The proposed European Union conflict minerals regulation has almost reached the last step before becoming an official EU regulation. On March 16, 2017, the European Parliament voted to approve the regulation, and the Council of the EU is expected to formally approve it in the weeks to come.  The Council’s vote will be the last step before the regulation is published and goes into effect. The proposed regulation includes many of the same basic provisions as the US rule, but several reporting obligations and the coverage of the regulation are broader than those of the US rule.

Some are disappointed with the final EU regulation, saying that it is not strong enough. But, those EU importers that are covered by it will certainly bear a significant burden to comply with its requirements.

Recent Timeline

Many individuals and organizations have been eager to see a European regulation to pair with the US conflict minerals rule.  But, the European negotiating process has been long and complicated, with very different points of view on what the nature and scope of the regulation should be.

The European Commission issued the first proposed regulation in 2014.  The Council of the EU and European Parliament each considered the regulation and proposed their own versions.  Then, the trilogue negotiations were undertaken to achieve a regulation text that would be acceptable to all three institutions.  In June 2016, there was an important breakthrough agreement on certain contentious elements of the legislation.  Then, on November 22, 2016, the trilogue negotiations were successfully concluded.

The Council of the EU approved the legislative text in December of 2016.  On January 24, 2017, the European Parliament’s International Trade Committee approved the text. Then, on March 16, 2017, the European Parliament overwhelmingly approved the legislation by a vote of 558 – 17 (with 45 abstentions).

After the regulation is formally approved by the Council of the EU, it will be published in the Official Journal of the EU.  It will enter into force 20 days after its publication, and take effect one month after the entry into force. However, the compliance and reporting provisions of the regulation will apply starting on January 1, 2021.  The EU regulation will be directly applicable to EU Member States without further action or procedure.

Who Is Covered?

The new EU conflict minerals regulation applies to all importers into the EU of minerals or metals containing or consisting of tin, tantalum, tungsten, or gold.   An importer is defined by reference to the EU Customs Code and includes any metals or minerals that are declared for free circulation in the EU.  The regulation does not apply to importers whose annual import volumes are below a certain threshold amount.  This exemption is intended to provide some relief to smaller enterprises.  The volume thresholds are set so that at least 95% of the total imported volumes into the EU of each metal and mineral will be subject to the regulation.   The European Commission indicated, however, that it would closely monitor the gold market and EU gold imports to make sure that progress on responsible sourcing is not impeded by these low volume exemptions.

What Metals And Minerals Are Covered?

The regulation covers the following minerals and metals (and products containing them):

• Tin ores and concentrates

• Tungsten ores and concentrates

• Gold ores and concentrates

• Tungsten oxides and hydroxides

• Tungsten carbides

• Tantalum carbides

• Gold, unwrought or in semi-manufactured forms, or in powder form

• Tin, unwrought

• