Jade and Conflict in Myanmar: Regional Regulatory Instruments, Regulatory Gaps and Future Implications for Ethical Business
Global Witness has recently presented the findings of a twelve-month investigation which revealed how the jade industry in Myanmar, worth nearly half of the country’s GDP, is enriching the state coffers while ripping out the benefits from ordinary local people and workers. The most precious jades in the world are found in the Kachin Hills (northern Myanmar) where the trade of such stones are controlled by the military elites and exposed to high levels of corruption. The government controls the main concessions, which are awarded through a closed process favouring companies who have proximity to powerful actors. The industry fuels Myanmar’s conflict between the central government and the Kachin Independence Organisation (KIA/KIO) which has resulted in the mass displacement of civilians.
The last five years have seen a number of regulatory attempts aimed at preventing the entry of conflict minerals into the European and American markets. However, civil society has repeatedly urged governments to improve existing regulations on conflict minerals and companies to embed strategies to ensure their supply chains are free from conflict minerals.
The Dodd-Frank Act 2010 (Section 1502) led the way in legislating to ensure traceability across mineral supply chains to prevent the entry of conflict minerals into the American market. However, the limit of the Act lies in its regional coverage, which is restricted to Democratic Republic of Congo and surrounding countries, neglecting countries such as Myanmar, Afghanistan and Colombia, where the trade of precious stones contributes to the perpetuation of conflicts.
In October 2010, the European Parliament also expressed its intention to improve regional regulation by passing a Resolution calling for the Union to legislate in line with the US Dodd-Frank Act. Following extensive consultations in 2013, the EU first proposed a regulatory system of voluntary compliance which would encourage importers (not manufacturers) of the conflict minerals to voluntary comply with a non-binding legal requirement. This would have imposed due diligence obligations on around twenty companies, alongside an EU self-certification mechanism and a requirement that Member States have competent authorities in place to ensure compliance with the self-certification scheme. In addition, the European Commission proposed producing a list of responsible smelters and refiners to promote transparency.
In an unexpected turn of events, on 20th May 2015, the European Parliament voted against the proposed voluntary compliance regulation, replacing it instead with a requirement for mandatory due diligence to be carried out by all companies involved in mineral trade, smelters and retailers alike. The Members of the European Parliament called for a law that would cover not only European importers that sourced minerals from conflict zones, but also companies that use these minerals in their manufacturing process.
The greatest problem that remains, though, is that the European Commission’s proposed law concentrates only on conflict mineral commodities which are synonymous with the conflict in the Democratic Republic of Congo and the Great Lakes Region. Legislation covering these commodities is important, however failure to extend this to other types of minerals (for instance jade in Myanmar and also other gems exported from conflict areas such as Afghanistan) would be a missed opportunity. These recent events have also been accompanied by the decision of the Council of the European Union to approve the EU Directive of non-financial disclosure, which takes effect in the domestic law of EU member states by the end of December 2016.
Also inspired by voluntary regulation was the introduction in 2014 of due dillegence guidance for Chinese companies operating overseas by the Chinese Chamber of Commerce of Metals, Minerals and Chemicals Imports and Exports. This voluntary provision covers a broad range of issues such as labour and human rights, environmental protection, supply chain due diligence, corruption and community engagement. With the import of jades from Myanmar worth $12.3 bn in 2014, this regulation is highly relevant, despite it being soft law with limited mechanisms for enforcement. As a result of the introduction of due dilligence guidance, though, Chinese miners have intensified their operations in Myanmar to excavate more jades before the new government takes office in 2016.
The recent results of the elections in Myanmar are taking the country out of a half-century of military dictatorship. The future government will soon face great pressure to end the illicit profits which contribute to the impoverishment of local people in Kachin State and what Global Witness described to be the biggest natural resource heist in modern history. Similarly, we will certainly see rising pressure on EU and US governments to devise conflict mineral legislation which covers a broader geographical area and a more diverse range of minerals.