By Maria Cox, MMTA
It would be very easy to think that because the EU’s proposed conflict minerals regulation has been announced as voluntary, it won’t have much of an impact on EU businesses, but this is far from the truth.
As previously reported in the Crucible, the draft regulations were published in early 2014.
‘The Commission proposes a draft Regulation setting up an EU system of self-certification for importers of tin, tantalum, tungsten and gold who choose to import responsibly into the Union. Self-certification requires EU importers of these metals and their ores to exercise ‘due diligence’. Click here to see the full press release.
In early December, and again in January, the MMTA was invited to Brussels to discuss European Conflict Minerals legislation with MEPs and other industry representatives.
KEY QUESTIONS TO BE RESOLVED:
- Is the final legislation going to be voluntary, and how voluntary is voluntary?
- Who is going to be affected and to what extent?
- How far will existing conflict free schemes, both voluntary and mandatory, be recognised, and will companies be able to double up on their compliance efforts to minimise administration and cost?
- What measures will be in place to protect and support SME Importers and allow them to operate on a level footing in the market?
- What are ‘conflict-affected and high-risk areas’, who will decide and how frequently?
- Will this legislation be effective in breaking the link between mining & metals and conflict?
- What will the impact be on conflict-affected areas?
- What will the impact be on the competitiveness of EU business?
From these discussions, including associations and companies in the tin, tantalum, tungsten and gold supply chains, it became apparent that there were many shared questions and concerns regarding the details of the draft regulation, including, importantly, whether these requirements would eventually become mandatory and increase their scope to other minerals and metals.
The draft proposals currently being reviewed, although described as voluntary self-certification, aim to achieve full compliance through market pressure and a process of ‘naming and shaming’ of non-compliant companies. By inviting companies importing tin, tungsten and tantalum, their ores, and gold into the EU to self-certify as Responsible Importers, the EU aims to use market pressure both downstream and upstream to ultimately achieve full compliance. Those companies not designated ‘Responsible Importers’ (ie without traceable, conflict-free supply chains), will be deemed non-compliant and will increasingly find their competitiveness threatened by their downstream customers selecting importers who are ‘responsible’.
This is how the regulation is planned to work, nevertheless, there are many voices calling for a straightforward mandatory system that relies on enforcement rather than market forces to achieve its goal of breaking the link between the mining & metals sector and conflict.
The MMTA has made a submission to the International Trade Committee drafting the report for the European Parliament on behalf of its Members, as well as to the Development and Foreign Affairs Committees, who are also involved in making submissions in the process, calling for the scheme to be voluntary, and any move to mandatory not to be considered until such time as a thorough evaluation of the scheme has been undertaken, fully assessing the impact not only on conflict-affected areas, but also, crucially, on EU businesses, particularly Small and Medium Sized Enterprises (SMEs).
The onus on the Responsible Importer is to perform due diligence and be able to confirm that they purchase only material from Responsible Smelters & Refiners, who will in turn need to verify that metal bought from conflict-affected or high risk areas is conflict-free. Third party audits will be required to support self-certification. The process envisioned would involve a significant administrative and financial burden for importers of tin, tantalum, tungsten, their ores, and gold into the EU.
In order to be a Responsible Smelter/Refiner – and the EU recognises that this is the final point at which the origin of material can be traced, so wants to capture 100% of smelters/refiners globally – the smelter/refiner needs to be able to prove that they source only from conflict-free sources when sourcing from any region defined as conflict-affected or high-risk. There will be a mechanism within the EU scheme to remove a smelter from the ‘white list’ of Responsible Smelters & Refiners, and if this happens, no Responsible Importer wishing to retain its own status will be able to purchase material from the delisted smelter/refiner.
