. The rules for adopting Section 1502 have yet to be released, but the policy is having unintended consequences and unanticipated consequences that I am not certain could have been foreseen by those who pushed for its passage and worked to make it happened. Beginning in September of 2010 the Congolese government placed a ban on all mineral exports from the Kivu and Maniema Provinces in eastern Congo. This ban lasted approximately 6 months, through March of 2011. And it actually resulted in increased militarization of the mineral sector in the Congo. So there were some mines in the eastern Congo that were not militarized prior to the development of this ban, but the Congolese National Army used that as an opportunity to take over these mines, and to begin carrying out human rights abuses against people in those areas. A good example of this is the Kamituga mine in south Kivu. The Kabila government ended its ban on mining in March of 2011, but it was quickly replaced by what has come to operate as a de facto boycott of the mineral sector in the eastern Congo. Since April of 2011 and continuing until today, many major purchasers of Congolese minerals have declined to purchase those minerals. They have made this choice because they believe that given the circumstances in the Congo, they cannot verify that the minerals they are sourcing are conflict- free. So, rather than on mitigation strategies or on supply chain tracing, they have chosen instead to just withdraw from the Congo altogether. When Malaysia Smelting Corporation pulled out, they had previously been buying 80 percent of Congolese tin exports. After their decision to stop buying in April of 2011, 10 exports from the Congo dropped by 90 percent. So what are the consequences of these issues, in that there is little reason to believe that either the ban or the boycott would have happened had it not been for the passage of Section 1502? It provided the impetus to be seen as taking action for good or for bad. It has had devastating effects in mining communities in the eastern Congo. People lost their jobs, people who had been working in the mines. And I do want to emphasize that the conditions in the mines are absolutely horrific. None of us would want to work there. None of us would want our children to have to work there. But there are no other economic alternatives in the eastern Congo. Subsistence level agriculture does not provide a way to earn a living, and the only alternative is to join a militia. So for many Congolese miners, mining is the least worst choice of very limited, bad options. We don't know exact numbers on how many people have been put out of work. I am actually headed to the Congo next month to do some research on this and try to get some data. But it certainly ranges somewhere from the tens of thousands. Local civil society activists in the Congo have estimated that up to 2 million people were put out of work by the ban and the de facto boycott. This had devastating consequences. Congolese have large families. Most people have five to six dependents. So we are talking, if those numbers that the civil society activists have come up with are accurate, this could have affected 10 to 12 million people in a negative way. What else has happened as a consequence of these bans that stem from Dodd-Frank's Section 1502 passage? We have seen many miners move into the gold mining sector, which is completely unregulated, and where traceability is not yet possible. We just don't know how to do it in a way that will prevent smuggling. And according to the 2011 U.N. Group of Experts Reports, smuggling has increased. Minerals are still getting out. We are still seeing high export numbers from Rwanda, which does not have significant domestic mineral reserves, which is a strong indication that smuggling is still going on. And contrary to the promises made by those who pushed for the passage of Section 1502, violence in Kivu in the absence of this mining, and where armed groups are not making as much money as they previously were off of the mineral trade, violence is getting worse. And we have seen that most recently over the course of the past 3 weeks with a mutiny within the ranks of the Congolese Army by former members of the CNDP militia who have now re-christened themselves as something called M23. Quality of life has diminished. People cannot afford to pay their children's school tuition, to pay for health care, to pay for basic necessities. And in many of the most remote mining areas, basic necessities, even if people had money to buy them, are no longer available, as those necessities are not being flown in, because the planes would come in with materials and fly out with minerals and now they are not able to do that. Chairman Miller of California. Could the lady-- Ms. Seay. To be fair-- Chairman Miller of California. Could the lady conclude? Her time is-- Ms. Seay. Yes, yes. To be fair, there has been positive change, though it is not clear that this is a result of what we think it is. The DCA mine was demilitarized. The Congolese Army withdrew from it, but the DCA mine is almost tapped out. They have just about hit the water table, and it is not clear that the Congolese Army would have left were that not the case. My written testimony contains several remarks on what I think went wrong. I agree with Mvemba that the gross oversimplification of the story is the major problem here. The mineral trade--the militarized mineral trade--is not the cause of conflict in the eastern Congo. It is a symptom of a much deeper disease. It is a problem that we need to clean up, but treating the symptom will not cure the disease. And instead, we need to focus on governance, security sector reform, and rebuilding the rule of law. [The prepared statement of Dr. Seay can be found on page 187 of the appendix.] Chairman Miller of California. Mr. Vargo, you are recognized for 5 minutes. STATEMENT OF FRANKLIN VARGO, VICE PRESIDENT, INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS (NAM) Mr. Vargo. Thank you, Mr. Chairman. The National Association of Manufacturers (NAM), is the Nation's largest industrial association, and it is America's manufacturers who will be the most affected by Section 1502. Let there be no doubt that the NAM and America's manufacturers support the intent of the law to reduce the atrocities that are being committed. We believe the SEC's regulations can implement the law in a manner consistent with the goals, but without unduly burdening American industry, American competitiveness, or American jobs. But to do this, we believe modifications are necessary to their draft regulations, and we hope this subcommittee will agree and will communicate that to the SEC. We are pleased with the care with which the SEC has been proceeding, and we hope for rules that are consistent with the reality we face. First of all, it is vital that there be a phase-in period for the regulations. The currently existing extreme limitation of information about the source of metals and minerals makes it impossible for all but a very few companies to submit meaningful reports. For example, the Electronic Industry Citizenship Coalition, the EICC, has been working at this for years. Their Web site this week says that only 11 smelters have been certified as DRC conflict-free, all of them in Tampulu. An independent audit of the EICC concluded that despite their best efforts, ``companies cannot assert 100 percent sourcing certainty.'' The draft rules unfortunately currently provide only two choices: you state with certainty that you are DRC conflict- free; or even if you have done a lot of due diligence and you just don't know, you have to say no, they are not DRC conflict- free. That would do terrible damage to company brands and investor relations and would do no good whatsoever to advance the humanitarian objectives in the DRC. During the phase-in period there must be a temporary category of indeterminate origin, but to utilize it companies would have to meet SEC requirements to demonstrate that they were undertaking a good faith effort, and were not just delaying. Second, once the rules are in full effect, there must be flexible due diligence provisions recognizing that companies have widely differing supply chains. Companies need, for instance, to be able to use contract flow-down provisions to comply. In particular, the OECD guidelines should be expressly stated by the SEC as a safe harbor for companies that implement those guidelines. But that should not be the only way to comply. I want to stress, this is an extremely costly requirement on American manufacturers. The NAM has estimated the cost at $9 billion to $16 billion, 100 times larger than estimated by the SEC. The cost is not limited to listed companies subject to the SEC regulation, and hundreds of thousands of small, privately owned companies will be affected because they are in the supply chain. Our estimate is largely corroborated by the competently done Tulane University study called for by Senator Durbin. We are aware of a further report done by Claigan Environmental, who is testifying today. We have examined their report carefully and believe it is a severe underestimate, for several reasons. First, it assumes everyone can use the simple spreadsheet developed by the EICC, when most of our large companies say it is much too simple and unusable. The EICC spreadsheet template will hopefully work for companies with simpler supply chains, who are closer upstream to smelters, but it will not work for large diversified manufacturers. With millions of parts, they need a much more sophisticated, and unfortunately, more expensive system. Second, it seriously underestimates the number of companies in today's global supply chain, saying there are hundreds in the supply chain, when in fact there are thousands. One of our members has 100,000 companies in their supply chain. Mr. Pudles, who is going to testify next, has a $40 million company, not one of America's largest, but he sources from 3,000 different manufacturers. The report also mistakenly believes smaller companies are legally bound to comply with Section 1502 so that companies don't have to have contractual obligations. Unfortunately, that is not true. They are not bound. The report also believes that once agreements are reached, no further action is necessary-- totally overlooking the fact that supply chains are not static; they are dynamic. Suppliers are always being added and dropped as companies seek more efficient supply chains with better prices. Finally, the report somehow concludes that analysis of the European Union's Restriction of Hazardous Substances directive shows that conflict materials compliance can be done cheaply. That is puzzling, because we use the same report. And we put it into our report to the SEC. That report says it costs an average of $2.5 million for companies to comply. So if we apply that to the number of companies the SEC says will be affected by Section 1502, that is a cost of $16 billion, even higher than our estimate. So there is no question this is an extremely important program and the SEC needs to get it right. Thank you, Mr. Chairman. [The prepared statement of Mr. Vargo can be found on page 193 of the appendix.] Chairman Miller of California. Thank you. Mr. Pudles? STATEMENT OF STEVE PUDLES, CHAIRMAN, BOARD OF DIRECTORS, IPC-- ASSOCIATION CONNECTING ELECTRONICS INDUSTRIES; AND CHIEF EXECUTIVE OFFICER, SPECTRAL RESPONSE LLC Mr. Pudles. Chairman Miller, Ranking Member McCarthy, and members of the subcommittee, I am pleased to be here today to discuss the SEC's proposed rule on implementation of Section 1502 of the Dodd-Frank Act. I am Steve Pudles, CEO of Spectral Response, an employee- owned electronics