EU manufacturers and importers seem likely to avoid mandatory supply chain due diligence for conflict minerals, contrary to expectations that the EU would follow the US Dodd-Frank Act and impose compulsory requirements. Instead, on 5 March 2014, the European Commission published a legislative proposal for a voluntary self-certification scheme for importers of tin, tungsten, tantalum and gold and their ores. The question is whether this will be enough to satisfy the European Parliament, members of which had been advocating a more sweeping, mandatory approach.

Why legislate?

Conflict minerals laws are aimed at the immense hardship and suffering caused when mining revenues are captured by armed gangs to fund violence and human rights abuses in conflict-affected areas, such as the Great Lakes Region of Africa. Tin, tungsten, tantalum and gold (and their ores) are generally targeted by such laws because they are often sourced from conflict-affected countries. These minerals play a vital role in many different applications, including in the automotive, electronics, jewellery, aerospace, packaging, construction, lighting, and industrial machinery and tooling sectors.

In the US, mandatory conflict minerals due diligence requirements for US-listed companies were introduced through the Dodd-Frank Act in 2010. Many EU companies already have experience of this Act indirectly as a result of due diligence enquiries from the US companies they supply.

The EU Proposal

On 5 March 2014 the European Commission published a package of measures on conflict minerals, including a proposal for a new regulation on the responsible sourcing of minerals. The proposal is far weaker than earlier commentary had suggested was likely. In particular, the Commission's proposed scheme is voluntary rather than mandatory.

The key components of the proposal are:

  • It establishes a voluntary self-certification system for importers into the EU of the relevant metals and their ores only. Manufacturers and importers of finished products containing these minerals are not within the remit of the scheme.
  • It focuses on a closed list of minerals (tin, tungsten, tantalum and gold, and the ores of these metals), following the approach of the Dodd-Frank Act.
  • It applies to minerals sourced from all "conflict-affected and high-risk areas". This contrasts with the approach of the Dodd-Frank Act, which only covers minerals sourced from the Democratic Republic of Congo (DRC) and neighbouring countries.  This means that under the EU approach importers will have to determine whether a particular region is "conflict-affected" or "high-risk", a decision that many may be hesitant to make.
  • The EU proposal incorporates the OECD due diligence framework relating to conflict minerals.  Importers who wish to self-certify will have to follow these due diligence steps and the additional requirements within the proposal, to ensure their supply chains are "conflict-free". These measures include tracking the origin of the minerals purchased, implementing risk management procedures, self-auditing through an independent third party to determine compliance, and disclosing relevant supply chain related information to downstream purchasers and the public. Member State authorities will conduct appropriate checks to determine whether self-certified importers are compliant.
  • The EU will publish an annual global list of responsible smelters and refiners, in cooperation with the OECD. "Responsible smelters and refiners" will be those in the supply chain of certified "responsible importers". The aim of the list is to increase accountability and encourage responsible sourcing, particularly from conflict-affected areas, and to allow downstream purchasers to easily identify responsible smelters and refiners.

Other measures to incentivise responsible sourcing

In addition to the proposal, the Commission has published a Communication setting out further measures for conflict minerals. These include introducing into the Commission's own public procurement contracts requirements that any products supplied to it are "conflict-free", and financial support for small and medium enterprises that participate in the voluntary certification scheme. No commitments have been made, however, regarding the level of funding to be provided.

Possible timeline

The proposal is subject to review and amendment by the European Parliament and the Council.  Depending on their reaction to the proposal, the measure could be adopted later this year and become operational at some point in 2015, although at this stage this timetable is highly speculative.

Rationale for the Commission's approach

The voluntary nature of the Commission's proposal and its limited application to importers of the relevant minerals appears to reflect business concerns that a mandatory due diligence requirement with a broader reach would be too onerous and costly. Although the Commission has sought to reinforce the scheme with supplementary measures to encourage its take up, as for any voluntary initiative the main driver for self-certifying is likely to be the negative reputational and commercial consequences of not doing so, to the extent those pressures continue to grow.

In only targeting mineral importers the Commission is focussing on what it considers to be the "weak spot" in current efforts to map mineral supply chains. This will be welcome news to downstream users of those minerals (i.e. manufacturers or importers of products and goods) who, until now, were concerned about the imposition of potentially onerous due diligence requirements, akin to the US Dodd-Frank regime, for mineral source information which at the present time can be impossible to obtain through the supply chain. 

By encouraging smelters and refiners to obtain minerals from responsible sources in conflict-affected and high-risk areas the Commission is clearly trying to avoid the criticism that has been levelled at the US Dodd-Frank regime, particularly the accusation that it has created a de-facto embargo of minerals sourced from the DRC and surrounding areas.  This unintended consequence arises because companies find it easier simply to ban minerals originating in the region from their supply chain, leading to a decline in legal mining, a sharp fall in mineral prices, and increased mineral smuggling.