Traversing the Murky Waters of Cobalt Supply Chains: Ethical Considerations and the Call for Transparency

EXECUTIVE SUMMARY 

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The Uyghur Forced Labor Prevention Act (UFLPA) has certainly increased U.S. enforcement and compliance focus on international trade transactions from the Xinjiang Uyghur Autonomous Region (XUAR). However, forced and child labor regulations are not restricted to the XUAR. This month, BITE AI highlights cobalt trade as an example of a murky supply chain associated with child labor and Congolese mining. Using open-source research and trade data, BITE makes the case for consumers and businesses have a better understanding of where their products and commodities come from and the raw materials that are used to manufacture them. 

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Background: Forced & Child Labor 

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Customs and Border Protection and Homeland Security Investigations (HSI) have enforced forced labor statutes and regulations for decades, but there has been a significant increase in enforcement actions since The Uyghur Forced Labor Prevention Act (UFLPA) was enacted on December 23, 2021. Much attention has been given to UFLPA and forced labor in China but there are other significant instances of forced and child labor that are essential to highlight. 

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Under the US Trafficking Victims Protection Reauthorization Act (TVPRA) of 2005, the US Department of Labor’s Bureau of International Labor Affairs puts out a list of goods produced by forced or child labor. This list highlights the commodity and country. The BITE AI tool makes this list easily searchable for companies who are conducting risk management on their trade. 

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One commodity that has received global attention for its inhuman sourcing practices, including child labor, is cobalt. Cobalt is a critical component in the production of lithium-ion batteries, and concerns about its ethical sourcing, environmental impact, and human rights issues in the supply chain have led to increased attention and regulatory efforts. The mining of cobalt in conflict-affected areas, such as the Democratic Republic of the Congo (DCR), has raised concerns about unethical practices, including child labor and hazardous working conditions. Section 1502 of the U.S. Dodd-Frank Act requires companies to disclose their use of conflict minerals, including cobalt, and implement due diligence measures to ensure responsible sourcing. Conflict minerals are those sourced from regions associated with human rights abuses and armed conflict. 

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Use Case: Cobalt 

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Cobalt is a metal that has a wide array of applications in many different industries; however, two of its primary uses are lithium-ion batteries, which are used in electric vehicles (EV), and electronics such as cell phones and laptops.  Although reporting differs on the actual percentage of the world’s cobalt coming from the Democratic Republic of Congo (DRC), it is widely known that DRC is the largest producer of Cobalt in the world. 

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While much of the Cobalt in DRC is produced by industrial mines, many of which are owned by China, a percentage of the Cobalt is produced by “artisanal miners” working independently, including children, who are exposed to horrific conditions. Artisanal miners are paid very little and work with no protective equipment such as gloves, boots, or face masks and often suffer devastating injuries or death. In June 2019, there was an incident that led to the deaths of 43 artisanal miners after a mine collapsed. 

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The cobalt produced by artisanal miners is reportedly sold to traders at local markets but ultimately finds its way into the supply chain of businesses worldwide. Artisanal cobalt mining is often part of unregulated supply chains, making it challenging to trace the origin of the cobalt and ensure responsible sourcing. This lack of transparency raises concerns about ethical and sustainable practices in cobalt production.

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Cobalt production is key to the economy of the DRC. Many people’s livelihoods rely on cobalt mining and production. To completely stop mining cobalt would be catastrophic to DRC’s economy. Children must be removed from the mining practices and fair wages and conditions should be implemented in the cobalt supply chain. 

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BITE AI data supports risk management uses for supply chains outlined above, including EVs, electronics, and tools. The BITE team recently conducted queries in BITE to identify global trade patterns involving cobalt: 

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• Over 15,000 global cobalt trade transactions 
• Over $17 billion USD in global cobalt trade transactions
• Over 3,200 imports to the U.S. from China since January 2016 
• Vietnam also has significant trade transactions for cobalt. In 2022, there were over 2,500 imports or exports. Product descriptions included metal compounds, cobalt drills, other manufacturing materials, and dental/medical devices. 

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There has been a call to remove cobalt from EV batteries and only use batteries produced with alternative raw materials. Cobalt is used in far more than EV batteries alone, including any lithium-ion battery in a cell phone, and medical uses as well. As demonstrated in the trade data, much of the cobalt moving through Vietnam is for dental/medical purposes. Though, the use of cobalt in medical devices is also currently being debated. 

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SUMMARY: Complex Supply Chains need advanced due diligence

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Forced and Child Labor issues are something that all consumers and investors should be concerned about from a moral standpoint and a financial perspective. Like all environmental, social, and governance (ESG) issues, there are nuances that need to be considered. While electronic vehicles that use cobalt may be good for the environment, companies and consumers should consider the far-reaching implications of the increase in cobalt demand. Amnesty International does not call for manufacturers to stop sourcing cobalt from the DRC, but it does stress the need for greater transparency in the supply chain. 

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Although cobalt will not be eliminated from global manufacturing, companies need to verify their supply chain information and conduct enhanced risk management to avoid contributing to corrupt or harmful sourcing or manufacturing practices, whether it is cobalt from the DRC or cotton from China. Importers are well advised to begin using screening and vetting technologies such as the BITE AI Platform to perform simplified screening procedures at very low costs to avoid costly detentions, seizures, and penalties, as well as reputational damage for forced labor violations.