manufacturing services company located in Lawrenceville, Georgia. We employ 135 people, providing services ranging from electronics assembly, to product builds, to third-party logistics. And our customers range from small startups to large publicly traded corporations. I am here today as well in my capacity as chairman of the board of IPC, the association connecting electronics industries. The IPC represents over 3,000 companies, the majority of which are small businesses like mine. IPC's members include companies that design, manufacture, and assemble printed circuit boards, which are vital to the operation of all electronics products. The subject of this hearing is critically important to IPC members who collectively manufacture products that incorporate all four of the key metals refined from conflict minerals. At the outset of my testimony, I would definitely like to recognize the good intentions of those Members of Congress who authored Section 1502. By all accounts, the human rights situation in the Democratic Republic of the Congo is grave. IPC supports the underlying goal of Section 1502, but quite frankly, I am concerned that the SEC's draft regulations will have unintended negative consequences. I am by no means an expert on the issues that plague the DRC. In my testimony today, I will discuss how the draft rule is likely to impact my business and the electronics industry. Members of the subcommittee, make no mistake, the regulations proposed by the SEC will impose a significant cost on my company and companies like mine. My company is not an SEC issuer. However, the forthcoming regulations will impact us through the due diligence needs of our customers, over a quarter of which are SEC issuers. Over the last several months, my customers have asked me about auditing my supply base. My company has over 15,000 part numbers. Determining and verifying the content and origin of minerals in each part is a Herculean task. I will have to hire additional staff, an audit company, lawyers and accountants, and purchase software for data management. A variety of cost analyses has been conducted on the proposed rule. An independent analysis of the costs conducted at Tulane University estimated total costs of $7.9 billion, which is over 100 times the SEC's estimate. An IPC survey of our members indicated median compliance costs in excess of $230,000 per year. This is a significant expenditure for companies like mine. As the leader of a small business, I work hard to keep my company profitable in difficult economic times. I am troubled that the SEC's analysis on the impact of the regulation significantly underestimates the impact and costs to U.S. manufacturers and negatively impacts our global competitiveness. Given a few key regulatory changes and a reasonable implementation period, we would greatly decrease the burdens associated with the regulations without undercutting their effectiveness. I would like to use the remainder of my time to highlight a few of these key recommendations, which are further detailed in IPC's comments to the SEC. The most valuable change the SEC could make is the inclusion of a reasonable phase-in period. This would give companies a transition period to understand the final regulations and examine the origin of conflict minerals in our supply chains. According to a United Nations report, the implementation of traceability systems in the DRC is severely lacking. A number of companies have sought to avoid conflict-associated minerals by altogether avoiding procurement from the region. A phased implementation of the regulations will better align regulatory requirements with the developing traceability and transparency systems. The requirement for each issuer to report on the same schedule as their annual SEC report will require my company to constantly reply to customer inquiries. The SEC can significantly reduce the burden on the supply chain by implementing a single reporting date. Moreover, many electronics companies use recycled materials in order to reduce the amount of virgin materials required in the manufacturing process. The final rule should include an alternative approach for recycled sources that is practical and does not overburden recycled materials so as to discourage their use. Additional suggestions which I do not have time to discuss in detail include reporting exemptions for products outside our control, provision of a de minimis level to focus on the significant uses of conflict minerals, and provisions of nonbinding examples of due diligence are detailed in my written testimony and IPC's comments to the SEC. In conclusion, on behalf of my company and IPC's over 3,000 members, I urge the SEC to implement the requirements of Section 1502 in a manner that supports the goals of the statute without unduly burdening U.S. manufacturing industries or causing unnecessary disruptions of the legitimate minerals trade, which is vital to the livelihood of the people of the DRC. Thank you for the opportunity to address you today. [The prepared statement of Mr. Pudles can be found on page 179 of the appendix.] Chairman Miller of California. Thank you. Mr. Lamar, you are recognized for 5 minutes. STATEMENT OF STEPHEN LAMAR, EXECUTIVE VICE PRESIDENT, AMERICAN APPAREL & FOOTWEAR ASSOCIATION Mr. Lamar. Thank you providing us a chance to testify, and thank you for holding a hearing on this important issue. The American Apparel & Footwear Association is the national trade association of the apparel and footwear industries and their suppliers. Our members include publicly traded and private companies, as well as suppliers to both. Our industry employs about 4 million U.S. workers, about 3 percent of the U.S. workforce. Our industry is among the most globalized in the world. As a result, even the smallest companies have complicated supply chains that stretch across continents, countries, and factories. They have to manage a diverse array of compliance challenges covering labor, health, environment, product safety, and chemical management. We strongly support the goals of the conflict minerals provisions in the Dodd-Frank Act. Collectively and individually, our members have participated in similar kinds of initiatives to ensure that our sourcing does not inadvertently support undesirable practices, such as forced child labor toiling in the cotton fields in Uzbekistan, leather from cattle raised on illegally cleared rainforest land in Brazil, or wool from mules sheep in Australia. While we support the efforts to prevent conflict minerals from entering the global supply chains, we remain deeply concerned over several elements of this provision and their impact on our industry. Let me explain. First, the impact of Section 1502 on the business community is deceptively large. The fact that I am testifying here today on a bill that was largely intended to focus on the electronics industry is one indicator of that fact. Although the law initially targets about 6,000 publicly traded companies, it also affects those companies' suppliers, in many cases small, privately held businesses, as they are being increasingly notified by their customers that they will have to certify that their own supply chain is conflict free. Many companies in our industry initially thought they were not covered, but are only now finding out, in some cases in the past few weeks, that they are impacted. Many others still don't even know. Many businesses in our industry probably don't realize that their products may contain one of the four conflict minerals. When you think of a garment or a shoe, you think of the fabric, the fit, the design, or maybe the price. But you usually don't think of wearing tin unless perhaps you are watching the Wizard of Oz. Companies are now learning that tin, for example, can be a filler in certain PVC used in soles of shoes, or metal components in buttons, zippers, and heel tips. Other examples are the electronic components that you might see in a light-up shoe. Use of tin has actually increased in recent years to replace metals like lead or cadmium which had been targeted by recent product safety initiatives, including the Consumer Product Safety Improvement Act (CPSIA), which Congress passed in 2008. Second, the provisions have a major effect on those in the business community who are least able to effect change in the conflict zones in Africa. In our industry, the use of these minerals are de minimis, even after accounting for greater uses in recent years. Yet, the smallest apparel or footwear company will be equally liable as a company that is a major consumer of larger quantities of these minerals. Tin is confined in our industry to very, very small quantities that are encountered inconsistently across a great many styles and brands. Compounding this is the simple fact that fashion changes all the time. In one year, a company may find that four products out of thousands trigger Section 1502 reporting. The following year may be zero and the year after that may be 20. Compare this to an electronics company that sources millions of the same components over several years with no design or input changes. Just as important, the electronic or accessory components that we might use in the manufacture included in a footwear item--in many cases, these will have been purchased off the shelf from a supplier which is itself many steps removed from the mines or even the smelters where the minerals originate. The bottom line is that the pressure to create and promote conflict-free mineral supply chains will not come from our industry, even if we could somehow declare ourselves to be 100 percent conflict-free. While the apparel and footwear industries are leaders in social compliance in many areas, we simply don't have the purchasing power or business relationships to effect change in this area. Third, the costs associated with Section 1502 are enormous. Here again, we believe the costs are far larger than the authors expected. Some estimates put the costs at $8 billion or $9 billion, respectively. We think they can be far higher as we start including the impact on other industries like ours in those calculations. Fourth, the lack of tracing technology and infrastructure means that companies don't have a clear or affordable path forward for compliance. The draft regulations do not allow companies to simply declare that they do not know if they have conflict minerals in their supply chain because there are insufficient tools to answer that question properly. Yet, the reality is affecting most companies today. Our industry is still struggling to create verifiable and effective tracing technologies for materials that make up a central part of our supply chains, like wool or cotton, while learning that even greater challenges exist in the minerals industry, which account for far smaller parts of our sourcing. A couple of quick recommendations. We need to make sure the infrastructure and technology exists to allow companies to come into compliance. We need to make sure there is a comprehensive cost-benefit analysis that enables policymakers to understand how these regulations work well. We need to make sure these regulations are phased in to those industries where consumption of the minerals will have the biggest impact. We need to include things like a de minimis provision. And once the regulations are in place, we need to make sure there is flexible enforcement accompanied by education to make sure complicated supply chains have the time and the capability and the capacity to come into compliance. Thank you very much. I will conclude right here. [The prepared statement of Mr. Lamar can be found on page 169 of the appendix.] Chairman Miller of California. Thank you. The Most Reverend Nicolas