There remain questions around what will be defined as ‘conflict-affected and high-risk areas’. Although it has been requested, the Commission does not wish to define a list detailing the scope of the Regulation. It wishes individual businesses and/or Member State Competent Authorities (as yet to be set up) to use a risk assessment process to define the current conflict-affected and high-risk areas and review and update these on a regular basis, redefining their supply chains as appropriate. There are several concerns with this approach:
Firstly, if global conflicts are too fluid for the Commission to define a list, how will companies with far fewer resources and expertise do so? Will failure to correctly assess a conflict-affected area lead to non-compliance? These questions remain un answered so far, and the proposal has been challenged strongly by the MMTA.
In the current draft of the regulation, Responsible Importers will report to individual Member State Competent Authorities who will gather data, audit and report on compliance or the lack of it. Should the scheme become mandatory—and for those who choose to self-certify, obligations will be mandatory—the Member State Competent Authority will also add to and remove companies from the list of Responsible Importers and Responsible Smelters & Refiners. These Competent Authorities will be able to define conflict-affected and high-risk areas, and it has been suggested that additional confusion, not to mention administrative burden, will be created as each Member State interprets its own definition according to its own priorities. Nevertheless, the Commission fears that at this time, when the nations of Europe are demanding less central control, it would be inappropriate to create a single EU Authority with the power to decide one single list of conflict-affected and high-risk areas and one harmonised system.
INDUSTRY DISCUSSION CONCLUSIONS:
- Additional mandatory legislation reduces competiveness for those importing into the EU;
- The EU needs to recognise Dodd-Frank and conflict free smelter initiative participants instead of doubling on administrative and compliance costs;
- There is a danger that such regulation affects the market and encourages end-users to just skip Africa altogether to avoid the extra paperwork;
- Leaves too much to national authorities – providing a guide book and leaving it to individual countries to interpret means that the definition of ‘conflict-affected and high-risk’ may be different from country to country.
The current (OECD) definition is: areas in a state of armed conflict, fragile post-conflict, as well as areas witnessing weak or non-existent governance and security, such as failed states, and widespread and systematic violations of international law, including human rights abuses.
It is easy to see that this could encompass many more countries than the DRC region.
The MMTA’s submission includes amendments to the proposal which would require one list of conflict-affected and high-risk areas to be defined for use across the EU, and only countries agreed internationally to be the cause of most serious international concern would be added, thus avoiding the potential inclusion of every area to which the above definition could potentially be applied. Business needs certainty and uniformity to be able to plan and operate effectively.
Another concern is that it remains unclear to what extent the EU system will recognise and give parity to existing schemes. There are several audited industry voluntary schemes which have already made significant progress in certifying conflict-free smelters globally. There is also a raft of compliance required by Dodd Frank legislation in the US. It would go a long way towards making compliance with the EU conflict minerals scheme manageable if companies could comply once, to one scheme, and have their efforts mutually recognised by the others as equivalent. As yet this is not included in the proposal, but it is one of the amendments the MMTA is seeking, and this approach is shared by many industry bodies.
Importantly, the MMTA is also seeking that the burdens of this Regulation not fall solely onto importers. Conflict-minerals due diligence impacts the entire supply chain and the burden should be shared, not concentrated on one group. Smelters and refiners, and others, are already complying with audit requirements for other schemes, as well as Dodd Frank requirements, and the compliance efforts already involved in creating the conflict-free smelter lists should be built upon and not simply duplicated, creating additional burden. We have made our support for existing industry schemes known, and strongly support efforts for this work to be recognised as compliant with the new EU scheme.
There are to be ‘additional measures’ to support SME Importers in their compliance, and all concerned are keen to stress their wish to minimise the burden on this group. The MMTA asked the Commissioner directly what form these additional measures will take and how the Commission will ensure that the compliance burden, which will be onerous even for larger importers, does not effectively exclude smaller importers from the EU market. The MMTA reminded the panel that REACH compliance is not a thing of the past for EU businesses – some only registered for the 2013 deadline and for others 2018 compliance still lays ahead. There is a danger that conflict minerals compliance measures may only succeed in making SMEs (and perhaps the EU market) uncompetitive.
