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Letter to Mary L. Schapiro, Chairman Securities and Exchange Commission

Letter

By:
Date:
Location: Washington, DC

U.S. Senator Pat Toomey (R-Pa.) today criticized the Security and Exchange Commission's decision finalizing a Dodd-Frank regulation that will place significant burdens on Pennsylvania manufacturers, including Kennametal Inc. in Westmoreland County.

Under Dodd-Frank, the SEC imposed a Conflict-Free Minerals provision, requiring manufacturers to trace the source of all minerals used in the manufacturing process and determine their sources to be "conflict free." Sen. Toomey, along with a bipartisan group of his colleagues, sent letters urging the SEC to reconsider the application of the regulation to recycled scraps and minerals since tracing the source of any recycled material is often impossible and will place arduous burdens on Pennsylvania manufacturers.

Many of Pennsylvania's manufacturers, including Kennametal, rely on recycled minerals. These minerals actually further the SEC's humanitarian objective because they prevent the use of newly mined materials from inhumane countries and encourage an environmentally friendly and sustainable process. The SEC ruling refusing to exempt recycled tungsten from the conflict minerals requirements of the Dodd Frank Act is one more example of how government continues to add to the rising cost of doing business in this country with regulatory overreach.

Carlos Cardoso, Chairman, President and CEO of Kennametal Inc., said, "Kennametal fully supports the humanitarian intent of the regulation. However, encouraging the use of recycled scrap is central to solving that problem. We use recycled materials to do the right thing. It keeps newly mined conflict materials from entering the supply chain, making us less reliant on foreign sources for raw materials with an environmentally sustainable process. We applaud Sen. Toomey for recognizing how vital this is to manufacturing and the U.S. economy, in his efforts to overturn this action."

"Today's decision will place onerous burdens and costs on our state's vital manufacturing industry at a time when we can least afford them," Sen. Toomey said. "While I appreciate the humanitarian intent of the regulation, including recycled materials actually conflicts with the regulation's objective and will force Pennsylvania companies like GTP to use more expensive and less environmentally friendly materials. In this tough economy, we need to give our manufacturers the flexibility to grow their businesses and create jobs, not impose new burdens and costs on them."

A copy of the Sen. Toomey's letter to the SEC is below:

April 12, 2012

Mary L. Schapiro, Chairman
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549

Re: SEC Initiatives under the Dodd-Frank Act - Special Disclosures Section 1502 (Conflict-Free Minerals)

Dear Chairman Schapiro:

I am writing to express my concerns about the Security and Exchange Commission's (SEC) proposed regulation of the Dodd-Frank Wall Street Reform and Consumer Protection Act's Conflict-Free Minerals provision (Section 1502). The pending regulation will disadvantage U.S. manufacturers by creating unwieldy and expensive compliance protocols without fulfilling the statute's intent: enhancing supply chain transparency. When issuing the final rule, the SEC should adhere to the true intent of the conflict-free mineral provisions and establish realistic and transparent requirements considerate of humanitarian and economic realities. More specifically, I urge the SEC to exempt recycled or scrap minerals, including scrap tungsten, from any audit requirements.

For example, while approximately one percent of the supply of virgin tungsten is mined in conditions of conflict, such as the circumstances in the Democratic Republic of the Congo (DRC), eighty-five percent of the world's tungsten supply is controlled by China. The increasing cost of Chinese tungsten has led many manufacturers to use recycled tungsten instead, which benefits the environment while reducing manufacturing costs.

The SEC's proposed rule categorizes recycled or scrap minerals as "DRC conflict free," but does not define the terms "recycled" or "scrap." Furthermore, any issuer seeking to use this cost-effective and environmentally-friendly approach would need to provide its reasons for believing that the mineral in question is from recycled or scrap sources in its Conflict Minerals Report, which would include due diligence on the source of the material. However, the proposed rule does not specify the due diligence required. Thus, though recycled minerals are to be labeled "conflict free," the reporting requirement still presents a significant burden for manufacturers who wish to use recycled minerals like tungsten, as tracing the source of any recycled material is often impossible.

Most U.S. manufacturers fully support the humanitarian aims of Section 1502. However, impractical audit requirements for recycled materials do little to advance those goals. Exempting scrap or recycled minerals, including scrap tungsten, from the reporting requirements would meet the intent of Section 1502 while encouraging a practice that benefits the economy, creates jobs, and helps protect the environment.

I appreciate your consideration of this letter and look forward to hearing from you.

Sincerely,

Pat Toomey
United States Senator


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