Djomo Lola, Bishop of Tshumbe, is recognized for 5 minutes. STATEMENT OF THE MOST REVEREND NICOLAS DJOMO LOLA, BISHOP, DIOCESE OF TSHUMBE, DEMOCRATIC REPUBLIC OF THE CONGO; AND PRESIDENT, CATHOLIC BISHOPS' CONFERENCE, DEMOCRATIC REPUBLIC OF THE CONGO Bishop Djomo. I want to thank Chairman Miller and Ranking Member McCarthy for the opportunity to testify today. I ask that my written testimony be entered into the record. I do not come as a businessman, nor a financial expert. I am a religious leader, a pastor, who is deeply disturbed by the type of violence and suffering that has dominated life in eastern Congo since 1996. This violence has destroyed families, villages, and communities. One prominent driver of the violence is the illicit mining committed by the many armed groups in the eastern Congo. To protect our people from the misery of minerals, the Church in the Congo publicly supported the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. I traveled to the United States last year to bring that message to the Congress, the State Department, and the Securities and Exchange Commission. Our message was simple. First, establish regulations that are robust enough to correctly show the origin of the minerals. Second, finalize the regulations as soon as possible and set specific dates by which companies start reporting. Third, include all companies. And fourth, ensure that key information provided by the companies is made available to the public and to Members of Congress. Since colonial times, our nation has fallen prey to the ``resource curse.'' Throughout the Congo's long history, the Catholic Church has stood by the Congolese people. The Church is one of the largest and most trusted institutions in the country. Our network of schools, health care, and development centers is the largest, and frequently works where the government cannot. Our people in eastern Congo blame the insecurity fueled by illicit mining for their poverty. Eighty percent of people are subsistence farmers. The violence has caused massive displacement of people. No future development can occur without an end to the fighting. In addition, the illicit mines operate under deployable and dangerous conditions. Many international institutions are working to end illicit mining. These include the Organization for Economic Cooperation and Development (OECD), the European Union, USAID, and a Great Religious Region Group. Section 1502 of that plank places the first offload behind this other effort. In March of this year, the Congolese government passed a law that requires all mine and mineral trading companies in the Congo to carry out due diligence in line with OECD standards. This law is fingering various initiatives to educate traders and miners about due diligence. Now is the time to strengthen these efforts with regulations that will legalize mining operations. First, the business community can and will join us to protect the life and human dignity of the Congolese people by conducting legal, transparent, and accountable international commerce. We are confident that they do not want to be part of the misery that has plagued eastern Congo for years. We urge the U.S. business community to account for the gruesome social costs of the illicit mining as they calculate their costs for compliance with Section 1502. These calculations are not just cost estimates on a spreadsheet. There is a social balance sheet that places value on the lives that can be saved. We have full confidence in the goodwill of the Congress, the SEC, and the business sector to resist watering down SEC regulations through half measures that may save money, but cost lives. What the people of the Congo need and the U.S. Government and the American companies can provide are responsible actions that increase transparency and embody the moral values that made the United States a respected world leader. Thank you, Mr. Chairman, and Madam Ranking Member, for your kind attention. [The prepared statement of Bishop Djomo Lola can be found on page 174 of the appendix.] Chairman Miller of California. Thank you, sir. And Mr. Calder is recognized for 5 minutes. STATEMENT OF BRUCE CALDER, GENERAL MANAGER, CLAIGAN ENVIRONMENTAL INC. Mr. Calder. Chairman Miller, Ranking Member McCarthy, and members of the subcommittee, I am pleased to be invited here today to discuss the Securities and Exchange Commission's proposed rule on implementation of Section 1502 of the Dodd- Frank Act. My name is Bruce Calder, and I am the general manager of Claigan Environmental. I am responsible for Claigan's conflict minerals program. We work with companies across industries on conflict minerals program management, cost management, and we provide compliance assistance and information to over 200 small, medium, and large companies on conflict minerals. I would like to first start off by saying we have never, ever seen such widespread early adoption by industry of a transparency law. In 10 years of working with restricted materials compliance, including global regulations, such as Europe's hazardous substance law, its restricted chemicals law, and California's toxins and safe drinking water law, I have never, ever seen so many companies claim that they are going to be compliant, becoming compliant, and declaring they are committed before the final rule is even published. If you look at the 100-plus pages of our appendix, it is single pages of public declaration by companies committing themselves to being conflict free, and committing their suppliers to being conflict free. And you can flip from page to page to page and see company after company--U.S. companies, Chinese companies, Japanese, Korean, large, small--all committing themselves and their suppliers. Their issue right now is that they do not have a single clear rule to implement their desires and what they want to do. Being transparent on mineral sourcing not only can be done, it is being done. One key element to the success is the success of the conflict-free smelter program, a program that is implemented by industry in advance of a final rule making them implement. The conflict-free smelter program has completed the certification review process, including full country of origin traceability, for 23 refiners, plus there are another 32 in process. Kester, an Itasca-based Illinois company, which provides 60 percent of the solder wire in North America--solder wire being the main source of tin in electronics, and the solder being the main use of tin--has completed full traceability through the smelters which they moved through the certification process all the way back to the mine. So when we look at a circuit board, and you look at potentially hundreds of different components and many different suppliers who are in scope because of the tin solder they use, it only comes back to a handful of solder suppliers, of which Kester is one of the largest. We have previously submitted estimates on the costs of Section 1502 on the industry and the supply chain. One of the big elements, of course, always a big difference in the conversation, is why is ours different than other estimates? One of the most significant reasons is our cost estimates are based on actual industry programs, not projections, not extrapolations. This is what they are doing. It is also based on conversations with the SEC on what they intend. The SEC has done themselves and industry a disservice by not stating anything publicly in terms of rules since way back basically in 2010. The other piece, and it is very, very important, is the use of ``intentionally added.'' ``Intentionally added'' is a very, very, very important piece of this. And the reason is over de minimis is steel. Tin exists in most common alloys of steel, but it is not supposed to be there, it is not intended to be there. It is a by-product. It is a part of the process. It is harmless and nobody has cared. If you put a de minimis value in, the actual amount of tin in our most common steels is well over any standard de minimis level, and it would bring almost all major steels in play. A lot of small suppliers who make products that have washers and screws, etc., suddenly will be in scope, and then we know if they have tin. They would have to set up a test lab. I have a test lab and it is a wonderful business, but I don't think that is fair. Going for ``intentionally added'' will keep most common alloys of steel, which significantly reduces the cost to industry, and particularly small business. The SEC's staff has indicated that the conflict-free smelter program would meet a lot of the due diligence required, especially third-party auditing, which would be excellent. We also assume, and in--to the SEC it makes sense, that the auditing will be more based on auditing to ensure that companies have done what they said they have done. And I think it is extremely important that companies who do good and wonderful things, who can't get all the way through to their smelter, should be allowed to say clearly and truthfully, they have done good and wonderful things. So, one of the last pieces on this is not if it will be implemented. These industries are implementing it. The biggest burden right now, especially on small companies, is they don't have to comply with the SEC's rules; they have to comply with the rules that each one of these companies at how they have extrapolated the law. What they really need now for cost containment is a single rule so they can meet one standard and the standard of every customer they have. Thank you. [The prepared statement of Mr. Calder can be found on page 52 of the appendix.] Chairman Miller of California. Thank you. I appreciate your testimony. I now recognize myself for 5 minutes. Mr. Pudles, you represent business interests and you were very much aboveboard on that. Mr. Calder, you provide consulting services to companies regarding implementation of Section 1502; is that correct? And you are an expert on conflict material minerals? Mr. Calder. Yes. Chairman Miller of California. Just so everybody is clear, you make a profit on implementation of Section 1502? That is your business. Mr. Calder. Yes, that is so. Chairman Miller of California. Okay. I just--because we have business interests, I want everybody to know who is testifying before us today. And I think that is very important. Mr. Lamar, you talked about buttons in suits, so I am probably wearing a conflict button on my suit. Mr. Lamar. I don't know that. Chairman Miller of California. But if you don't know that, that means I probably am, because you have to say if I can't prove I am not. Mr. Lamar. That is the concern we have with the way the regulations are coming forward. Chairman Miller of California. And that is my concern. Mr. Vargo, you talked about if you can't certify, like I really can't certify and he can't certify, and Nordstrom's can't certify who sold me the suit. So what do you have to do if you are going to sell me this suit? What do you have to post if you can't certify that these are not conflict-free? Mr. Vargo. The way the draft SEC rule is written, you would have to say, this is not DRC conflict-free, and you would have to bear that on your Web site and the public would look and say, oh, this company is bad. It is not DRC conflict-free when there is no information and the company does its due diligence. We are not saying that you need an indeterminate origin category forever, just during the period that the infrastructure is being developed. Chairman Miller of California. That is a concern for me. And I know my good friends talked earlier about the fact that hearings were held, I believe in the Foreign Affairs Committee, but you never did anything. But the problem was legislation was enacted in this committee and we