Conflict minerals and the status of EU legislation

We have recently spoken of the conflict mineral situation, especially regarding the US status quo and the application of the Dodd-Frank Section 1502.

In this article I would like to detail the particularities  of the EU legislation and what we could expect – soon enough – from Bruxelles, and the change it will  bring to the regulations for all the EU members (28 at the moment, 27 if we take out UK).

On the last 16th of June a big step has been taken towards the regulation of the conflict minerals - the EU has agreed, closing the discussion between the Commission, the Council and the European Parliament, on a framework to stop the financing of armed groups through trade of conflict minerals. .

The EU reached the conclusionthat the EU firms importing tin, tungsten, tantalum, gold (the so-called “3TG”) and their ores will have to do "due diligence" checks on their suppliers, to stop this trade being used to help fund conflicts and human rights abuses. Due diligence will also be mandatory for smelters and refiners. The EU Commission will press big manufacturers to disclose details of products that might contain conflict minerals.

The official document is yet to be published but we can identify various type of information from different press-release/statements from the EU/people involved, which will give us a better understanding of what we will have to deal with in the near future.

What we know so far:

The EU has taken a different approach than the U.S. regarding Conflict Minerals Regulations.

 The U.S. rule imposes due diligence and disclosure obligations on public companies, which subsequently make pressure on their supply chains to conduct due diligence, provide information and source responsibly. The EU is looking to take another approach and to regulate the supply chain directly.

The EU framework split the due-diligence obligation between the so-called “upstream” and “downstream” companies which are part of the mineral supply chain.

The agreed framework sets out clear, mandatory due diligence obligations for the critical "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. The particular needs of small companies will be catered to so as to avoid subjecting them to overly cumbersome procedures, by exempting recycled minerals, and imports of very small volumes.

For "downstream" companies, that use the refined forms of these metals and minerals in components and goods, the Commission will now carry out a number of measures. These take into account the development of reporting tools and standards to further 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 be covered by the mandatory obligations. Through a review clause, there is also the possibility for the Commission to propose further mandatory obligations for the downstream supply chain if deemed necessary.

The due diligence will require to utilize the OECD Guidance framework, and to be in accordance to the related guidelines.

With this split system, the regulations aim for almost full coverage of the imported minerals and metals, enclosing an exception only for the small importers (e.g. for dentistry) that should not be obliged to comply with a due diligence scheme.

Regarding the coverage of the regulations, as mentioned at the beginning, so far these cover only the “3TG”, but we cannot exclude that prior to application this will be extended also to tin oxides and chlorides.

The conflict area covered, as anticipated during the first session of 2014, will not be restricted as  perthe Dodd-Frank section 1502 to the DRC and adjoined countries, but the regulation will apply to all conflict-affected and high risk areas in the world, of which the Democratic Republic of the Congo and the Great Lakes area are the clearest examples.  

The press statements confirm that “According to the political understanding, the Commission will select experts via a tender procedure to draw up an indicative and non-exhaustive list of areas and other due diligence issues”, that will have as result a "Handbook for the operators" to be developed by the EU Commission.

The next step

Now that the Dutch presidency of the EU ended as at the 30th of June and  was followed  by the Slovak presidency, we expect eventually that further discussions between the three parties (European Parliament, commission and council) under the Slovak presidency might be needed to seal the final text of the legislation before it is approved by Parliament in plenary session.

For further information about the Conflict Minerals Rule, don’t hesitate to contact me and to visit Crowe Horwath’s Conflict Minerals Resource Center at http://www.crowehorwath.com/conflict-minerals/.

Crowe Horwath Boscolo – Bucharest Office

Camillo Giovannini – Partner – [email protected]