On June 16, the EU institutions reached a political agreement to curb trade in so called ‘conflict minerals’ from conflict-affected and high-risk areas. This is a significant step paving the way for a Regulation, which will be uniformly binding across all EU member states, to be adopted in the coming months. The ramifications won’t just be confined to the EU either, but felt across global supply chains.
What are ‘conflict minerals’?
Tin, tantalum, tungsten and gold are classified as ‘conflict minerals’ – often linked with funding killings, violence, rape, and other human rights abuse. These materials are used in the production of many high-tech devices, in the automotive, electronics, aerospace, packaging, construction, lighting, industrial machinery and tooling industries, as well as in jewellery.
What are 'conflict-affected and high-risk areas'?
As currently drafted, this means areas in a state of armed conflict, fragile post-conflict as well as areas witnessing weak or non-existent governance and security, such as failed states, and widespread and systematic violations of international law, including human rights abuses. One such area particularly referenced in the agreement is the Democratic Republic of the Congo.
What is being proposed?
Clear, mandatory due diligence obligations for the critical so-called ‘upstream’ part of the mineral supply chain, which includes those who import raw materials to smelting and refinery plants in the EU. This covers the vast majority of such metals and minerals imported to Europe. Such due diligence checks will be conducted according to OECD due diligence guidelines.
For ‘downstream’ companies, that use the refined forms of these metals and minerals in components and goods, the European Commission is expected to carry out a number of measures. These include the development of reporting tools and standards to boost due diligence in the supply chain, as well as setting up a transparency database. Those downstream operators who import refined, metal-stage products into the EU will also be covered by the mandatory obligations. Through a review clause, there is also the possibility for the European Commission to propose further mandatory obligations for the downstream supply chain if deemed necessary.
The European Commission will select experts via a tender procedure to draw up an indicative and non-exhaustive list of conflict-areas and other due diligence issues to be addressed in a ‘Handbook for the operators’. Companies sourcing from areas that are not on the list will nonetheless be responsible for doing due diligence checks on sources.
What is the geographic scope?
The EU rules will cover conflict minerals from anywhere in the world, meaning they go further in geographic scope than e.g. the U.S. Dodd-Frank legislation. However, there are some exemptions. Small firms would not be obliged to comply with a due diligence scheme, recycled metals, existing EU stocks and by-products would also be excluded.
What are the next steps?
The technical details of the legislation will be finalised over the coming months. The Dutch Presidency of the EU Council has pledged to conclude informal legislative negotiations before its term ends on 1 July. Further political ‘trilogues’ (three-way talks) under the Slovak presidency might be needed to seal the final text of the legislation before it is approved by the EU Parliament in plenary session.