sharing in governance of extractive industries

A Quick Update on a Possible EU Directive on Conflict Minerals

By Harrison Mitchell

A number of clients and colleagues have been asking me for updates on the potential EU Directive on conflict minerals– so I thought I would gather together the information we currently know and engage in some informed speculation.

Two recent speeches by EC DG Trade representatives Karel De Gucht  - the EU Commissioner of Trade and Signe Ratso, Director of the EC DG Trade allow us to glean the following:

  • The public consultation on the EU Directive has ended with 280 submissions, 80% from businesses. The EU is now undergoing an impact assessment of a potential rule. The subsequent European Commission legislative proposal and Communication are expected in December, 2013. If it doesn’t make it through this year’s agenda we can expect significant delays due to elections next year.
  • The impact assessment has been done (or largely done), according to this press release, and will be released in December as well. The impact assessment was conducted by iPoint  - also  a conflict minerals service provider of IT software and the press release states: “One major part of this study presents the results of a survey conducted with users of the iPoint”. One would assume that the impact assessment covers more businesses than iPoint users, as it would seem those iPoint users would be more likely to be first movers with greater exposure to conflict minerals legislation in the US, and thus be better informed than the average EU business that might be affected.
  • Consensus seems to have emerged that anything out of the EU should use the OECD Due Diligence Guidance (OECD DDG) as a reference in terms of both relevant products and scope. Note that the OECD DDG is worldwide in scope and not restricted to the DRC + 9 countries as the US SEC conflict minerals rule deriving from DF section 1502.
  • It seems likely that the EU is looking to target the upstream part of the supply chain – i.e. from mine to smelter, while at the same time complementing the DF1502 requirements with a view to provide information necessary for reporting to US for downstream companies. There was a suggestion that importers would be able to use "EU Responsible Import Certificates” when able to demonstrate that their minerals are from responsible sources.
  • Reasonable and effective are key words guiding the approach – with an emphasis on tackling the issues of conflict upstream without unnecessarily burdening downstream companies. Details of what that actually means are vague, but there doesn’t appear to be an appetite for strong legislation that would require companies to report. Rather one suggested approach could be company self-declarations monitored by OECD national authorities - in the same way as is done with the OECD Guidelines for Multinational Enterprises.  


So how does that potential translate into real world due diligence?  

Warning: Speculation below.

It seems pretty safe to assume that the OECD DDG will be at the heart of anything emerging from the EU. This is of course of immense relief to companies and experts who have been working for the last three years at actually implementing the OECD DDG and hoping that the EU would not derail the approach. In the consultation process, concerns were raised that the EU would basically try and translate the OECD DDG into law, something which would make compliance very difficult for companies as the Guidance doesn’t set clear criteria for implementation.

The likely worldwide application of the directive is a partial response to criticism that DF1502 had created a de facto trade embargo of sorts on 3TG from the DRCongo and surrounding countries. FARC rebels operating in Colombia and Venezuela were specifically referenced in one speech as areas where CM due diligence should be applied. One EU representative stated, “The EU text is intended to apply globally and will "provide incentives for sourcing from high risk areas" - but was short on details on how that would work exactly.

Finally, what could an upstream to importer approach look like? One speech noted that the pinch point in the supply chain was at the smelter level – which suggests more pressure on smelters to ensure they are sourcing responsibly. But with many smelters outside of Europe, it may be that the EU will seek to exert influence on companies that place material on the EU market as occurs with the EU Timber Regulation. The due diligence requirements of Timber regulation actually look very similar to the OECD DDG approach in that importing companies would have to conduct due diligence on the origin of the material, the supplier, as well as undergo a risk assessment and develop a risk mitigation strategy. The timber regulation also recognises certified timber automatically, which would also translate very well in the mineral sphere where a number of up and midstream certification schemes are already running.

In conclusion, while the OECD DDG seems like it will be at the heart of the EU approach, there are few hard details on what it will request of companies. If the EU approach is indeed a voluntary approach, or what really could be considered a weak approach through OECD national contact points, the EU Directive runs the risk of being completely side-lined by the strong regulation that came out of the US. After all the OECD DDG is already a voluntary mechanism that companies can follow and companies that are directly or indirectly affected by DF1502 are already moving to achieve compliance.

Please do contact me if you have any comments or further information at harrison@rcsglobal.com



Skype: harrisonmitchell


Thanks to Michèle Brülhart and Nicolas Eslava for their help with this post.


PS:  The Responsible Sourcing Network and the Enough Project have released a guidance setting out the information they expect companies to provide as part of their reporting obligations under DF1502. http://www.supplymanagement.com/news/2013/conflict-minerals-reporti...

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