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ACA amicus supports challenge of SEC's Conflict Minerals disclosure rulemaking in U.S. Court of Appeals (D.C. Circuit).

The American Coatings Association (ACA), along with six other trade associations, filed an amicus brief on January 23 in support of a lawsuit filed by the National Association of Manufacturers (NAM), U.S. Chamber of Commerce, and the Business Roundtable (BRT) against the U.S. Securities and Exchange Commission (SEC). That suit, filed in October 2012 before the U.S. Court of Appeals (D.C. Circuit), asks that the SEC's Conflict Minerals Rule be set aside. The SEC was expected to respond to the merits brief on March 1. 2013.

On August 22, 2012, the U.S. Securities and Exchange Commission (SEC) voted 3-2 to adopt the Conflict Minerals Rule, pursuant to section 1502 of the Dodd Frank Wall Street Reform and Consumer Act. The rule requires that publicly traded companies disclose certain conflict minerals or derivatives used in their production processes. The "conflict minerals" include tin, tungsten, tantalum, and gold, which are derived from the Democratic Republic of the Congo (DRC) and surrounding countries.

The U.S. government has determined that these conflict minerals are financing the conflict in the DRC and surrounding countries. In an effort to deter the human rights abuses and violence in these countries, the SEC rule requires publicly traded companies that manufacture products for which conflict minerals are necessary to the functionality or production of the product, to report whether its products were produced from sources that benefit armed groups.

On January 16, 2013, the industry coalition filed their opening brief on the merits of the case. The coalition introduced their argument, stating: "The Securities and Exchange Commission's (SEC's) 'conflict minerals' rule may have been motivated by good intentions--to reduce funding to armed groups and help end the terrible conflict in the Democratic Republic of the Congo (DRC). As the dissenting Commissioners pointed out, however, good intentions are no substitute for rigorous analysis, and the Commission's analysis here was woefully inadequate."

While emphasizing support for the goal of the legislative measure--that is, to help end the humanitarian crisis in and around the Democratic Republic of the Congo--ACA's amicus brief argues that, in drafting particular provisions in the rule governing, e.g., de minimis uses of conflict mineral derivatives, the SEC failed to apprise itself of the economic consequences of its action, either with respect to U.S. industry or the situation in the Congo. As such, it violates the SEC's foremost statutory mandate to determine the economic implications of its rules. ACA's brief supports petitioners and argues that the court should send the rule back to the SEC for revised rulemaking conducted in accordance with SEC's statutory obligations.

Specifically, ACA's brief highlights the dire consequences and unnecessary burdens on manufacturers imposed by "failing to adopt a sensible de minimis exception for those whose products may (or may not) contain mere trace elements of conflict metals (e.g., tin) as a result of manufacturing processes (e.g., the use of catalysts) employed by third party suppliers of ingredient materials at one stage, or more, in long upstream supply chains."

The brief goes on to point out that by failing to adequately define what it means to be a "derivative" of a conflict mineral, the SEC has potentially expanded the economic scope of the regulation to markets with only the most tenuous connection, if at all, to the Congo and the purpose of its statutory authority. ACA's amicus maintains that the SEC Rule is arbitrary and capricious, and it should be set aside.

To help clarify these points, acting as a friend of the court, ACA's brief is formatted using four illustrative case studies, three of which focus on the "Use of Metal Catalysts and Manufacturing Additives," especially pertinent to its members' concerns and which incorporate input from industry groups in similar positions.

Through its Amicus and Legal Tracking System program, ACA chooses prominent cases each year in which it files an amicus or "friend of the court" brief as a show of support for issues that can adversely impact the industry. Specifically, the Amicus Program seeks to prevent court decisions that establish damaging precedent, to overturn such precedent where it currently exists, and to advance the legal protection of property due process and liberties that rightfully belong to good faith corporate interests and behavior. Since the program's inception in 2007, ACA has filed more than 20 amicus briefs.

ACA enlisted as fellow amici the American Chemistry Council, Can Manufacturers Institute, Consumer Specialty Products Association, National Retail Federation. Precision Machined Products Association, and the Society of the Plastics Industry, Inc.

The industry coalition also challenged provisions of the rule requiring companies to undertake a burdensome "reasonable country of origin inquiry," expanding the rule's scope to nonmanufacturers, and providing for an irrational transition period. Lastly, the industry associations assert that the rule violates the First Amendment by requiring companies to report on their website and to the SEC if any of their products are "not DRC-conflict free." The industry coalition said requiring this disclosure is "as unfounded as it is politically charged."

Oral arguments in the case will be heard this spring or summer, unless it is put on a fast track by the court due to its imminent compliance requirements. broad scope and unusual burdens. and political dimension.

Contact ACA's Marie Hobson (mhobson@paint.org) or Tom Graves (tgraves@paint.org) for more information.
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Title Annotation:ACA Issues In-Depth
Publication:JCT CoatingsTech
Date:Mar 1, 2013
Words:888
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