By Ian Weekes, Crowe, Clarke, Whitehill
EU announces agreement to curb the trade in Conflict Minerals
The EU has announced that agreement has been reached in negotiations between the Commission, Council and Parliament over a framework to stop the financing of armed groups through trade in conflict minerals.
The full text of the proposed legislation is still to be developed and is unlikely to be published until the final quarter of 2016. The EU Parliament press release of 16 June 2016 does indicate the more significant areas where changes have been agreed:
- compulsory due diligence checks for importers of tin, tungsten, tantalum and gold other than the smallest importers
- exclusion from the regulations for existing EU stocks and recycled materials
- voluntary disclosure of sourcing practices by end users with more than 500 employees will be encouraged
- guidance on ‘conflict-affected and high risk areas’ to be provided via a Handbook for the operators to be developed by the EU Commission.
We generally welcome these proposals. The move to compulsory due diligence, in our view, reflects what would have become the industry norm under the Commission’s proposal. The resistance of a compulsory due diligence obligation for end-users has prevented a substantial increase in the compliance burden placed on business. The development of a voluntary reporting obligation for end users with more than 500 employees does seem to have set the bar quite low in comparison with the U.S., where the obligation applies to SEC registered corporations. As a result, we question the likely level of take up.
The Impact of Brexit
The timescale for approval of these regulations and the anticipated implementation period are likely to result in these regulations becoming effective around the time of Brexit.
The UK has been actively involved in the development of the OECD guidance, and there is general acceptance amongst the population of the principles underlying the guidance. We believe that it is therefore likely that there will be regulation covering this area in the UK.
Some indications of whether and how these regulations might apply to the UK can be gleaned from the operation of the Registration, Evaluation, Authorisation and Restriction of Chemicals Regulations (REACH). This regulation is overseen by the European Chemicals Agency (ECHA), on which representatives of all member states sit. The ECHA works via designated competent authorities in each member state. Norway, as a member of the European Economic Area (EEA), sends representatives to meetings of the ECHA and imposes REACH regulations as a requirement for access into the single market, but Norway does not have a vote at the meetings of the ECHA.
If a similar model were adopted for conflict minerals and the UK sought a relationship similar to that of Norway with the EU, it would be unable to vote on future developments of the regulations but would have to comply with them.
If the UK were to remain outside the EEA with no access to the single market, it would either have to go through a period of developing its own regulations, in which case the market would remain uncontrolled for a period of time, or choose to adopt the EU regulations as a matter of expediency. In either of these cases export to the EU would require due diligence in line with EU regulations, to be conducted when the metal or mineral were imported into the EU.
