European Union: Sustainable Commodities: EU Conflict Minerals Regulation

Earlier this month, the European Parliament voted to adopt the final text of an EU Conflict Minerals Regulation (the "Regulation"), which will require smelters, refiners and importers into the EU of tin, tantalum, tungsten, gold and their derivatives to source them responsibly. The Regulation must first be formally adopted by the Council, and signed by the Presidency of the Council and the President of the European Parliament, before becoming legally binding.

In this client alert, we will explain the background to the Regulation and briefly describe its key features.

Background

So-called "conflict minerals" – tin, tantalum, tungsten, gold and their derivatives ("3TG") – are widely used in the electronics, motor, aircraft and other high-tech industries.

However, the supply chains from which these precious metals derive are well-known to be prone to human-rights abuses and the financing of armed conflict.

The Regulation is the result of several years of work. In 2010, after the U.S. adoption of the conflict minerals rules in the Dodd-Frank Act, the European Parliament passed a resolution calling for the EU to introduce a similar regulation.

The European Commission launched a public consultation in March 2013, seeking views on a possible conflict minerals law. In view of the findings of the consultation, the Commission proposed a voluntary self-certification scheme focused on direct importers of 3TG into the EU.

The Commission's proposed voluntary regulation was submitted to the EU Parliament for scrutiny, which concluded that the Commission's proposed regulation did not go far enough. Instead, the EU Parliament recommended mandatory certification of EU smelters and refiners, and voluntary compliance measures for importers of 3TG and downstream companies, including importers and manufacturers of components and finished products. When this was put to a vote in May 2015, the Parliament voted in favour of a mandatory conflict minerals scheme for all actors in the supply chain, not just smelters and refiners.

A lengthy period of informal "trilogue" negotiations between the EU Council, Parliament and Commission began in late 2015, which culminated in a "political agreement" in June 2016, later followed by a final – albeit informal – agreement in November 2016.

The trilogue negotiations were accompanied by an intense period of lobbying by industry insiders, stakeholders and other interested parties. As expected, NGOs and SER investors argued for a broad mandatory regulation applicable to the entire 3TG supply chain, while industry advocated for a more targeted, less onerous regime.

The "Final" Conflict Minerals Regulation

Metals and minerals covered

The Regulation will apply only to certain ores, concentrates and other forms of 3TG.

The Regulation includes an annex that gives a more detailed description of the specific metals and minerals that are covered by the Regulation, which comprises, for example, tin ores and concentrates, tungsten oxides and hydroxides, carbides of tantalum, and unwrought or semi-manufactured form gold.

The Annex descriptions are very similar to the definitions in the U.S. conflict minerals rule, but are broader in some aspects. For example, the inclusion of tin oxides and chlorides within the scope of the Regulation takes it wider than its U.S. counterpart.

Which actors are caught?

The Regulation will require EU smelters and refiners ("SORs") that process 3TG to conduct due diligence if they are sourcing it from "conflict-affected and high-risk areas". Direct importers of 3TG into the EU will also be required to conduct due diligence.

This differs from the U.S. approach under the Dodd-Frank Act, which imposes due diligence and disclosure requirements on public companies, which then in turn put pressure on their supply chains to conduct due diligence, provide information and source responsibly.

Small-volume importers will be exempt from the due diligence requirements. The details of applicable annual volume thresholds relating to specific minerals and metals are set out in an annex to the Regulation. The threshold figures are set at a level designed to ensure that at least 95% of the total volumes of each relevant form of 3TG which are imported into the EU are caught by the Regulation. The Commission also has powers to change the prescribed thresholds every three years after the effective date of the Regulation, 21 January 2021.

