Future EU Regulation on ‘Conflict Minerals’

Overview

EU draft conflict minerals legislation proposal, titled, ‘setting up a Union system for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas‘, has caused some confusion with downstream companies in the marketplace with what exactly is covered and does it mean we as an importer or buyer legally have to do anything? No, importers can elect to be ‘responsible’ or not. There is a curious mix of this being a regulation that is ‘optional’. Only elements within the regulation are regulatory if your company elects to opt-in. Somewhat confusing at first.

The primary purpose of the EU’s ‘hybrid’ proposal is, ‘to break the link between mineral extraction, mineral trading, and the financing of armed conflicts’. A second and third objective of the EU’s proposal is to create the marketplace within the EU for responsibly traded minerals which may originate from conflict-affected and high-risk areas, but do not contribute to conflict and to enable operators to comply with due diligence frameworks (OECD Guidance) more easily. The EU does not want to cause a de-facto ban of the DRC and adjoining countries similarly to what have been unwitting consequences of the Dodd-Frank Act 1502. This means essentially lessening operators burden when conducting due diligence. This is planned to be achieved via the proposed Regulation:

– The burden of responsibility being placed on the importers of ‘conflict minerals’. Importers are viewed by the EU as the crux of the supply chain. The draft Regulation proposes to set up a system of self-certification with the EU for ‘conflict minerals’ (these are specifically referred to the document at the end of this page; EU Covered Minerals & Metals for Conflict Mineral Regulation). The proposition states that EU importers of metals and ores as mentioned in the afore document, to exercise due diligence in accordance with OECD Guidance. The resulting planned outcome of using such internationally recognised guidance is the prevention of financial support to non-state armed groups and serious human-rights abuses associated with the extraction, transport, trade and illegal taxation of ‘conflict minerals’. OECD Step 5 involves public disclosure. In the proposed regulation too, importers can elect to declare they are ‘responsible’ and make their supply chain policy publicly available. If companies elect to become ‘responsible’ and therefore agree to be part of this regulatory process, then they have an obligation to disclose certain information for purchasers in order for downstream to conduct due diligence.

– Greater transparency: one aim for the regulation is to make the supply chain more transparent and to make it easier to source the metals and their ores responsibly. The outcome of this regulation at a future point should the proposal be accepted by the European Commission, is an EU annual list of responsible smelters and refiners. At a future point the EU has made its intention clear that a global list in cooperation with the OECD is intended. It is worth noting that it is unusual for commercial endorsement by a public or governmental organisation, especially the European Commission.

Voluntary Self-Certification
The draft proposed Regulation sets up a new EU system for optional supply chain due diligence self-certification. The system for this is analogous to other resource due diligence, such as timber due diligence (see EnviroSense EUTR Due Diligence page; click here):

(i) Development of a management system by the importer to obtain information to conduct due diligence as referred to in OECD Guidance (EUTR; gathering information)
(ii) Identify and assess risk (EUTR; risk assessment)
(ii) Risk mitigation (EUTR; risk mitigation)

Once the importer is satisfied that due diligence has been applied following international norms as detailed in *OECD Due Diligence Guidance, then they can elect to have an independent third-party audit to validate their assumptions. The audit performed may be an attestation engagement carried as defined in ISAE 300, though the requirements for the audit have not been fully detailed. On the basis of the positive audit report, then the importer can complete a declaration with the audit report and submit this to the Member State competent authorities who will in turn, inform the Commission. The Regulation plans for the Commission adopt and make publicly available a decision on the information provided and list of names and addresses of responsible smelters and refiners in relation to the regulation.

Conclusions
Unusual Regulation as it is not mandatory and importers can elect to be self-certify or not. Therefore regulatory requirements apply to those importers that elect to self-certify and this Regulation can be easily misinterpreted.
Minerals are ores and concentrates of tin, tungsten, tantalum and gold (see full list as download at the end of this page) are limited to materials used by smelters and refiners.
Metals are in a variety of forms; unwrought, bars, rods and wire with the exception of tungsten and such that may be traded or smelted. ‘Tin articles’, referred to in the draft proposal includes articles that need to checked of what is specifically listed under the Combined Nomenclature 8007 00 as subsequent categories.
No geographic identification of areas that constitute conflict-affected or high-risk and the EU will provide some guidance on this, essentially it can include any area and not limited to DRC and adjoining countries as referred to in the Dodd-Frank Act 1502. On the basis the EU shall make reference to recognised international barometers of conflict, such as the Hiedleberg Academy, then a multitude of countries may be covered by the Regulation.
Notable confidential information could be requested to be disclosed to downstream, as obliged under the Regulation, if the smelter or refiner elects to be responsible.
*OECD Due Diligence Guidance for the Responsible Minerals Supply from Conflict-Affected and High-Risk Areas Version 2. See EnviroSense Resources Page for more information.
EU Covered Minerals & Metals for Conflict Mineral Regulation

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