never heard anything. And that is a real problem for me. Mr. Dizolele, is life better and going to be better next year and the year after for people in the region because of what we are doing here? Mr. Dizolele. Mr. Chairman, my personal view with my extensive experience in the field is that even if this powerful chamber were to pass this legislation, implement it, give our friends on the other side of the debate a magic wand, the next day when women in Tubembe--this is in south Kivu--go back to the field, nothing would change for them. They will be raped, and they will be abducted, because we will not have dealt with the real problem, which is the presence of the militias. The militias will not disappear because of Dodd-Frank or Section 1502. We are not going after the source of the problem. We are putting a veneer on it. So the question really is, what difference does it make for the ladies in Tubembe? In my view, not much. In my view, the Panzi Hospital will stay open, because rape will continue. Maybe the American consumer will assuage his conscience. Maybe the activists will have felt that they have done something, but that is not the slam dunk. Chairman Miller of California. Ms. Seay, are minerals the only commodity used to fuel this conflict over there? Ms. Seay. Absolutely not. And I think that is a key point that goes back to the question you just asked Mr. Dizolele, which is, the armed groups in the eastern Congo have multiple sources of revenue. They tax every trade that there is: bananas; timber; charcoal; and traffic on the road. Are these sources as lucrative as the mineral trade? No. Do they find ways to make it more lucrative? Yes. They will raise taxes. And what we have seen is that militias don't stop fighting because they lose access to one stream of revenue. What they do instead is turn to preying on the population even more than they already were before. Chairman Miller of California. And are more people unemployed than they were before this started? Ms. Seay. I think we can say that more people are unemployed in the mining sector, for sure, as well as in sectors in mining communities. So for example, if a miner doesn't have money he can no longer afford to pay the grocer for basic goods. And so, that person is also in trouble financially. Chairman Miller of California. And Mr. Dizolele, when that miner is unemployed, where do they go to get a job? Mr. Dizolele. Sir, in the DRC, we have a lot of statistics. And statistics often do not even reflect the beginning of it. In the DRC, we don't talk about unemployment, we talk about underemployment. The underemployment is about 82 percent. This means people don't have jobs. They leave every morning, because they have to do something to feed their families, but they don't have any jobs. And so, one of the little jobs that is lost is not going to be replaced. You cannot just move to move from Katutu neighborhoods and say I have lost my job in Katutu and I am going to go to Nguma and find a new job. We are talking about the DRC and we are talking about the eastern Congo. This is not Switzerland or America. Chairman Miller of California. So their life is worse than it was before this implementation in many cases, because they have no job now. Women are still getting raped in the fields, which is horrible. It is inexcusable. And maybe the Foreign Affairs Committee should have done something on that, rather than passing the burden onto the business sector in this country about what do we do in a region like that that is abusing their people and allowing it to happen. My time has expired. I yield 5 minutes to Ranking Member McCarthy. Mrs. McCarthy of New York. Thank you, Mr. Chairman. I want to thank everybody for their testimony. You have to realize that this committee really has a very daunting task in front of us. Obviously, we want to make sure that our businesses are able to continue doing business without added costs. But we also have a situation for the people who are working in these mines, and the children. Now, the rules for Section 1502 have not really been implemented yet, so we are not exactly sure where we are going to be going on this. I know that when people got together on the blood diamonds, there were a lot of outcries that people wouldn't be able to afford the diamonds, diamonds that are used for other things besides wearing on a ring. And yet, they have come through the years to be able to make sure that those diamonds are certified now and not coming and hurting people. That is going to be the problem that we are going to be facing here. To come up with a solution, hopefully work with the SEC. Obviously, they are having a difficult time with this, because they have not come out with the final rules. But Mr. Calder, reading your testimony, your cost analysis on company compliance with Section 1502 varies from some of the other estimates that we have heard and read in the testimonies. Please explain some of the cost differences, such as large versus small companies, and what factors and methodology are being used to compile your cost analysis that are different than the other cost estimates that have been done. I know a lot of the larger manufacturers are trying to do the right thing. They have started going to the smelters to basically get it certified. They have already started ahead before Section 1502. But it is the small companies that probably will be facing a burden. So if you could quickly answer that question for me? Mr. Calder. One of the big things about having a final rule is it will allow the small companies to comply to one rule instead of many. One of the really big burdens the smaller companies have is they have to try to comply to an interpretation to each company. And it is already out of the barn. Now these companies know their products could have benefited from slave or child labor, they are not turning back. It is in place. So the best thing to do for small businesses is give them one single rule, then give us the GE they can give to any customer they have, so they can move forward and move effectively. Mrs. McCarthy of New York. Bishop, in your testimony, and I know you weren't able to read your whole testimony, when you talk about the people, obviously that is very heartfelt because you are there. You are working with the people who are in the mines. But the question came up, if we cut back completely and there is no work, you mentioned agriculture, but you also mentioned in your testimony that the areas where the mines are has already killed the land. So agriculture wouldn't be possible there. And we are probably talking about a very long- term solution. But with that being said, if the rule is put in place, what would the people do as the adjustment comes through to be able to make a living? Are outside groups going to come in and support them? Will those that are the gangs, as we call them, terrorists, if you want to call them, the armed, how are we going to--that is not going to be up to this committee, unfortunately. But with that being said, how does that change, and how long would it do it? What kind of suffering would come more to your people? Bishop Djomo. [The following testimony was delivered through an interpreter.] The majority of the population in the Kivus lives off of agriculture. The majority of the people in the Kivus do not work in the mines and do not live off of their work in the mines. The mines, and the militias that run these mines, block the production of agriculture in these areas. In the short term, there may be some people who will lose some work and some income, but in the long term, if you close the illegal illicit mines and cut connection between the mines and the violence, the violence stops. People can go back to their lives and back to a better agricultural system. The studies and the work of the Church institutions in the area show very clearly that the violence follows the same roads as the minerals from the mines. Better laws will protect the legalization and ensure the legalization of these mines, and thus protect agriculture. A much better legalization of the mines will also permit a better, more legal, taxation of the citizens in the area. It is impossible to understand that illegal, illicit exploitation is a good for the people. Chairman Miller of California. The gentlelady's time has expired. Mr. Dold is recognized for 5 minutes. Mr. Dold. Thank you, Mr. Chairman. Mr. Dizolele, if I can just start with you for a moment. You have complimented the activists for drawing attention to the Congo, but have criticized them for oversimplifying the causes of the conflict in the Congo, and the solutions to that conflict. And after listening to a number of the testimonies here today, I think it is clear that we all have similar objectives: to try to reduce the violence inflicted on the Congolese people and help them achieve better quality of life. But I also think it is clear that the problems here are complex and that there is no simple solution. With that in mind, how can the following groups better address the problems in the Congo, whether it be western activists, the NGOs, companies affected by Section 1502, and finally, the SEC and the United States Government as a whole? I know that is a big question, but if you can be somewhat brief? Mr. Dizolele. Thank you, Congressman. I think we need to start by changing our narrative. I said earlier that the narrative that we have has been shaped through a binary prism of sexual violence and conflict minerals. If we do that, then we set our attention on the one sector of the Congo's territory, which is the size of the eastern United States. I submit to you that life is absolutely worse in some areas of the Congo that don't have conflict. Anybody who has been through Equateur Province, through the Kasai Province, through Bandundu Province, was apt to be shocked that people were still living almost like it was still 1920 today. So what do we do? I think we need to have the courage to go after the real problem. And that courage happens in the very response--opportunity, which amazed me. I was an observer, an election observer, last December in Kinshasa. The international community did not stand with the Congolese people during the election. We chose the easy route. This was the chance for the Congolese people to really be supported by everyone, including the activities here so that the election would be accepted. Today, the elections, because they were botched, has created a legitimacy crisis. So if we tie what is going on in the east with the chaos in Kinshasa and the lack of legitimacy of the current government, we actually are in a conundrum, meaning we cannot really find a solution, because the people don't have the legitimacy of their--the people in power don't have the legitimacy of the country at large, are not going to solve the crisis, because they draw the raison d'etre in this environment. So I think we need to revert to what happened, and I referred to King Leopold's days; there is no instant gratification in the Congo. When we approach the Congo, we need to know that as we approach the Congo, it is for a long haul, and the long haul may take 10 years, building one step on top of the other until we get there. Mr. Dold. Thank you so much. Mr. Dizolele. Thank you, sir. Mr. Dold. Mr. Vargo, a question for you. When a company joins an initiative to buy clean minerals from the DRC region, does that automatically trigger the expensive reporting requirements in Section 1502? Mr. Vargo. We don't know what the reporting requirements will be. We are looking for a flexible standard that industry can work with that will be parallel to the way that we enforce export controls, we keep slave labor products out of our supply