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Raw Material Extraction in Conflict Regions: EU Moving Closer to a Decision on Trade in Conflict Resources

The European Union is introducing measures to restrict trade in so-called conflict resources. In March 2014, the EU-Commission published a first draft. In June 2016, after six months of intense negotiations, the Commission, the European Parliament, and the European Council agreed on a basic framework for the regulation. However, the regulation needs a much clearer definition of conflict-affected and high-risk areas.

The EU’s draft regulation on conflict resources places due diligence obligations on companies importing particular minerals and metals into the EU. Like a US law which came into force in 2012 (Dodd-Frank Act, Section 1502), the regulation will target the so-called “3TG” minerals: tantalum, tin, tungsten, and gold. It focuses in particular on smelters and refineries importing unprocessed ores. However, the due diligence requirements will also apply to processing companies that acquire basic semi-finished metal products (such as wire or rods) above certain quantities.

The political agreement initially represents a non-binding declaration of intent between the three EU institutions, which will form the basis for further discussions towards the final regulation. The process will likely take several more months. Once all the technical details have been settled, the result of the negotiations has to be adopted by the European Parliament. Finally, the Council of Ministers must give its approval.

Cornerstones of the draft Regulation

The most important points of the agreement are:

  1. OECD Due Diligence Guidelines as the guidance of the regulation.
  2. Recognition of existing and future due diligence systems. Recognition criteria are still to be defined and should be orientated on OECD Guidelines (as minimum standard).
  3. Due diligence obligations for importers of 3TG minerals and metals with exceptions for small volumes. At the same time, a clear majority of 3TG imports to the EU should be covered by due diligence.
  4. Recycled metal exempted from due diligence, but recycling companies to document exclusive use of waste and secondary materials.
  5. Creation of an “indicative and non-exhaustive” list of high-risk and conflict-affected regions drawing on external expertise, existing research, and other due diligence systems. The list will supplement guidelines on identifying conflict regions prepared by the EU Commission.
  6. EU Commission to review implementation and effectiveness of the regulation and to discuss the report with EU Council and EU Parliament. On the basis of the report and consultation with other institutions, EU Commission to propose further legislative action if necessary.
  7. Appropriate transitional period for implementation to be agreed after conclusion of negotiations on all aspects of the regulation.

Vague definitions and burden for small and medium-sized enterprises

The regulation still lacks a clear definition of conflict-affected and high-risk areas. It would currently require companies to identify these themselves based on a “handbook”, creating legal uncertainty and potentially diverging interpretations of what represents a conflict region within a supply chain. The EU Commission’s plans to place additional reporting duties on “large” companies (with more than 500 staff) regarding sustainable raw material supply are also problematic. These reporting duties would affect many small and medium-sized enterprises that would struggle to find the financial resources and staff to satisfy such requirements.