No blood in my mobile: regulating foreign suppliers – Ninon Moreau-Kastler, Ph.D.

Speaker

Ninon Moreau-Kastler, Ph.D. (EU Tax Observatory, Paris School of Economics)

Abstract

Can developed countries enforce that goods consumed domestically do not contribute to human rights violations in developing countries where they are sourced? This paper studies the enforcement of new due diligence policies, which constrain firms in developed countries to prevent human rights violations involvement of their foreign suppliers. I study the US Dodd-Frank Act Conflict Mineral Rule (2010), a law targeting specific conflict minerals extracted in DRC and adjoining countries. I explore how diligence obligations have affected the regulated source countries’ access to international markets and whether diligence is circumvented through legal havens. Comparing targeted bilateral trade flows to non-targeted products and exporters within the structural gravity framework, I find that this policy decreased DRC and adjoining countries’ exports in value of 3T products by 72%. But this new extraterritorial rule has unintended consequences: I estimate that 38% of exports are diverted to opaque countries, called legal havens after the law is implemented. Exports are then redirected to countries hosting suppliers of US-regulated firms. Looking at US firms’ reactions, I show that sales drop, while administrative costs increase at the time of the law.

Room

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