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EU Proposes New Rules on Trade in Conflict Minerals

Friday, March 07, 2014
Sandler, Travis & Rosenberg Trade Report

The European Union announced March 5 a proposed package of measures on trade in gold, tin, tantalum and tungsten that could take effect in late 2015. These so-called conflict minerals are used in the manufacture of products such as automobiles, consumer electronics, medical equipment, high-speed tools, machine parts, lamps and jewelry. Profits from trade in these minerals have been used to finance armed conflicts, and a European Commission press release states that the proposal aims to make it easier for companies to source these minerals responsibly and to encourage legitimate trading channels.

The Commission states that its proposal is designed to complement U.S. conflict minerals regulations, which require U.S.-listed companies using conflict minerals in their supply chains to disclose their activities related to these minerals. In some ways the EU proposal is broader in scope; e.g., it would apply to conflict minerals from all “conflict-affected and high-risk areas,” not just the Democratic Republic of the Congo and adjoining countries. The EU believes the U.S. approach has prompted companies to disengage their mineral sourcing activities from this region, which has had negative socioeconomic consequences for legitimate workers. EU Trade Commissioner Karel De Gucht added that because a larger share of EU downstream users are already having to comply with the U.S. regulations due to requests from their U.S. clients, the EU’s proposal focuses on upstream users like EU importers, thus providing pressure points at different parts of the supply chain.

According to the press release, the draft regulation would set up a system of voluntary self-certification for responsible EU importers of gold, tin, tantalum and tungsten originating in conflict-affected and high-risk areas. EU importers opting for self-certification would be required to exercise due diligence by (a) setting up a management system to track the origin of the minerals purchased, (b) applying supply chain risk management procedures to address and mitigate adverse impacts related to the financing of armed groups, and (c) carrying out third-party audits and disclosing relevant supply chain-related information to downstream purchasers and the public. These obligations would be consistent with, and in some cases would go beyond, the five steps of the Organization for Economic Cooperation and Development’s due diligence guidance. The EU also aims to publish in cooperation with the OECD an annual list of EU and global responsible smelters and refiners that will also identify such facilities that source, at least partially, from conflict-affected and high-risk areas.

The Commission is also proposing a number of incentives supporting the regulation to encourage supply chain due diligence by EU companies.

- public procurement incentives for companies selling products such as mobile phones, printers and computers containing gold, tin, tantalum and tungsten that respect the OECD’s due diligence guidance or equivalent programs

- financial support for small and medium-sized enterprises to carry out due diligence and for the OECD for capacity building and outreach activities

- visible recognition for the efforts of EU companies who source responsibly from conflict-affected countries or areas

- political, development, trade and security dialogues with governments in extraction, processing and consuming countries to encourage a broader use of due diligence

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