EU Reaches Political Agreement on Conflict Minerals

You are here

June 17, 2016 - Kirsten Wallerstedt

Alert Summary

On 16 June 2016, the European Union (EU) Commission, the Parliament and the Council reached an agreement on conflict minerals. EU firms importing tin, tungsten, tantalum, gold and their ores (3TG), including processed metals, will be required to do due diligence checks on their suppliers. The aim is to stop trade in 3TG which funds conflicts and human rights abuses around the world. The Commission will also develop incentives and voluntary supply chain due diligence reporting tools for downstream EU companies that use these metals and minerals as components in their products.

3E Analysis

The European Union has reached a "political agreement" on conflict minerals. The next stage is to develop the legal wording and technical language of the regulation. What has been agreed upon is as follows:

Mineral Scope

Like the U.S. law (Dodd Frank Act Section 1502), the mineral and metal scope of the EU regulation will be: tin, tantalum, tungsten, gold, and their ores (3TG).

Geographic Scope

The EU law will cover conflict affected and high risk areas around the world. This differs from the U.S. law which only applies to 3TG originating from the Congo region of Africa.

Mandatory Provisions for Importers, Smelters & Refiners

Smelters and refiners (SORs) will have mandatory due diligence obligations, as will downstream operators importing 3TG into the EU (including processed metals). The requirement on importers will impact SORs around the world. The upstream will have an obligation to source responsibly, including due diligence checks on their suppliers. Small volume importers will be exempted. It is expected that 95% of all 3TG importers will be affected.

Incentives for Downstream Companies

The legislation will establish incentives to promote transparency in downstream companies including manufacturers of products that contain 3TG. Specific guidelines for companies with more than 500 employees will be established and will likely be integrated into the EU's Non-Financial Reporting Directive. A "transparency database" will also be established where companies can register to implement a due diligence system in their business; the intent is to create pressure on downstream companies to adopt responsible sourcing practices; the EU Commission will develop performance indicators for this purpose.

Exemptions

Recycled metals, existing stocks in the EU, and by-products will be exempted. Special provisions will also be established for small and medium sized enterprises (SMEs).

History

In May 2015 the European Parliament voted to approve a conflict minerals proposal in the EU. Since then, the Commission and Council have both put forward proposals, and trilogue negotiations were held between the three bodies.

Looking Forward

Part of the political agreement is that a "review clause" was agreed upon, which means that two years after implementation, a review will be held of the voluntary downstream provisions of this law to consider whether it's appropriate to make them mandatory. EU member states’ competent authorities will be responsible for ensuring compliance by companies, and also for determining penalties for non-compliance.

Business Impact

This regulation will significantly impact EU importers, smelters and refiners, as well as their suppliers around the world. These companies will be asked to establish due diligence programs to identify and mitigate risks in their supply chains related to sourcing conflict minerals from conflict affected or high risk areas. Companies who sell to the European market may therefore find that they have additional obligations imposed by their customers to provide information on the source and chain of custody of 3TG in their supply chain.

The passage of this law will likely bring benefits to companies subject to the U.S. conflict minerals law, as the EU companies' participation will help to increase pressure on global smelters and refiners to become conflict-free.

The Dutch Presidency of the Council has pledged to conclude the informal legislative negotiations before its term ends on 1 July, and a vote in Parliament is hoped by the end of the year.

 

News | Announcements | Events

VERISK ANALYTICS®
Top