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* U.S. bill requires firms to declare Congo sourcing
* Congo backs U.S. step, industry fears de facto embargo
* Other measures seen to complement effort
By Katrina Manson and Hereward Holland
KINSHASA/KIGALI, July 21 (Reuters) - A U.S. drive to clean up the trade in Congo's minerals puts the onus on industry and the central African country to step up efforts to regulate the sector or risk seeing it fall apart.
Much of Congo's minerals, including gold, cassiterite and tantalum that end up in jewellery, laptops and cell phones, come from its troubled east, where conflict among government forces and rebel groups have displaced more than 1.4 million people.
Campaign groups have for years argued the trade has fuelled the conflict.
They cheered a bill passed by the U.S. Senate last week requiring U.S.-listed giants such as Hewlett-Packard and Apple to declare whether they source from Congo or its neighbours and to comply with future guidelines.
Yet the impact of the legislation is far from clear and will depend partly on whether it is now followed up by complementary action from industry and Congolese authorities.
"It's a high-risk gamble by the NGOs and legislators -- it may lead to a de facto embargo on formal trade if businesses decide to pull out of the region," said Nicholas Garrett, director of London-based Resource Consulting Services.
"The consequence...will be that thousands of Congolese will be jobless and might most probably (be) joining the armed groups," warned John Kanyoni, head of the Association of Mineral Exporters in Congo's eastern North Kivu province.
Such a reaction is out of the step with the government line in the capital Kinshasa, where Information Minister Lambert Mende called the bill a "noble initiative" in Congo's best interests and urged other countries to follow suit.
Yet the challenge ahead should not be under-estimated.
A U.N. group of experts panel on the Kivus concluded in May that "almost every mining deposit is controlled by an armed group" -- effectively putting much of those minerals out of bounds to U.S. companies under the new bill.
Underlining the difficulty in establishing whether minerals are genuinely "clean", the panel also found that illegal taxes were being levied by armed groups all along the transport chain out of the mines.
Others warn it will be difficult to distinguish minerals from Congo and more stable "non-conflict" neighbours such as Uganda, Rwanda and Zambia.
"So traders can easily disguise them as originating from non-conflict areas," predicted Nathan Wolukawu, secretary general of the Uganda Chamber of Mines and Petroleum.
David Bensusan, chief executive of Minerals Supply Africa, complained the U.S. bill, expected to be signed by President Barack Obama this week, was too vague and gave industry nine months to comply with guidelines that had not yet been written.
"We accept the principle of the legislation but the problem is they're not giving us enough time," said Bensusan, a Briton whose tin and tantalum export company is based in Rwanda.
Lobby groups such as the Enough Project reject such arguments and say the U.S. legislation should come as no surprise.
"They've had plenty of time ... These issues of due diligence have been around for two years," Sasha Lezhnev, a consultant for the Washington-based group, said by phone.
Few would argue that the U.S. bill in itself can put an end to violence which has continued for years despite the presence of a 21,000-strong U.N. peacekeeping force, seeing it as part of an arsenal of measures that need to be taken.
The U.N. group of experts panel said in its May report that it could also recommend making the financial institutions that bankroll exporters and manufacturers accountable.
Greg Mthembu-Salter, consultant to the panel, said companies would be urged, alongside civilian and army authorities, to devise ways of reducing illegal payments to armed groups.
"The idea is that industry pressure, plus civilian government pressure, will reduce the militarised presence."
That would complement the main government effort underway, which is a U.N.-backed pilot scheme to introduce five "centres de negoces" (buying centres) in which deposits can be traded and tagged free from illegal taxes or armed groups.
Hewlett-Packard and Apple told Reuters they back regulation in a bid to promote supply chains free of conflict minerals.
Tantalum -- prized in the electronics industry for a unique ability to store and release an electrical charge -- is seen in tight supply already and European spot prices in it have risen to nine-year highs..
But Detroit-based rare metals market analyst Jack Lifton said the spotlight on Congo could benefit alternatives such the Blue River Project in Canada due to produce from late-2012.
"This is a reason for institutional investors to take a look at Commerce Resources Corp," he said of the Vancouver-based company behind the tantalum project.
Yet in Congo, optimists point to the gradual effort to de-militarise the Bisie mine, which provides some three-quarters of the cassiterite in North Kivu, as grounds for hope that Congo's minerals sector can be cleaned up.
James Tidmarsh, whose Tengen Metals supplies Malaysia Smelting Corporation with cassiterite from Bisie mine, said he welcomed the U.S. legislation and added: "I think that people who are doing things right will not suffer." (Additional reporting by Elias Biryabarema in Kampala; Mark John in Dakar; Chris Mfula in Lusaka; editing by Mark John)