In its vote on 20th May, the European Parliament overturned both the European Commission’s proposal as well as the recent vote of the International Trade Committee. The Commission originally proposed a voluntary due diligence scheme aimed at breaking the link between the trade in tin, tantalum, tungsten, their ores and gold, and the financing of armed conflict.
What has followed has been an intense and prolonged period of lobbying and compromise. The business community, including the MMTA and other industry associations and bodies, have argued, not against breaking the link with conflict as some have claimed, but for a law that does not have the unintended consequence of hurting EU businesses more than it helps those in conflict affected areas. NGOs, such as Global Witness and Amnesty International, have lobbied hard, and the politicians of all persuasions – who clearly want this to become law – have debated, and compromised.
A Complex Issue
If you were to ask almost anyone the question “Do you want to make sure that the money you spend on your smart phone and other goods isn’t funding armed conflicts and human rights abuses in Africa?”, I think virtually everyone would answer, “Yes”. So on one level this is a very simple issue, and one that almost everyone, politician and public alike, agrees on. However, that is where the simplicity ends. If you were to ask a different set of questions, the picture becomes far less clear:
“Do you want to prevent African miners living in poverty from being able to earn a living because it is far easier for businesses to demonstrate they are conflict free by avoiding the affected region completely than by undertaking the complex and costly regulatory requirements placed upon them if they source from the affected regions of Africa?”
“Do you want to disadvantage EU business in the world market by requiring them to comply with conflict minerals regulation which their competitors from other parts of the world are not required to do and are able, nevertheless, to place their products on the European market for European customers to purchase?”
“Do you want to limit the flows of these essential raw materials into Europe?” Tungsten is already designated by the EU as a Critical Raw Material (ie essential but with supply chain security concerns), and both tin and tantalum hover on the edge of the EU defined matrix. Both are considered extremely economically important, but at the moment are just under the threshold in terms of supply risk (see P 7 in this edition).
These are the complex considerations facing members of the EU Parliament, Council and Commission, and despite the fact that there is a high level of desire to break the link between metals (and other mineral resources), armed conflict and human rights abuses, they are struggling to agree on the best way to achieve this.
The Commission wants to allow EU importers to opt in if they wish to demonstrate to their supply chain that they are committed to being conflict free in their sourcing of these 4 metals and their ores. The left-of-centre parties in the Parliament, however, take the view that this position is driven by ‘big business’ and if it is a voluntary scheme, businesses will simply ignore it.
The EU Parliament International Trade Committee (leading on this issue) voted in April for a compromise position, whereby EU smelters and refiners would be bound by a mandatory requirement to undertake 3rd party audits ensuring they are only purchasing from conflict-free sources, but all those downstream of the smelters/refiners would participate in the scheme on a voluntary basis.
As with many compromises, this solution did not really please anyone, particularly the EU smelters and refiners, who only making up 5% of total global smelters/refiners, saw themselves being simply bypassed by their supply chain because non-EU smelters/refiners would not have to comply with the regulation at all.
European Parliament Vote
So on 20th May, the latest step in the progress of this complex regulation took place. The April compromise vote was overturned by the full European Parliament, which voted by a majority to overturn the Commission’s proposal and requested mandatory compliance for ‘all Union importers’ sourcing in conflict areas.
In addition, ‘downstream’ companies, that is, the 880 000 potentially affected EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products, will be obliged to provide information on the steps they take to identify and address risks in their supply chains for the minerals and metals concerned.
As metal smelters and refiners are the last point at which the minerals’ origin can be effectively traced, MEPs have gone beyond the Commission’s ‘self-certification’ approach by calling for smelters and refiners to undergo a compulsory, independent, third-party audit to check their ‘due diligence’ practices.
Parliament has accepted several key industry priorities:
- It will ask the Commission to grant financial support to micro-businesses and small and medium-sized firms wishing to obtain certification through the EU’s COSME programme (EU programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises);
- It is insisting on tougher monitoring of the scheme, with a review two years after it is applied and every three years thereafter (instead of after three and six years respectively, as planned by Commission). This will hopefully ensure that whatever form this regulation ultimately takes, there will be scope to review and adapt aspects of it that are not working. A key detail here will be who is involved in the review process and whether the experiences of businesses will be taken into consideration;
- There has been agreement on the exclusion of recycled materials from the scope of the regulation;
- The recognition of existing industry schemes is included in the draft law.
The regulation applies to all conflict-affected high risk areas in the world, of which the Democratic Republic of Congo and the Great Lakes area are the most obvious example. The draft law defines ‘conflict-affected and high-risk areas’ as those in a state of armed conflict, with widespread violence, the collapse of civil infrastructure, fragile post-conflict areas and areas of weak or non-existent governance and security, characterised by ‘widespread and systematic violations of human rights’.
Parliament will now enter into informal talks with the EU member states (the Council) and the Commission to seek agreement on the final version of the law. There is an expectation that the mandatory proposal as voted for by Parliament will not be accepted by the Council, representing Member States with widely differing views, so this exercise in compromise is far from over.
The MMTA would like to hear from interested Members who would like their views included in our future communications to Members of Parliament, the Council and the Commission. Please contact the Executive Team.
VOTE AT A GLANCE
- All companies first placing covered resources, including products, need to conduct and publicly report on their supply chain due diligence (the inclusion of products is new and is a big change)
- Existing industry schemes aimed at breaking the link between conflict-financing and sourcing of minerals could be recognised in the Union system, though criteria and procedures need to be defined
- SMEs should be provided with technical and financial assistance e.g. via the COSME programme
- Smelters and refiners should undergo an independent third-party audit (although existing scheme audits should be acceptable assuming they agree on recognition element)
- Two-year transition period for the Commission to set up a third-party audit system
- Two years after the date of application of the Regulation and every three years thereafter, Commission to review functioning and effectiveness of Regulation with a view to proposing further mandatory measures ( a key aspect here will be whether there is industry involvement in the review process)
- Regulation lays down supply chain due diligence obligations of ALL Union importers who SOURCE minerals and metals covered by the EU scheme
- However, it shall draw a distinction between the roles of UNDERTAKINGS situated upstream and downstream
- Downstream companies shall take all reasonable steps to identify and address risks arising in their supply chains and they shall provide information on their due diligence practices
- Importer means any natural or legal person established in the Union making a declaration for the release for free circulation of minerals and metals covered by the scheme (including products)
- Recycled metals shall be excluded from the scope of the Regulation
- Definition of “industry schemes” – (the schemes will be required to make submissions to be included as equivalent)
- Commission to adopt and make publicly available a list of responsible importers of minerals and metals
- But also list of responsible smelters and refiners taking into account existing schemes
- In consultation with the EEAS, Commission to prepare a handbook to help companies with the identification of conflict-affected and high-risk areas
- Commission shall submit a legislative proposal within the transitional period setting-up accompanying measures foreseeing incentives, technical assistance and guidance for responsible sourcing; policy dialogues and development cooperation with third countries and complementary initiatives with Member States in the area of consumer and customer information.
Maria Cox, MMTA