Specific obligations - due diligence and disclosure

3TG importers that are subject to the Regulation are required to undertake supply chain due diligence.
Affected EU importers must:

  • Adopt and communicate to suppliers and the public, information on their supply chain policy – the policy must be consistent with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas ("OECD Guidance");
  • Incorporate supply chain policies into contracts with suppliers;
  • Ensure that senior management oversee supply chain due diligence and maintain records relating to internal processes designed to support it;
  • Set out a grievance mechanism dealing with concerns relating to the due diligence process;
  • Collect information (evidenced by documentation) relating to the source and nature of in scope 3TG, with additional disclosure requirements applicable to minerals from conflict-affected and high-risk areas;
  • Assess the risks in their supply chain based on available third-party audit reports on the SORs in their supply chain, or where no such reports are available, procure independent third-party audits as part of the supply chain due diligence; and
  • Make annual public disclosures about their supply chain due diligence.

SORs and importers will be required to adopt the OECD Guidance framework for their due diligence.

The Regulation will not impose mandatory due diligence obligations on manufacturers, importers and sellers of finished products and components that contain 3TG, although such persons are increasingly likely in practice to be able to provide voluntary reports. There are also no obligations placed on mere transporters and other intermediaries.

Geographic scope

Unlike the U.S. conflict minerals rule (whose application is limited to the Democratic Republic of the Congo and adjoining countries), the Regulation will apply worldwide to 3TG sourced from any "conflict-affected and high-risk areas", in line with the OECD Guidance.

The Regulation contains general principles about what is meant by "conflict-affected and high-risk areas". The definition is broad and is intended to cover any "areas in a state of armed conflict or 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".

The Commission has also indicated that it will develop an indicative and non-exhaustive list of such areas and other non-binding guidelines in a handbook for operators. A draft of the handbook was published in 2015.

Enforcement

Enforcement of the Regulation will be delegated to EU member state competent authorities. Therefore, while the Regulation is directly applicable, member states are required to enact domestic legislation setting out the potential sanctions for non-compliance within their jurisdiction.

Excluded Mineral Content

Recycled metals are exempt from the Regulation. For these purposes, "recycled" means reclaimed end-user or post-consumer products, or scrap processed metals created during product manufacturing, including excess, obsolete, defective, and scrap metal materials which contain refined or processed metals that are appropriate for recycling in the production of tin, tantalum, tungsten or gold. Minerals that are partially processed, unprocessed, or a by-product from another ore are not considered to be "recycled".

Existing stocks of minerals held before 1 February 2013 will be grandfathered, meaning they will not fall within the Regulation.

The Regulation will, however, apply to minerals and metals listed in Annex I of the Regulation that are obtained as by-products, i.e., that have been obtained from the processing of a mineral or metal falling outside the scope of the Regulation, and which would not have been obtained without the processing of the primary mineral or metal falling outside the scope of the Regulation.

List of global responsible SORs

The Regulation requires the Commission to maintain a list of "global responsible" SORs that are deemed to fulfil the requirements of the Regulation.

The process for establishing this list is not contained within the Regulation, but will be set out in secondary legislation made under the Regulation.

Effective Date

The Regulation will become effective 1 January 2021.

This effective date is later than was expected, as originally a two-year transition period had been proposed. An extended transition period until 2021 should give member states and those companies caught by the Regulation plenty of time to establish domestic measures and procedures to achieve compliance with the rules.

In practice, the reputational risks associated with conflict minerals mean that most of those covered will have already taken/be taking steps to achieve compliance with the OECD Guidance, or similar guidance such as the LBMA Responsible Gold Guidance, on a voluntary basis, and as a practical business necessity well in advance of this deadline.

Subsequent Review

The Commission will be required to review the functioning and effectiveness of the Regulation every three years, taking into account its impact on the ground and on EU economic operators. The review will assess the adequacy and implementation of the due diligence schemes put in place by EU operators, and the potential need for additional mandatory measures to ensure sufficient leverage of the total EU market on the responsible global supply chain of 3TG.

Next Steps

The final Regulation will now be put to the EU Council for adoption, which is the last stage in the legislative process before publication of the Regulation. This is expected to happen by May 2017.
As an EU regulation, the Regulation will be directly applicable in all EU member states when it takes effect in January 2021; however, member states will have to bring in local laws to enforce compliance with the Regulation.

For more information on our Global Environmental Capabilities, please find our brochure here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions