Walmart (NYSE:WMT) and a group of other national retailers met with the Securities and Exchange Commission (SEC) earlier this year to discuss a new required disclosure of sources for conflict minerals used in their private label goods. The companies are arguing that they should not have to comply because they are not directly involved in the manufacturing process.

"Conflict minerals" is the term used for four minerals found in a wide variety of consumer goods: gold, tantalum, tin and tungsten. These minerals are used in the manufacture of cell phones, DVD players, lightbulbs and even airplanes. Some of these minerals come from Central Africa and other areas that have been ravaged by war and insurgency.

The United Nations reports that Congolese rebel groups, backed by Rwandan military, are making tens of millions of dollars a year by controlling the sale of these minerals, allowing the continuation of a war that has so far displaced or killed millions of people.

Regulation Against Conflict Minerals
In 2010, the Dodd-Frank Wall Street Reform and Consumer Act ("Dodd-Frank") became law. The congressional legislation focused mainly on changing banking and investment firm practices, but contained a clause that requires that all American manufacturers trace their sources of conflict minerals and publicly report them. All manufacturers must comply by 2014, but some will have to report on their 2011 production in 2012.

The confusion that Walmart and other retailers want to clear up is whether they meet the definition of a "manufacturer" on store label products that they commission. For example, Walmart produces several lines of consumer ware under various Walmart labels, such as George, Mainstays and Great Value. The company contracts with manufacturers to produce and package the product using the Walmart branding. Walmart's argument to the SEC is that they do not have any direct control over the manufacturing process in these cases and therefore, should fall outside of the law.

Challenges
The difficulty that all manufacturers face with the new law is two-fold. First, it may be challenging to define the ultimate source of these minerals, as some come through "middle men" who may not identify their source. The second issue is that if the companies do use conflict minerals, they can still sell their products, but must label these products as their own. That is tantamount to the companies admitting that they are supporting the continuing war in the Congo, which could result in a marketing disaster.

Industry groups are also concerned about the application of the Dodd-Frank legislation. Manufacturers may find it easier to proactively source these minerals from other countries, rather than do the due diligence it takes to ensure that their African sources are conflict-free. Mining is the sole economic activity and source of income in many areas in Central Africa and losing mining contracts can have a disastrous impact on subsistence in the region.

On August 22, the SEC voted to approve the final law. The commission also included clearer and more detailed language as to when retailers are considered manufacturers. It specified that simply putting one's brand label on a product manufactured by another company does not qualify, but if the retailer has any input into the process, they step into the role of manufacturer. The SEC also pushed back full implementation to May 2014 to give companies more time to sort out how they will be able to comply.

The Bottom Line
Walmart and other large retailers are fighting against being labeled as manufacturers in order to avoid certain regulations of the Dodd-Frank legislation. The SEC has clarified Walmart's responsibility under the law. The accounting firm, KPMG, estimates that the law will apply to approximately half of all American publicly traded companies when it is fully implemented.

Related Articles
  1. Forex Education

    China's Devaluation of the Yuan

    Just over one week ago the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan, knocking over 3% off its value.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fast Fashion

    Definition of "fast fashion."
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!