EU’s International Trade Committee Approves Conflict Minerals Regulation

February 17, 2017Kirsten Wallerstedt

Summary

On 24 January 2017, the European’s Parliamentary International Trade Committee (INTA) voted overwhelmingly to support the EU’s conflict minerals proposal, with a vote of 39 in support, none opposed, and two abstentions. The Regulation sets up a Union system for supply chain due diligence for importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas. The Regulation, if finalized, is expected to become enforceable on 1 January 2021.

3E Review

The INTA vote follows the agreement of 22 November 2016 which was jointly reached between the European Parliament, Council and Commission on a conflict minerals regulation. Under the agreed regulatory language, EU importers of tin, tungsten, tantalum, gold and their ores (3TG) will be required to perform due diligence checks on their suppliers. These entities must follow the OECD Due Diligence Guidance, which is the same framework used for compliance with the U.S. conflict minerals law (Dodd Frank Act of 2010, section 1502), in order to mitigate the risk that trade of that 3TG financed armed groups or human rights abuses from conflict areas around the world.

While the regulation does not place mandatory requirements on manufacturers, it does seek to impact those importing products or components which contain 3TG. The regulation says that those entities which are subject to the EU's Non Financial Reporting Directive (i.e. companies which have more than 500 employees) which also use 3TG in their products will be encouraged to report on their sourcing practices based on new performance indicators under the Directive. Notably, the Commission will at a later date review the effectiveness of the law and may impose additional mandatory measures if the voluntary application of due diligence by manufacturers proves unsatisfactory.

The EU law will have a much broader geographical scope than the U.S. law, and will apply to 3TG from all "conflict-affected and high risk areas" in the world.

3E Analysis

Now that INTA has offered its support, to finalize the regulation, the full Parliament will vote on the agreement. It is important to note that the required due diligence is not limited only to country of origin, but must also examine transit routes, and must look for "red flags" - to include an irresponsible supplier.

According to the press release issued by the Directorate General for Trade when the agreement was first reported, the regulation will become enforceable on 1 January 2021. By this date, importers of 3TG into the EU will need to have compliance programs in place which follow the OECD Due Diligence Guidance to mitigate sourcing risks in their supply chains. Manufacturers and other affected entities will be strongly encouraged to adopt due diligence programs of their own as a way to protect their brand reputation and also to avoid future mandatory requirements being imposed by the European authorities.