chains, etc. Companies typically work with what is called a flowdown, where you turn to your suppliers, and there may be thousands of them, and you put into your purchasing contract a requirement that they do due diligence to stay free of conflict minerals, as well as other things. So that is why we are pressing for a very flexible rule. We have estimated $9 billion to $16 billion. If the SEC were to issue a more restrictive rule, it could be higher than that. But if the SEC had a very workable rule, it could be lower than that, sir. Mr. Dold. Sure. I guess my concern is that when a company like, for instance, Motorola, which has a presence in the 10th District of Illinois, when they invest in the DRC by setting up a closed pipeline of conflict-free minerals, I believe they will have to file at least a very expensive due diligence report. However, if the company were to invest, say, in Australia, that is not going to require them to invest in what is going to be a very expensive report. So the net result is that we are going to have companies making a cost-benefit analysis: Do I want to invest in the Congo, or do I want to go elsewhere? And I think people are going to take a very calculated approach and say, you know what, we are not going to invest any in the Congo, and therefore, we are going to see the life in the Congo get potentially even worse than what it is now, and we are going to go somewhere else. So I just wondered if you might be able to comment on that? Mr. Vargo. Congressman, that is absolutely correct. And companies are looking and saying if I source out of Canada or Australia or Ukraine, I don't even have to file a report. The report is expensive. It certainly is a disincentive for companies to do business in the region; yes, sir. Mr. Dold. Thank you, sir. And my time has expired, Mr. Chairman. I yield back. Chairman Miller of California. Thank you. Ms. Moore is recognized for 5 minutes. Ms. Moore. Thank you so much. And I want to thank the witnesses again for appearing. This has been very, very informative. Let me start out by asking Mr. Dizolele some questions, the distinguished visiting fellow at Stanford University's Hoover Institution on War, Revolution and Peace. I am very curious about your testimony, and I wanted to know if you could tell me a little bit more about the Lutundula report that the stakeholders in the Congo, some of the many organizations people have put together to stop the exploitation--the mineral exploitation--through the examples you give in your testimony are with Canada and China, where they changed the contracts. I am thinking also of something Mr. Vargo said just a few moments ago, when he said that they wanted to make sure that there was no slave labor connected with the supply chain. So I am wondering what can you just tell the committee a little bit--and I don't want to use up all my time--the substance of these Lutundula contract changes that were made? Mr. Dizolele. Thank you very much, Congresswoman. Lutundula used to be a member of parliament. He was an MP in the transitional period between 2003 and 2006. I met him in 2006, indeed. What happened was with the privatization in 1990, the structural adjustment to the World Bank and the IMF, the government of Zaire at the time was forced to privatize its mining industry, which was the bedrock of the economy. When they privatized that, it totally collapsed the entire economy. Meaning instead of having strong mining companies, you had smaller, private investors, especially westerners, taking ahold of the situation and totally destroying the system as it was because they needed to maximize their profits. Ms. Moore. Okay, thank you. I just wanted a little bit more information about that. So I guess my question is leading to this observation, that without some sort of regulatory framework, and who knows, maybe Section 1502 is not it, but there is potential for exploitation with Canadian companies, Chinese companies, U.S. companies, exploitation of the ``resource curse.'' Exploitation without some sort of monitoring that the Congolese people are not getting their just due, that there were to be slave labor, as Mr. Vargo would suggest. And so, I guess I appreciate the information that you have given us that it is not just the mineral rights, that there are needs to reform the police forces, and to have reforms within government. But I was concerned that you were minimizing the potential exploitation that mineral rights inherently bring. Mr. Dizolele. Congresswoman, if I may, the Lutundula report was adopted by the parliament of the DRC. We set out a series of hearings, just like what we are having today, and brought in the law of the DRC to start investigating and reopening all those contracts. So I have been to the mines. I have been to south Kivus. I have seen children in the mine. I have 10-hour footage of this. There is a problem, but that problem, the reason there are children in the mines is because there is no state strong enough to assert its authority. Dodd-Frank Section 1502 is not building the state. It is a sideshow that is not hooked to the national policymaking. Ms. Moore. Right, I understand that. So I guess what I am saying is that if we were to eliminate the exploitive partners on the other end, that would help spawn some changes. I can see that I am sort of running out of time on this issue. I see Dr. Seay is dying to say something. No? Mr. Calder, do you have any comment on this? Mr. Calder. One thing we have definitely seen from the data now, it is not the Western countries are pulling out. They pulled out back in 2004, 2005, ever since the U.S. operations at Kabot got a lot of pressure in the media because of a--buy they did through Rwanda. All the purchases right now you are seeing are from Chinese, Malaysian, and ex-Soviet republics, or that region. In particular, when a Chinese entity, which was a nonentity 5 or 6 years ago had used the fact that he can get cheaper material from that region where the U.S. companies cannot buy, and they are able to take away the market share from the other two big players, which are U.S.-based during this period. So they have been able to use this cheaper price and buy materials that the U.S. companies cannot to increase their market share. Chairman Miller of California. The gentlelady's time has expired. Ms. Moore. I am so sorry, because I wanted to figure out what the difference was between the Bishop's testimony and Mr. Dizolele's. Chairman Miller of California. I was going to say that was my question exactly. Ms. Moore. But I hope that somebody else will ask that, because they just don't seem to coincide. Chairman Miller of California. Mr. Manzullo is recognized for 5 minutes. Mr. Manzullo. Thank you. A couple of points. If you take a look at the statements put out by a couple of the corporations in the documents furnished by Mr. Calder, you will see language to this effect. And I don't want to name the company, because it wouldn't be fair. But this company ``does not knowingly use these minerals and by-products as specified in the Conflict Minerals Trade Act.'' That doesn't comply under the SEC on the Form 10K. If you file, there is liability attached to it, as opposed to simply furnishing information to the SEC. And the documents here from several corporations ostensibly are in compliance with Section 1502. Just looking at the face of them, they are not in compliance. You can't say this company does not knowingly use the materials, and another company says that we will not ``knowingly purchase any material from any minefield with social problems.'' And so, it is not a matter of knowing something; it is a matter of being responsible, even if you don't it. The term ``knowingly'' does not take you out of compliance with the SEC. The second thing is in our congressional district, we have lost a couple of circuit board makers, and Mr. Pudles, you and I talked about this. The little guys who have to get in tin for the soldering and others of those, if there is a company overseas that makes the circuit board that has these materials in them and its exported to the United States, and the company in the United States that does not have to register with the SEC, then isn't it a fact that there is no violation of the law? Mr. Pudles? Mr. Pudles. That is correct. Any company outside of the United States that is selling to a non-SEC issuer will have no reporting requirements and therefore can buy their tin and their gold anywhere they want to buy it. Mr. Manzullo. And if a completed product is made overseas and exported to the United States, does the company that is doing the importing in the United States have to certify as to every product coming in that it is conflict-free? Mr. Pudles. If their customers and their supply chain are all non-SEC issuers, there will be no requirement on any of them to report any content in that product; correct. Mr. Manzullo. Okay. And then, as I read the statute, it says--the language says that conflict-free is defined to mean ``the products that do not contain minerals that directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo.'' How is somebody supposed to know that? Dr. Seay, how many mines are in the Congo? Ms. Seay. I don't know the exact number, Congressman, I am sorry, but it is hundreds. And many of them are informal. So I think one of the important things to note is that even if you-- I am very skeptical of this idea of a closed pipeline coming out of the DRC. I think you can have a closed pipeline coming out of other countries, but in the DRC, even if you are able to mine outside the influence of minerals, you cannot leave an airstrip, you cannot cross roads without paying off militias. It is just under the circumstances, with the lack of governance, with the lack of anybody really being in control, it is going to be impossible to verify that those minerals have no association and are not tainted by association with armed groups in the Congo. Mr. Manzullo. And that is where the problem starts. If there is no way to verify it at the source of the mines, how could a company certify under a civil if not possible criminal penalty that they are conflict-free? Ms. Seay. It is really going to be difficult. There are these programs that we call bag-and-tag, where you tag the minerals at the location and seal them in bags. But even then, the transportation becomes an issue and it is going to be very, very difficult to verify that. You should never underestimate the entrepreneurial creativity of the Congolese. They will find a way around these regulations, because it is a matter of survival. It is a matter of survival to smuggle out minerals, to find a way. And so, I think focusing on the government issue is a great idea. Mr. Manzullo. And then, are there ever products from different mines that are combined? Ms. Seay. Oh, sure. Absolutely. There are processing in the Kivus as well. I think we have the idea that all the minerals are flown out as raw, and that is not true. In Bukavu, there is a facility that separates out Kesterite and Coltan, which tend to be found in nature together. And they don't associate what comes from where; they just dump it all into their products and send it out as one product. Mr. Manzullo. Okay. Chairman Miller of California. The gentleman's time has expired. Mr. Manzullo. Thank you, Mr. Chairman. Chairman Miller of California. Mr. Carson returns for 5 minutes. Mr. Carson. Thank you, Mr. Chairman. Thank you for convening this hearing. The eastern portion of the Democratic Republic of the Congo has long been the site of one of the world's worst humanitarian crises. We know this. Since 1998, an estimated 5 million people have died as a result of the conflict. Several organizations, including