EU Adopts Conflict Mineral Regulations

The EU this week voted to adopt regulations pertaining to the sourcing of tin, tungsten, tantalum and gold (3TG) from conflicted regions of the world. The regulations, which require supply chain due diligence self-certification of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas, are mandatory for smelters and importers of raw materials and voluntary for downstream manufacturers whose products contain these minerals. The rules are scheduled to take effect in January of 2021.

The EU regulations are similar in scope to the so-called “conflict minerals” provision in the U.S. Dodd-Frank Act of 2010. The Dodd-Frank Act requires publicly traded U.S. companies to declare whether their products contain minerals sourced from rebel-controlled regions of Africa. These rebel forces, known for slavery and other human-rights abuses, use the proceeds from mineral-ore sales to finance terrorism and civil war.

The electronics industry is a big consumer of 3TG and many companies are complying with the Dodd-Frank regulations. The Trump administration has called for a rollback of Dodd-Frank in the U.S., but it’s unlikely that will reverse compliance efforts. The electronics industry’s investment in compliance has been significant; many companies have committed to compliance as part of their corporate social responsibility (CSR) efforts; and consumers are increasingly making purchasing decisions based on businesses’ conduct.

According to the IPC, which issued a public statement in support of the EU, provisions in the EU regulation include:

The regulation sets volume based exclusions for small companies
Metals are defined as ‘metals containing or consisting of tin, tantalum, tungsten and gold
The rules do not apply to recycled metals
The Commission will adopt delegated acts to amend the volume thresholds of specific minerals and metals, setting out the criteria and methodology to be followed for that assessment
The EU Commission will establish criteria for recognition of industry supply chain due diligence schemes

The voluntary self-certification scheme requires companies to exercise due diligence to demonstrate that their products' mineral components did not finance human rights abuses, and would offer incentives ranging from EU public procurement contracts to funding possibilities for small and medium-sized enterprises (SMEs), according to IPC. The scheme only applies to companies placing raw materials on the market – such as Europe's 20 or so smelters – and not importers of products.

IPC extensively lobbied the EU Commission, highlighting the difficulties experienced by companies attempting to comply with the U.S. SEC conflict minerals regulations. IPC said it supports the EU Commission's proposal because it would concentrate on "upstream" actors and avoid imposing an extra burden on industry.

IPC also notes that the EU regulation recognizes the Organization for Economic Cooperation and Development (OECD) guidelines for responsible sourcing of minerals, fostering alignment between various regional programs affecting the electronic industries’ global supply chains. Alignment of regulatory regimes reduces the promotes effectiveness and efficiency, IPC said.

According to Global Compliance News, the EU effort may still expand beyond 3TG:

The Regulation will have an open geographic scope and not be limited to minerals sourced from specific regions. One of the rationales behind this approach is to ensure that the legislation does not become out of date because of sudden political changes and developments. However, to help provide certainty for companies the Regulation requires the Commission to prepare a non-binding handbook explaining how to identify conflict-affected and high-risk areas. Indicative and non-exhaustive lists of such countries and areas will also be provided.

Other key aspects outlined by Global Compliance News include:

To ensure consistency with existing schemes and legislation, the obligations imposed on importers are aligned with the 5-step framework of the OECD Due Diligence. The Regulation also acknowledges that existing or future supply chain due diligence schemes, which use independent third parties to accredit or certify smelters and refiners as responsible sources of minerals, can contribute to achieving the aims of the Regulation. As such, it provides for a mechanism for the Commission to approve these schemes.

The Commission will adopt and keep up to date an implementing decision which contains a global list of responsible smelters and refiners, in cooperation with the OECD. This list will consider the supply chain due diligence schemes approved by the Commission and aims to provide transparency and certainty to downstream companies about supply chain due diligence practices.

The supply chain due diligence obligation will begin in January 2021. Two years after the application date the commission is set to review the functioning and effectiveness of the regulation. The review will include an assessment of the proportion of total downstream operators in the EU with 3TG in their supply chains and consider whether additional mandatory measures are required.