“Fair Trade” Electronics — A Viable Idea?

International FAIRTRADE Certification Mark: Applied to electronics in the future?

International FAIRTRADE Certification Mark: Applied to electronics in the future?

By Matt Chanoff, TFI Chief Economist, and Pamela J. Gordon, TFI President

Most electronics companies are simply waiting for the final regulations implementing the “conflict minerals” declaration inserted as Section 1502 into the Dodd Frank Act in 2010. Others are preparing now for the impending requirement, by working closely with the EICC’s progressive efforts and asking suppliers about their readiness to determine whether any “conflict mine” metals are in their products. And some, like Intel, Motorola, Dell, and AMD, have been ahead of policymakers in dealing with these issues, according to Aaron Hall of Enough Project, a human-rights organization focused on this issue. But there’s one company, capacitor maker KEMET Corp., that’s taking conflict-free into its own hands. Kemet recently acquired Niotan Inc. — a leading manufacturer of tantalum powders — to take charge of a responsible “chain of custody” for its tantalum capacitors. We wonder…is this the start of “Fair-Trade Electronics?”

Where the RoHS Directive and REACH Regulation from the European Union seek to reduce the environmental impact of electronic and electrical equipment, 1502 seeks to reduce social impact. The four substances — tantalum, tin, tungsten, and gold — are heavily mined in the Congo, and much of the mining in that war-torn central African country is controlled by militias that use the proceeds to fund ongoing conflict. Mining in the Congo doesn’t just fuel the electronics industry, it also fuels murder, rape, slavery, conscription of child soldiers, and ongoing violence.

KEMET’s strategy looks like “fair trade” — a business model so far seen in coffee, chocolate, and textiles — applied to extraction and refining. The fair trade model typically involves creating direct relationships with upstream producers, simplifying the supply chain by cutting out intermediaries, branding and pricing end products at the high end of the market, and using additional margin to benefit the original producers. Those benefits can include better wages and working conditions as well as social investments in local schools, infrastructure, health clinics, and so on.

KEMET’s VP Strategic Marketing & Business Development Dr. Dan Persico explains that the Niotan acquisition will supply a significant portion of their tantalum powder requirements, and over the long term the specific mine they are working with in the conflict-free Katanga Province of the DRC is capable of supplying all of their tantalum needs and more — thus cutting out the “middle men.” KEMET has contracted with the mine in part because it works with a miners cooperative to ensure fair wages. It is also working with OECD and non-governmental organizations to establish and audit strict rules for work safety and security, and has in addition earmarked US$1.5 million over a two-year period for social sustainability projects.

— What about “branding and pricing at the high end of the market”? KEMET publicly refers to “100% conflict free tantalum.” Though it’s not yet clear whether Kemet will command premium prices, certainly they are ahead of the pack as OEMs demand “conflict free” guarantees.

Granted, tantalum capacitors are one of hundreds of types of components in a typical electronic product. Nonetheless, the principles behind KEMET’s strategy and bold implementation is a starting point for other companies as they prepare to comply with 1502 and – if applied to other worker-safety and fair-payment points in the company’s products — could be the precursor of “Fair Trade Electronics.”

Do you think “Fair Trade Electronics” is in our future? Please comment.

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5 Responses to ““Fair Trade” Electronics — A Viable Idea?”

  1. Bruce Klafter says:

    Fair trade electronics is a nice sounding concept, but one that is much harder than it seems. It is certainly a much more formidable undertaking than fair trade food or clothing. A typical electronic “device” (e.g. phone, PC, television, tablet, etc.) has hundreds or thousands of components. In contrast, a coffee bean is a simple, singular commodity. Assuring that every component in an electronic device is sourced, manufactured and distributed “failry” (however you define the term) is no mean feat.

  2. Lea Dutton says:

    It seems that two other sustainable practices could help increase the likelihood of fair trade electronics taking hold:
    1) Creating Shared Value (http://hbr.org/2011/01/the-big-idea-creating-shared-value) where companies take a holistic win-win approach to improving their bottom line by improving conditions at sites where materials are sourced. KEMET seems to be doing this for their tantalum supply.
    2) Value Chain Index (http://hbr.org/2011/10/the-sustainable-economy/ar/1) where competitors and stakeholders join together to evaluate and rate each sourcing company – which would encourage sourcing companies to improve wages, safety practices, etc. Fair trade criteria could be incorporated into the electronic industy’s EPEAT standard, which already provides a consumer rating for more than 50 environmental criteria (http://www.epeat.net/learn-more/criteria-discussion/).

  3. Robert Cowan says:

    Great article. And in answer to your question – Yes, I think it can be done!

    I think commodities are the correct place to focus, but rather than making it a consumer driven change, I think the approach of Dr Jason Clay of the WWF in tackling the threat upon biodiversity is a great way to achieve this (i.e. put the focus on making this a pre-competitive issue by targeting the largest buyers of these commodities to trigger a tide-change in the practices within the industry).

    His talk on the strategy that they adopted is on TED here:
    http://www.ted.com/talks/jason_clay_how_big_brands_can_save_biodiversity.html

    If you haven’t already watched it, and have a spare fifteen minutes I highly recommend it!

  4. Andrew Perkins says:

    Let us not forget contract assembly. We are mainly talking about places like Thailand, China, Vietnam, and India. Living standards and workings standards are not on par with the US. This should be remedied as well. It is not just about commodities, but services as well. Slave wages are not fair when the end consumer pays top dollar. Fair trade means fair business anywhere in the world.

  5. Matt Chanoff says:

    Bruce Klafter is right to highlight the challenges to creating authentically “fair trade” electronic end products. The supply chain from a mine in the Congo to an Amazon box at your doorstep is long and complex, and no company controls very much of it, so the risk here is that companies incur bad publicity or regulatory liability even if they have no ability to correct the problem. However, there are both “choke points” – like the small number of smelters that process ore from hundreds of mines, and initiatives and watchdogs focused on different segments of the supply chain that can, and are, being pieced together.

    I appreciate Lea Dutton’s comment and links to the two interesting HBR articles. I think, though, that practical improvements in the lives of people working in mines in the Congo neither must nor should wait on broad structural changes in economic relationships. Dutton’s suggestion that fair trade criteria might be incorporated into EPEAT standards may make sense, but does raise a concern: One way government regulation can go wrong is when a regulatory body with one set of expertise and priorities is tasked with an entirely different set. This seems to be happening in the conflict minerals space now, where the SEC, which has no experience dealing with anything like conflict minerals, has been charged with writing the regulations, and has already missed several deadlines.

    I appreciate Mr. Cowan’s comment, and look forward to watching the TED talk.

    Finally, Mr. Perkins makes a good point about working conditions further up upstream. Our next blog post (out this Friday) looks at a piece of that issue.

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