GAO in a September 2010 report, and a U.N. group of experts in several reports, documented that illegal armed groups, as well as some corrupt units of the Congolese National Military, are continuing to commit mass killings, rapes, and other severe human rights violations. And these groups profit from illegal exploitation of the minerals trade in eastern DRC. Recognizing the continuing urgency of the human rights situation, Congress as we all well know, included in the Dodd- Frank Act provisions to reduce violence caused by these groups by targeting their illegal trade in conflict minerals. Mr. Vargo, do you agree, sir, that cutting the trade in conflict minerals could decrease violence in the eastern DRC by limiting the funding that is fueling the groups and units involved with these human rights violations? Mr. Vargo. Mr. Carson, frankly I don't know. I have heard testimony on both sides, a lot of press articles that say this is not working. I don't know. I represent America's manufacturers, and the law says that we have to do due diligence to try to reduce--eliminate our purchases from DRC conflict mines and we are going to do our best to do that. Mr. Carson. Okay. Mr. Lamar, do you think, sir, that companies that source conflict material minerals have a responsibility as a part in a real sense of their corporate responsibility to avoid funding these groups and units that commit horrific human rights violations in the eastern DRC? Mr. Lamar. I think in the business community, there are a number of compliance professionals who want to make sure that their supply chains are not inadvertently creating or contributing to any problems, whether it is the conflicts in Africa or any of the other problems around the world. And so, I think what you will see is that companies will do their best to be in compliance with either regulations or efforts, initiatives, to make sure their supply chains are not inadvertently contributing to or creating problems. And I would sort of echo what Mr. Vargo said about the relationship between this and the underlying conflicts. Mr. Carson. Bishop Djomo, do you agree, sir, that cutting the trade in conflict minerals could decrease violence in the eastern DRC by limiting the funding that is basically fueling those groups and units involved in human rights violations? Bishop Djomo. [The following testimony was delivered though an interpreter.] Certainly that will diminish the violence, because the armed groups persist in their violence because they receive revenue from the minerals. Their largest source of revenue is through this illegal sale of minerals. If they collect taxes through the anarchy of informal taxation, it is because they have first, the financing from the minerals, and the arms to do it. Mr. Carson. Thank you, Mr. Chairman, I yield back. Thank you. Mr. Huizenga [presiding]. The gentleman yields back. Thank you. I actually get an opportunity to recognize myself for 5 minutes. And that is unusual, being recognized so. But first, Bishop, to you and Mr. Dizolele, as a person who has been watching this, I want to tell you personally that for myself, many people that I know, we are praying for you and your citizenry. Our hearts go out to you. As a fellow believer, I know the work that the Church does. And I commend you for that. And for being here. And I just wanted to first convey that. I have also asked that we put up a map of the country. It is a bit of an unknown for many in the Western world, exactly where it is and where it lies. And I was hoping that Mr. Dizolele and Dr. Seay, if you could maybe talk a little bit about where those conflicts are and then, Dr. Seay, I would like you to expand on that a little bit about what the conflict origination is. We are hearing from the Bishop that he believes that all roads lead to the mines, or those roads to the violence lead to the mines I believe was sort of the phrase that he was talking about. And we can maybe explore a little bit about the differences on that. So if you could maybe point out what part of the world we are talking about? Mr. Dizolele. Thank you, sir, Congressman, for your prayer for the Congolese, and for this opportunity. So we see to the left--to the right there--above the big lake, which is Lake Tanganyika, which is Bujambura and Bakavu, and then just above that where it says Burungungu, that is the area we are talking about, which is Lake Albert, so it is just that section that we are talking about. Mr. Huizenga. The Mount Stanley area, and that area up there? Mr. Dizolele. That is the area up there. Mr. Huizenga. Yes. Mr. Dizolele. But the challenge is that the conflict in that area is fed by what is not happening in the rest of the country. I think it is very dangerous for us to talk about the Kivus in isolation. This is not an independent sovereign nation. This is a collection of three provinces that are paying the price of a lack of leadership in Kinshasa, to the west, to the capital. So putting a Band-Aid on the problem in Bukavu is not going to lead us to peace. I am afraid to say so. It might allow for temporary relief of sorts, but it is just not sustainable. Thank you. Mr. Huizenga. And thank you. Ms. Seay. Thank you, Congressman. Mr. Huizenga. And if we could very quickly, because I do want to hear from the Bishop-- Ms. Seay. Sure. Mr. Huizenga. --as well, and then I actually want to get to my real question. So, quickly? Ms. Seay. Sure. So I think it is important to understand, mineral--the militarizing in the mineral trade is a symptom, rather than a cause, rather than the disease itself. So it is definitely something that fuels some of the conflict. It is definitely a problem and I don't want to give the impression that it shouldn't be cleaned up. I just don't think Section 1502 is going to do it. But the real issue underlying conflict in this part of the country is land rights and citizenship rights. The question of who gets to be Congolese and who has the right to own land? In the area, the north Kivu area that Mr. Dizolele was describing, is some of the most fertile agricultural land in the world. It produces three harvests per year. And it is hotly contested because it is so valuable and has been. And it is really important to note, these conflicts have been going on since before the DRC war started, and before there was high demand for Congolese minerals. But it is not homogenous. The armed groups are different; they are not all fighting on minerals. They don't depend on minerals to the same extent. It is really complex. Mr. Huizenga. So this isn't just the LRA that we may be seeing in the media? This is local? Ms. Seay. They are not even in the area. Mr. Huizenga. Yes, this is local and-- Ms. Seay. And you also have significant mining areas where there is no conflict, like the Kasai and the Katanga. Mr. Huizenga. Bishop, quickly, if you would maybe respond to that? Bishop Djomo. [The following testimony was delivered through an interpreter.] The Church lives everywhere where the population lives as well. We have come to realize that the largest, the most important part of the instability are the economic reasons. The ethnic rivalries are manipulated, are used as instruments for this conflict. The Church believes that the international and national regulations, if done gradually over time, will solve these problems. I mentioned in my testimony that the Congolese government is in the process of passing some of these laws. It is certain that stability in the Congo depends on many factors, but the illegal exploitation of resources is a major factor. That is why the Church asked the international community and the national leaders in the Congo to regularize these laws and to implement them. The tensions, the ethnic tensions that exist are manipulated, are instruments of this conflict and are fueled by the minerals and the mines. Mr. Huizenga. I appreciate that testimony. And Mr. Lamar, I wanted to briefly get to you, and I don't know that I really have the time. My time has expired. But I am concerned, so I guess to the panel, my concern is whether it is out of the apparel and manufacturing, whether it is out of tier one automotive suppliers that are in the 2nd District of Michigan, who are dealing with requirements in NAFTA that for them to go through a tier one and we see it costs hundreds of thousands of dollars to that process, they are looking at it being millions of dollars if they are having to go down five tiers. And I think the crux of the question is, will this solve the conflict in the DRC? Will this solve the issues that we are dealing with in that northeastern corner of a very conflicted world? And obviously, Rwanda and other areas that are in that area have seen violence for so long, and I hope you understand that is what the intent is for me personally and I believe the rest of this panel is to look at how we are making sure that the problem is really truly solved and is not a veneer, I think as Mr. Dizolele talked about. So with that, my time has expired. I appreciate that. With that, the Chair recognizes Mr. Scott for 5 minutes. Mr. Scott. Thank you. As I mentioned in my opening statement, I traveled over there into the Congo and I have seen firsthand and I have witnessed a lot of this. And it was very disturbing. It is just terrible. Let me start with you, Bishop. Is it true, in your opinion, that this trade in conflict minerals has funded the cycle of conflict in the Congo? You said yes? Bishop Djomo. [The following testimony was delivered through an interpreter.] That is exactly what the Bishops of the Congo have been saying. Mr. Scott. All right. Now, Mr. Dizolele, has this mineral--conflict mineral-- spawned this conflict? And I am asking you the same question I asked the Bishop. Mr. Dizolele. To a certain extent, yes, Congressman. I think though the way forward, if we can take the example of Sierra Leone. Everybody here we heard today information on the Kimberly process, black diamonds, and so on and so forth. What helped Sierra Leone and Liberia was a confluence of actions. Black diamond containment was just the topping on the cake. And we don't have that in the Congo. We are putting the cart before the horse. Mr. Scott. Okay. What I want to do here is, because we have a conflict right here with the panel. I want to get at a measure here and in the midst of one myself, who was there, and as an African-American, I can't begin to tell you how much that experience touched me. And if these minerals are the source of the funding for the conflict, which the end result becomes this dehumanizing mutilation of the sexual reproductive system of the women of Africa, then we must with all deliberate speed take every step. So if you agree, and if there is a consensus that this--that dealing in these minerals is causing this, what more important thing can we do than to, as the United States, the most powerful country on earth, with the riches of our economy, to say to our companies that you cannot do business here. It is clearly in conflict with what we stand for. That seems to me to right now be the least we could do. It will not solve the problem, but it seems to me that it will be a big step going forward. So if we got that consensus there, on what grounds would you deny and say the United States should not do this? Mr. Dizolele. Congressman, I think it is an important question. It gets to the heart of the matter. This mighty country, for which I served as a Marine, has the power to go after the militias. If we want to help the poor women, I have seen pictures, I have been to Panzi. I have seen pictures of mutilated genitalia. And I have seen these women. If we mean to help them--the question they would ask this chamber if they were here is, why don't you