EU Clinches Political Deal to Curb Conflict Minerals Trade

23 June 2016

EU officials last week struck a political compromise on a new framework geared towards preventing human rights abuses and the financing of armed groups through trade in tin, tantalum, tungsten, and gold, also known as “conflict minerals.”

The deal envisages obligations for direct importers of these metals and minerals to source responsibly and undertake due diligence. Voluntary reporting and transparency tools for companies further down the supply chain that use such inputs will also be developed.

The outcome from talks between the European Commission, Council, and Parliament comes following more than two years of wrangling between the bloc’s institutions. Preparation of a final rule will now begin, followed by further technical meetings, before being submitted to the Parliament and Council in the coming months.

“This political understanding on conflict minerals will help trade to work for peace and prosperity, in communities and areas around the globe affected by armed conflict,” said EU Trade Commissioner Cecilia Malmström in a press release.

The EU represents one of the world’s largest markets for the sensitive minerals set to be covered by the framework, importing around 25 percent of global trade in tin, tantalum, and tungsten, and about 15 percent of gold.

These four minerals and metals are commonly used as components in a number of everyday products, ranging from mobile phones, laptops, and jewellery, to cars and lightbulbs.

Heated debate

Ahead of the compromise, debate flared among lawmakers and stakeholders alike on the appropriate assignment of sourcing responsibility along supply chains, as well as around the binding nature of obligations.  

The European Commission first proposed a voluntary self-certification scheme focused on mineral importers in March 2014, following a call by the European Parliament in 2010 for greater scrutiny of mineral sourcing, along with the adoption in the US of a conflict mineral rule in association with Section 1502 of the Dodd-Frank Act. (See BioRes, 14 March 2015)

EU parliamentarians subsequently proposed revisions that would make the scheme mandatory and later voted to extend due diligence obligations all the way along the supply chain. (See BioRes, 3 June 2015)

Within the Council, member states remained divided on both these aspects, and informal consultations between EU institutions began towards the end of 2015 in a bid to come up with a compromise.  

The intervening period has been marked by efforts from stakeholders representing both perspectives to influence the outcome.

On the one hand, many downstream companies using the relevant minerals and metals said that heavy reporting obligations could prove difficult to meet in the context of long and complex supply chains and also for smaller manufacturers, while advocacy groups argued that placing the burden on raw materials importers would be insufficient in addressing the challenge at hand.

Just ahead of the political compromise, some 130 civil society organisations in mid-June delivered an open letter to the outgoing Dutch Presidency of the Council of the EU, calling for a final ruling that would require all companies to perform basic checks and due diligence on their supply chains.

In a press release following the deal, campaign organisation Global Witness said that while it represented a step in the right direction, “the law ultimately risks falling well short of its intended objectives.”

The European Automobile Manufacturers’ Association (ACEA), meanwhile, said it supported the overall outcome and efforts to increase transparency in minerals trade.

“The upstream part of the supply chain is the best leverage to achieve transparency in mineral sourcing and to effectively combat the financing of armed conflicts,” ACEA told Reuters.

Final text

While the text of the final ruling has yet to be determined, the political understanding provides key signals on its content. The EU will take a different approach from the US by covering minerals sourced from conflict-affected and high-risk areas worldwide, rather than focusing on the Democratic Republic of the Congo or adjoining countries.

Rules on due diligence and information provision for the approximately 20 EU smelters and refiners affected by the rule will be based on guidelines developed by the Organisation for Economic Co-operation and Development (OECD). These are known formally as “Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.”

An additional 400 market participants that directly import the concerned minerals and metals will also have some form of reporting obligation and be required to use the OECD Due Diligence Guidance, with small volume actors exempted, although this will represent not more than five percent of total imports. 

Experts suggest that further details for these actors around information disclosure, third-party audits, and the possibility of a “responsible importer” certification will be clarified in the final ruling. Current and future industry due diligence schemes should also be recognised under certain conditions.

Recycled metals will not fall under the new framework and existing stocks of minerals will be grandfathered in. EU manufacturers and sellers of the minerals and metals will be encouraged to report on sourcing practices based on guidelines to be developed by the Commission.

Individual member states will be responsible for ensuring compliance with the rule and handing out penalties for non-compliance, which will in turn be monitored by the Commission. A transition period will likely be included before compliance is obliged.

ICTSD reporting; “European Union reaches outline deal to stem flow of conflict minerals,” REUTERS, 15 June 2016; “EU reaches political understanding on conflict minerals regulation – An overview and take-aways for downstream companies,” LEXOLOGY, 20 June 2016.

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