In this article, "Proposed EU Conflict Minerals Law Lacking Teeth, Critics Say,"  , Compliance Week discusses the release by the European Commission of its proposed conflict minerals law. While the proposal has received much criticism as being "too weak," some U.S. companies may be heaving a big sigh of relief that they will likely not be subject to dueling sets of regulations. Largely consistent with much public speculation (see my article of 11/7/2013), the proposal involves a "voluntary self-certification scheme for importers"; that is, the "proposal only applies to importers* or smelters rather than companies further down the supply chain." The proposal does, however, apply globally to minerals from countries outside of the DRC and adjoining countries, covering conflict minerals (3TG) from any "conflict-affected and high risk-areas." The proposal generally applies the OECD Guidelines and was the result of "more than three years of study and consultations." The EU will also work with OECD to publish an annual list of "responsible smelters and refiners."

The Joint Communication to the European Parliament and the Council states that the "EU approach would concentrate due diligence on upstream supply chain operators and facilitate the downward transmission of quality information and best practices." According to the Joint Communication, the impact assessment that was conducted showed that there were potentially 880,000 EU downstream companies, the majority small- or medium-sized, that use conflict minerals in their products, but only "about 300 EU traders and around 20 smelters/refiners importing ores and metals derived from the four minerals and more than 100 EU component manufacturers importing derived metals." Moreover, the smelters/refiners "are well placed to identify the origin of the purchased mineral. They are the last stage in the supply chain where it is still technically feasible to trace back the origin of minerals and can leverage responsible supply behaviour in producer countries." The article confirms that the EU approach was designed to address the problem at the source. According to the EC Trade Commissioner, "'by targeting the importers, i.e. before the minerals get spread across Europe to hundreds and thousands of factories to be used in millions of products, we focus on a critical point in the EU supply chain: the approximately 400 importers of these minerals…. That is realistic to control.'"

The Trade Commissioner criticized "the U.S. ‘stick approach' [because it] can have unintended consequences, like moving risk-averse companies away from traditional sources, causing mines to go out of business, and communities to collapse. He said a large share of EU downstream users already must comply with Dodd-Frank, and the commission's proposal will be further boosted by public procurement incentives for those complying." The proposal noted that European Union "companies [presumably downstream] have also reported countless difficulties in the exercise of supply chain due diligence because of lengthy and complex global supply chains involving a high number of operators that are often insufficiently aware or ethically unconcerned."

Note, however, that the new proposal is not quite a done deal. Critics have charged that the EC "caved to business lobbyists," and that the proposal "lack[s] teeth," is "too restrictive, as it only applies to goods produced in the EU. Given most of the affected consumer goods are produced outside the EU, it would only address the tip of the iceberg." The article also reports that Parliament's Development Committee is calling for binding legislation: "It said all companies using or trading minerals from conflict-affected areas or high-risk areas should be required to perform supply chain due diligence outlined by the OECD. The Parliament committee said the regulation should apply to all upstream companies in the EU and all downstream companies that are the ‘first placer on the European market.' The Parliament committee wanted the law to apply to all natural resources hailing from conflict-affected areas and high-risk areas, unlike the limits in the commission's proposal." Others have recommended "independent audits and a way to sanction companies for non-compliance."

*Under the proposal, 'importer' means any natural or legal person declaring minerals or metals within the scope of [the conflict minerals proposal] for release for free circulation within the meaning of Article 79 of Council Regulation (EEC) No 2913/19929." That article defines "release for free circulation" as a process that "confers on non-Community goods the customs status of Community goods, entailing "application of commercial policy measures, completion of the other formalities laid down in respect of the importation of goods and the charging of any duties legally due."