come after these militias? That is the question they would ask you. Mr. Scott. No, but the point to me is what I am trying to get at is that, no, I don't think. I think it is a cultural thing. I think that once they do that act there is something else at work there. But the point of the matter that we have as a country in the United States, should we be contributing to that? It is not that we could stop it, but cannot--should our companies be allowed to contribute to this, if you agree with the Bishop that these conflict minerals are in effect getting us to the end line of this brutalization of women sexually and violently, physically in that country? And I think that is the core of our pushing forward Section 1502. Do you see my point? I think that that really gets to where we are. And I see my time is up. Thank you, Mr. Chairman. Chairman Miller of California. Thank you. We are probably going to try to do a line of questioning for Members not on the subcommittee, so I will start with myself, then I will go to Mr. Miller next. Mr. Dizolele, would you say that fewer women are going to be violated after the implementation of Section 1502? Mr. Dizolele. Mr. Chairman, two things. First, I would like to say that sexual violence is not part of the culture. There is no religious edict or any tradition of this. This is just as appalling and new to most Congolese. Then two, I don't think it is going to reduce the violence on women, because as long as those militias are still there and the justice system does not work, and there is no military solution to go after them, then, as I said early on, the women have to be the one to go to the field, they will still be raped. So we are not getting--I think we are tepid and timid in our approach with Section 1502. I think this chamber and this Congress has the power to enact bolder regulation than this, what I again call a veneer. Because this serves to assuage Western consumers, but it doesn't get to really help the victims. Thank you. Chairman Miller of California. It appears from testimony that maybe American companies are moving out of the mines, but Chinese companies and others are moving back in. Is that true, Ms. Seay? Ms. Seay. Yes, it absolutely is. I mentioned in my testimony that 10 exports have gone down by about 90 percent from the Kivu provinces. That other 10 percent is entirely being bought by China through 2 or 3 of the trading houses in the cities. It is essentially the main consumer now. Chairman Miller of California. So is there any record we have that Chinese companies are better on human rights issues than American companies? Ms. Seay. I don't believe--the evidence of which I am aware does not suggest that they are. Chairman Miller of California. So if we are saying that we are pulling American companies out of a region that is heavily impacted, it is like many of our trade issues we face. If goods aren't produced here, they are produced in China. And it seems like other countries are going to pick up the shortfall and take advantage of the availability that is going to exist in a region if we pull out. Is that--what is your opinion on that? Ms. Seay. I think that is a reasonable opinion. And I think it mirrors the efforts that the Chinese are making on the political side of things. China, as Mvemba mentioned in his testimony, has a multi-billion dollar deal with the Congo. And they don't care about human rights violations. They don't care. The Chinese do not put any pressure on the government. And losing sources of leverage by our companies pulling out, I think is a challenge for things like democracy, for things like having free and fair elections that accurately reflect the will of the Congolese, which they do not enjoy today. Chairman Miller of California. Mr. Dizolele, you heard the testimony of the Honorable Bishop. Do you agree with that? Mr. Dizolele. I am sorry, sir? Chairman Miller of California. You heard the testimony of the Honorable Bishop. Do you agree with his testimony that this is going to have a positive impact on the people in the region, the implementation of this? And it is not really a big jobs issue for them? Mr. Dizolele. I think only partly, because I think in the bigger picture, this will actually not have a positive. If the goal--early in my statement, I said if you are going to assess this, we have to assess this on the claim, the premise of Section 1502. The claim was it is going to extensively reduce the violence. I do not think so. To buy an AK-47, you don't need to sell minerals. AK-47s are pretty cheap and violence can happen with machetes, as we saw in Rwanda. No AK-47s were used in the genocide. If the conflicts are not addressed, if we don't go after the militia, they are still free agents to do whatever they will. Again, we don't have an enforcement mechanism on the Congolese side. This law has made the enforcement mechanism on the corporations in the United States. But where is the other side of the coin? Who enforces this in the Congo? Chairman Miller of California. It seems like we have placed the burden on American businesses. And I am not minimizing the problem over there, but having--we have met with the African Development Bank multilevel development banks who play a significant role in this region. Wouldn't their involvement be much more beneficial to this issue to increase stability than the way we are trying to create it, Ms. Seay? Ms. Seay. I am a bit skeptical about the African Development Bank. Their power is limited. But I think that you do have regional and domestic mechanisms that are aware of the conditions and have a much more sort of pragmatic approach to the problem than the one reflected in Section 1502. So you have--there are partnerships going on. These are evolving. Some of them are working with the OECD guidelines. But eventually we are going to get a mining code in the DRC maybe. And we are going to have these regional initiatives, and I think providing support to regional actors who know the terrain, who speak the languages, who understand the culture, and who understand the challenges of operating in an environment in which there is absolutely no regulation and absolutely no rule of law is really important. Chairman Miller of California. So we can feel good that we have probably turned it over to Chinese companies to deal with the mines and the other companies and that is going to probably make their situation better in that part of the world, which I highly doubt. Ms. Seay. I don't feel good about that. Chairman Miller of California. Mr. Miller, you are recognized for 5 minutes. I am going by the Ranking Member's list. It wasn't my preference, it was-- Mr. Miller of North Carolina. All right. Thank you, Mr. Chairman. Mr. Scott said that the conflict, the violence in the Congo was appalling for African-Americans. It is also appalling for White folks, I can tell you. The chairman at the beginning said that the conflict, that the violence in the Congo was the result of warlords and thugs. That lets the developed world off pretty lightly. It is very clear that the conflict in the Congo is largely motivated by the opportunity to steal from the people of the Congo, to steal the revenue that comes from conflict minerals. And that the revenue from conflict minerals are funding all the sides in the conflict. When Mobutu was deposed in 1997 by Laurent Kabila, Kabila said Mobutu had $5 billion waiting for him in foreign bank accounts from what he had stolen when he was the head of the Congo. Kabila said to a local reporter that all it took to put together a rebellion was $10,000 and a satellite thing--$10,000 was enough to hire an army in the Congo, given how extreme the poverty was there. And the satellite thing meant that he could negotiate with all the buyers of the minerals to further fund his army. And supposedly by the time he reached Kinshasa, he had already contracted--he had half a billion in contracts with the buyers of the minerals in the Congo. There have now been 5.4 million people who have died since 1998. Rape is a weapon of war there and at least 200,000 women have been raped. But what is going on in the Congo is horrific and all of humanity should take responsibility for it. The Enough Project's concerns have been kind of dismissed, sneered at even, I think, some today. They say they are not urging a boycott of Congo minerals. They are urging that there be legitimate supply chains with tracing and auditing to make sure that the buyers of those minerals know what they are getting, and they are not conflict minerals. And it is not impossible to do. In fact, there appear to be some supply chains, legitimate supply chains, already. Mr. Calder, is it going to be impossible to develop legitimate supply chains? And what now exists? Mr. Calder. A good part of the data we have now is the Conflict-Free Smelter Program, and a very key part of their data about whether it is possible. One of the also key parts is now it is very clear. We have talked about U.S. companies pulling out. They pulled out a long time ago. They pulled out in 2004, 2005. It has been mostly purchased--everything has been purchased up to more recently, the status quo before this law came out, it was Chinese, Malaysian, Soviet Republics. I am not talking about the Chinese moving in now. They moved in a long time ago and they have been able to use this cheaper material to actually gain marketshare over the U.S. companies. This is before this law. This law finally levels the playing field. Is it possible? Now we know this incredible traceability, which companies have been buying, because of these smelter programs. These were done before we have a final rule, that they have done on their own initiative. Is it possible? We have a number of examples in here of companies that say it is possible. One of them being quoted here is also Nordstrom. So it is very key. These companies are quoted it is possible. And some companies like Kester, which buys most of the solder, or a majority in the United States, have completed it. Mr. Miller of North Carolina. All right. Dr. Seay, you have said that rather than try to trace conflict minerals, you are very skeptical about the practicality of doing that. But do you say instead say there should be government's promotion in security sector reform? I spent a couple of days in Kinshasa. I don't claim to be a Congo hand as a result of spending a couple of days in Kinshasa. But we met with--our delegation met with the--it was in MINOC. I think it is now called UNESCO, the United Nations mission in the Congo. And they said they were simply overwhelmed. They could not begin to govern or to provide security in the Congo. They got just shy of 20,000 uniformed personnel, another 4,000 or 5,000 civilians, and can't begin to touch the problem. They can't begin to get at real governance or rule of law, because they are simply spending all of their resources providing security. And that security is massively resource- intensive and long term. Dr. Seay, where are you suggesting--how much are you suggesting that it cost to provide the necessary security in this massive ungoverned area? How long are we going to be there, and who is going to provide those resources? Chairman Miller of California. The gentleman's time has expired. Dr. Seay, you may give a brief answer. Ms. Seay. Thank you, Congressman, for the question. I am not suggesting that all the security be provided by UNESCO. Although I do agree, it is vastly underresourced. It is absolutely ludicrous to think that a peacekeeping force of 17,000 people can protect civilians in a territory the size of the United States east of the Mississippi. That mission was underresourced and underfunded from the beginning. And it has never been