And if you are sighing with relief because you don’t handle tin, tantalum, tungsten or gold, don’t smile too soon – the draft regulation does not stipulate that at some point in the future, the scheme will not be extended to include additional metals, indeed some parties are actively advocating that the scope should be widened to include all metals and minerals imported into the EU.
Based on the current wording of the draft regulation, secondary/recycled material is not explicitly excluded from the scope of the scheme. We, along with many other industry bodies, are calling for this exclusion to be made explicit, as no attempt to trace the conflict-free or otherwise origin of secondary materials can be effective.
There are also questions around alloys: at what % does an alloy need to be included? The draft regulation is based on ‘custom codes’, which include alloys and downstream products, so there needs to be some clarity as to where the boundary is. For information, the full Annex of those materials currently within the scope of the regulation is reproduced below:
|CN Code||Product Description|
|2609 00 00||Tin ores and concentrates|
|2611 00 00||Tungsten ores and concentrates|
|2615 90 00||Tantalum ores and concentrates|
|2616 90 00||Gold ores and concentrates|
|2825 90 40||Tungsten oxides and hydroxides|
|2849 90 30||Tungsten carbides|
|2849 90 50||Tantalum carbides|
|7108||Gold, unwrought or in semi-manufactured forms, or in powder form|
|8003 00 00||Tin bars, rods, profiles and wires|
|8007 00||Tin, other articles|
|8101 10 00||Tungsten, powder|
|8101 94 00||Tungsten, unwrought, including bars and rods obtained simply by sintering|
|8101 96 00||Tungsten wire|
|8101 99||Tungsten bars and rods, other than those obtained simply by sintering, profiles, plates, sheets, strip and foil, and other|
|8103 20 00||Tantalum, unwrought including bars and rods, obtained simply by sintering; powders|
|8103 90||Tantalum bars and rods, other than those obtained simply by sintering, profiles, wire, plates, sheets, strip and foil, and other|
KEY CONSIDERATIONS FOR LEGISLATORS:
- That the Dodd-Frank Act could be overturned after the next US election;
- That there is now an expectation from consumers for transparency in business, as well as there being little faith in politicians and the administration.
- That there is concern from the industry side about the impact of EU legislation undermining the sustainability of industry conflict minerals projects and affecting co-operation on the ground. It was emphasised that there is already an audited conflict-free smelter list available.
EXISTING INDUSTRY INITIATIVES TO TACKLE THE ISSUE OF CONFLICT MINERALS
Tungsten Industry-Conflict Minerals Council (TI-CMC)
- Provides assurances that Tungsten from compliant companies are conflict free.
World Gold Council (WGC)
- The Conflict Free Gold Standard helps to ‘operationalise’ the OECD guidelines. To see the standard click here.
OECD and the due diligence guidance
- Provides a theoretical and voluntary guide to companies, offering a flexible approach to progressive improvement
ICGLR regional certification mechanism
- An intergovernmental organisation of central Africa setting standards for national member states
CFSP conflict free smelter programme
- Downstream industry system for auditing smelters
- Globally applicable, industry supported and funded
ITSCI traceability and due diligence programme
- Upstream industry system for 3T minerals, currently from central Africa
- Provides extensive information on participating companies including audits
- Globally applicable, industry supported and funded
CFTI conflict free tin initiative
- Dutch led project cooperation of companies across the supply chain to demonstrate conflict free mineral sourcing from the highest risk area of the DRC
- Utilised ITSCI plus CFSP
- CFTI project no longer active, although conflict free minerals continue to flow
SfH solutions for hope
- US industry led company cooperation to source minerals from lower risk areas of DRC, with a shortened supply chain
- Utilised ITSCI plus CFSP
CTC certified trading chains
- German BGR led effort to apply extensive standards to mines in the DRC and Rwanda
- Addressing traceability, health and safety, gender and a range of issues
- Implemented at around 10 mine sites
AFP analytical fingerprinting
- German BGR led effort to technically fingerprint all minerals from all mines in central Africa
- Could support but not replace traceability
- Database still under development