A Peek at Nascent EU Conflict Minerals Legislation: Broader Scope Than U.S. Law

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September 11, 2013Kirsten WallerstedtBlog

Last week, the European Commissioner for Trade, Karel De Gucht, gave a speech to the Federation of German Industries (BDI) in Brussels, entitled “Conflict Minerals: The Need to Act.” The BDI event was titled “Responsible Sourcing of Minerals from Conflict-Affected Regions.”

Speaking on 3 September 2013, the Commissioner laid out his thoughts and vision for an EU conflict minerals supply chain law. De Gucht has been said to be working hard behind the scenes to move this legislation forward. He hopes the European Commission will make a formal proposal by the end of this year.

The EU has previously established supply chain traceability laws on the diamond trade (the Kimberly Process for certifying the origin of diamonds) and forest products (the EU Timber Regulation No 995/2010), among other initiatives.

Goal of EU Legislation

In his speech, the Commissioner focused on the need to create systems that discourage the negative consequences of trade, such as the “great hardship caused when mining revenues are captured to fund needless wars and all the abuses of human rights that go with them.” While doing this, the EU must also secure the economic benefits of trade for the European market and also for the source countries.

Expanded View of Raw Material Scope

While the U.S. law is limited to tin, tantalum, tungsten and gold, which the Commissioner mentioned in his speech, he also broadened the vision to capture more raw materials that are linked to conflict around the world. However, he did not mention any specific other raw materials.

Broadened Geographical Focus

Similarly, De Gucht expanded the scope beyond the limitations of the U.S. legislation which covers ten African countries. While he did focus on the Great Lakes region of Africa (known as the “Covered Countries” in the U.S. Securities and Exchange Commission’s Final Rule), the Commissioner emphasized that a European regulation should be shaped to address other conflict areas as well. He specifically mentioned the operations of the FARC in Colombia and Venezuela, which he said has moved into capturing revenues from gold and tantalum, especially as cocaine has become more difficult to traffic.

Six Principles

In his speech, De Gucht listed six principles that he said the European institutions should adhere to as they formulate policy:

1. A comprehensive approach is needed to “break the link between conflict and raw materials” – not just a trade solution.

2. Must support existing efforts, such as companies’ own existing due diligence standards and Corporate Social Responsibility practices, as well as the US conflict minerals rule, which affects some European businesses directly, and indirectly affects others who supply to US businesses. He also said he is closely examining the OECD Due Diligence Guidance.

3. Provide incentives for companies to work with above-board primary producers in conflict region – avoid harming development by removing trade from conflict regions.

4. Broad geographic scope – the Great Lakes region is one, but other areas in Latin America and beyond should also be considered.

5. Targeted approach – provide smelters with incentives to carry out due diligence on their upstream suppliers, since smelters are the narrowest point in the supply chain

6. Protect security of supply for the European market.

Business Seen As Key Partner

To wrap up his speech, the Commissioner emphasized that the EU institutions will need widespread public support from business to make this effort successful. He reported that 80% of respondents to the public consultation indicated that European business is interested in responsible sourcing; 30% said they are already performing some due diligence, either voluntarily or to meet other standards.

Looking Forward

The European Commission is currently assessing what form action on this topic should take; the Commissioner stated that he hopes that the Commission will make its decision by the end of the year.

While it is still undecided what shape this potential law will have, there are several possible models. One possible model is the EU Timber Law, which requires all entities that first place wood or a wood product on the EU market to ensure, through due diligence and supply chain investigation, that the timber was harvested legally in the country of origin. However, the Commissioner’s speech suggested that focusing on certifying smelters might also be an avenue for the law, as might the U.S. Conflict Minerals law (the Dodd Frank Act Section 1502) which requires certain manufacturers to publicly report on the origin, processing facilities, and relation to conflict of the conflict minerals in their products.

Of course, the European Commission could propose a new model altogether. If this is the case, the principles that Commissioner De Gucht laid out last week may become the backbone of the law: effective; supportive of existing practices’ incentivize business to work with legitimate producers in the conflict countries; a broader geographic scope; and a targeted approach that puts more responsibility on the narrow parts of the supply chain, i.e. smelters.

This effort can be couched within a new norm in global governance: supply chain traceability and responsible sourcing laws. Companies will be wise to embrace this new norm and to establish systems that can gather, track, and maintain the data needed to ensure that the source and production of your products and raw materials is not only known, but seen as “responsible” under the eyes of the law and in public opinion.

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