properly-- Mr. Miller of North Carolina. It apparently-- Chairman Miller of California. The gentleman's time-- Mr. Miller of North Carolina. --has the best resources-- Chairman Miller of California. The gentleman's time has expired. I will allow the witness to respond, but the gentleman's time has expired. Mr. Miller of North Carolina. Okay. Ms. Seay. Okay. So on your question regarding how much it is going to cost and how long, I think the key is not getting more peacekeepers in, which is unrealistic by any measure, financial or political. But rather, to strengthen the capacity of the Congolese military, and to turn it away from being a force that is the largest abuser of human rights in the Congo and responsible for more rapes and more looting or institution or armed group. And instead, to professionalize those soldiers, to punish and remove from the army those who commit human rights abuses, and to pay soldiers a living wage so that they do not have an excuse to go out and loot and cause other problems. Chairman Miller of California. Thank you. I ask unanimous consent that the gentlelady from California be recognized for 5 minutes. Without objection, the gentlelady from California is recognized. Ms. Waters. Thank you very much. I know that this time, Mr. Chairman, is reserved for questions. And I want to thank you for this hearing. I don't really have any questions. My mind is made up. I am a supporter of the continent, the entire continent of Africa. I want you to know that I have spent part of my career working on getting rid of apartheid in South Africa, and helping Nelson Mandela to get out of prison. I want you to know that I am applauding the fact that Charles Taylor is going to be sentenced to a long time in prison for what he did in Sierra Leone. And in Liberia and the diamonds that were conflict diamonds there. I want you to know that I have been in Angola and I was so glad when we finally got rid of the war that was funded with Savimbi coming out of the bush, using conflict diamonds. I want you to know that I have been to the Democratic Republic of the Congo long before Laurent Kabila ever became president, and I understand all of this very well. And I want you to know for anybody to say whatever we are doing does not help, we should not do it, and look what China is doing, does not hold water with me. We have a moral responsibility to deal with these issues, and we have a moral responsibility to provide that leadership. I don't care if it helps but a little, we keep working, we keep building on the idea that the exploitation and the devastation of this wonderful continent has to stop. And some of us are committed to that for the rest of our lives. And so, I am sorry that there are those who think it is going to interfere with their business, that they won't be able to make as much money. First of all, give the SEC the opportunity, give them the chance. Give them the opportunity to put together the regulations. I worked on Dodd-Frank. I was on the conference committee, and I supported Sections 1502 and 1504, and I will continue to do that. Now, this hearing is fine, because it gives people an opportunity to respond to the allegation that we didn't have a hearing on these issues prior to Dodd-Frank. So this is the hearing. But we should not reach any conclusions about it being unfair to businesses. It is possible. I want to tell you, I am reading abut a supply pipeline that is closed. Motorola is doing it. They are able to comply. And they lay it all out here. So this business of possible, not able to comply, you can't verify, excuses, excuses, excuses. And I wanted you to know that for as long as I am an elected official and a Member of Congress who understands what has happened on that continent, not only from those of us in the United States who were part of that exploitation, but from other countries all over the world. I am not worried that somehow China is going to beat us out. China is all over the world doing what China does. But some of us are even looking at our trade negotiations to see how we can include these kinds of questions in our trade negotiations with China and other places. So I am very appreciative that you are here. Bishop, I want you to go back and I want you to tell the other Bishops that there are people here who love the continent, who love Africa, who are going to fight for Africa, who understand what is going on with these conflict minerals, and we are not worried about competition, we are not worried about loss of dollars. We can have a closed pipeline where we can monitor this. And there are some of us who are committed to doing it. So I don't have questions, and perhaps there are some people who can say, well, how is it she can say that she knows so much that she doesn't have to answer any questions? And again, I am telling you, I am not a stranger to the Democratic Republic of the Congo. I was there. I am not a stranger to Angola, I have been there. I am not a stranger to Liberia and Sierra Leone. I am not talking from afar. I am not some privileged African-American legislator in this country, or a privileged White person in this country who can sit back and talk about how we are disadvantaged, because when you say that you don't understand the rape and the murder and the killings and the devastation and the loss of lives that has taken place. It is easy to speculate or to talk about this is uncomfortable for me, this is inconvenient for me, this may interfere with my profits. Shame on us. Shame on us. We are better people than that. I have one second left? I yield back the balance of my time. I have said all I need to say. [applause] Chairman Miller of California. Mr. McDermott, you are recognized for 5 minutes and 1 second. Personal items are not permitted during a congressional hearing. I am sorry. Mr. McDermott, you are recognized for 5 minutes. Mr. McDermott. Mr. Chairman, I am going to begin with a confession. I lived in Kinshasa for 9 months. I worked there for the State Department. I have been all over Goma. I know all the people in Kivu who are involved in this. And what is necessary here today is to decide, are you going to repeal it, or are you going to let the SEC go forward and write a rule? The problem here is most of the argument is about an imaginary rule. We have not seen the rule. People are responding to an imaginary rule. The SEC should move forward. And I will stipulate that this decision will not end all the problems in the Congo. I was recently in Brussels and went to the Leopold museum. And when you realize this kind of conflict has been going on since 1890, that nothing is going to come in and be the silver bullet that fixes it. This question goes to Mr. Scott's point: Does our continuing to put money into the Congo minerals black market feed the war? Now, every Member of this Congress knows that the Vietnam War ended when Congress cut off the money. And the war in Afghanistan will stop when this Congress cuts off the money. That is what we are talking about here is, ``How do you cut off the money?'' Now, it won't fix everything, but it is going to fix it for a lot of people. Let me go to one other point that there has been a lot of confusion here about. And I was pleased to see a map, because most people, if you handed them a map, they couldn't find the Congo on it, first of all. Then they couldn't find Kivu if their life depended on it. But the fact is that those provinces, North and South Kivu, are the area right next to Rwanda, from which the genocide moved right across the border. And all of the problems created by those people back in Berlin 100 years ago when they drew lines in Central Africa about who lived where and who was who, is going on today as it was 100 years ago. And everyone who talks about that, or who understands the place, knows that. The fact is, there are conflict-free mines now. In Katanga Province, immediately south and west, which is where all the copper and tin comes from, that is what created all of the business when we sent in our troops in 1960, all of it was about copper in those days. Now, there are conflict-free mines. There is a place down on 18th and L Streets, I think, called PACT. It is a group of conflict-free mining experts working for the tin and tantalum society, who can give you the name of 146 conflict-free mines in the DRC and 406 conflict-free mines in Rwanda today. They put out 500 tons a month of conflict-free minerals. And it is all sold. There is no shortage. These companies who talk about, ``Oh God, we won't know where to get our stuff.'' That is nonsense. The minerals industry has already moved to clarify this situation, because they realized the justice in it. It is so clear that they have already moved. And my belief is that the question here is really, is the Congress going to use its power of money to change the situation over there, or are they not? We can throw up our hands and say, it is hopeless, it is impossible, there are all these people, it has been going on forever, and we won't do anything. Congo has been free for 50 years, since 1960. I was there in 1987 and 1988. And the policemen were not paid. People would stop you in the street and say, give me money. That is how the policemen were paid. That is how the army is paid. There is no civil service. There is no organized government. We all know that. But the question is, is the Congress going to allow industry, for profit, to continue to buy from this source? It is changing, it has changed dramatically as we already have testimony from Mr. Calder, that because once the companies saw the justice in it, they said no, we are going to find a clean place to buy our minerals. And I could tell you, I can assure you, Mr. Miller, that Nordstrom, whose name is on this list from my city, will not sell you a suit with a button that is filled with conflict minerals. They don't want that reputation, and they will make sure that they are all clean. I would like to hear from Mr. Calder a little bit about the-- Chairman Miller of California. The gentleman's time has already expired before he asked a question. Mr. McDermott. Time flies when you are having a good time. Chairman Miller of California. It does. Without objection, I would like to submit for the record the following: a letter from the U.S. Chamber of Commerce; a letter from the Retail Industry Leaders Association; a statement from Kinnemont-Link based in Latrobe, Pennsylvania; a letter from the SEC, from the SBA Office of Advocacy; and a letter from the Automotive Industry Action Group signed by executives from Chrysler, Ford, GM, Honda, Nissan, and Toyota to their suppliers alerting them that they will need to comply with Section 1502, even though they are not SEC registrants. Ms. Waters. Mr. Chairman, may I ask unanimous consent? Chairman Miller of California. I already did that. Ms. Waters. For the supply chain? Chairman Miller of California. Oh, without objection, the supplychain letter will be submitted also. Ms. Waters. Thank you. Chairman Miller of California. I would like to thank the panel for your time, for your expertise, for your patience, and for the travel many of you have made to be here. And let us hope that the government and the region does something about this problem, deals with the human rights. I hate to see the burden placed on the back of American businesses. It is not Congress paying; it is American businesses paying. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for Members to submit written questions to these witnesses and to place their responses in the record. And with that, this hearing is adjourned. [Whereupon, at 12:52 p.m., the hearing was adjourned.] A P P E N D I X May 10, 2012 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]