According to Euranet Plus News Agency, the “EU has reached a preliminary deal to curb the trade in minerals from war zones and corrupt regimes. The rules will force companies that mine, refine or import ‘conflict minerals’ and metals into the EU to audit the suppliers they use and report back to the [European] Commission.” The agreement came after “three years of tense negotiations and a fundamental shift in the [European] Commission’s position – its 2013 draft regulation suggested voluntary rules for companies. It also represents an about-turn for member states, particularly Italy, France, the UK and Poland, who were against binding rules.”
In this European Commission press release, the European Union characterized that agreement as a “political understanding” on a “framework” regarding conflict minerals in the supply chain: the “agreed framework carries clear obligations for the critical ‘upstream’ part of the conflict minerals supply chain, including smelters and refiners, to source responsibly. The vast majority of metals and minerals imported to the EU will be covered, while exempting small volume importers from these obligations. In addition, the Commission will carry out a number of other measures — including the development of reporting tools — to further boost supply chain due diligence by large and smaller EU ‘downstream’ companies, i.e. those companies that use these metals and minerals as components in goods.”
How are the EU rules on conflict minerals expected to differ from the conflict minerals rules that apply in the US as a result of Dodd-Frank? Most significantly, while Dodd-Frank applies to manufacturers and companies that contract to manufacture products, the EU agreement would apply upstream to smelters and refiners processing minerals and downstream to companies importing minerals and processed metals into the EU. However, according to Euranet Plus, “the agreement does not cover companies that import finished products such as mobile phones, laptops or light bulbs, but the Commission has agreed to review and change the rules in time if they prove ‘insufficient.’” Apparently, whether or not to include finished products was a matter of substantial debate. Amnesty International acknowledged that the agreement represented “a first step in the right direction,” but expressed concern that “the law ultimately risks falling well short of its intended objective”; an Amnesty representative commented that “[t]oday’s decision leaves companies that import minerals in their products entirely off the hook.”
As noted above, the proposal from the EU originally consisted of a self-certification system that companies could join voluntarily. Like Dodd-Frank, the new rules would be mandatory. And, like Dodd-Frank, the new agreement would cover only 3TG — tin, tantalum, tungsten and gold — for now at least. However, while Dodd-Frank looks only at 3TG from the Democratic Republic of the Congo and adjoining countries, the EU rules would apply to 3TG from other conflict areas as well. According to Euranet Plus, the lead EC negotiator expanded geographic coverage in response to perceived limitations of the U.S. rule: he “criticised American conflict mineral rules, which he says have caused a ‘trade diversion effect’ as they apply only to the Democratic Republic of Congo (DRC) and the Great Lakes region in Africa. ‘Companies, understanding that they have to do supplementary obligations if they source from the DRC or the Great Lakes region, avoided totally this region – this means more poverty and more problems for the people there,’” he said.
According to these news conference videos provided by Elm Sustainability (and indirectly thecorporatecounsel.net blog), “small volume importers” would be exempted, although the negotiators believe that there would still be 95% coverage (and hope to phase in complete coverage over time). Recycled materials and “byproducts” would be excepted and existing stocks would be grandfathered. The due diligence processes would be based on the now-familiar OECD Guidance.
Presumably, we will learn more when the details of these rules are spelled out; the participants in the negotiation stressed that much work is necessary to translate these concepts into a final document that could be submitted for a vote. The participants are hoping for a vote by year-end and expect to review the effectiveness of the new rules a couple of years after implementation.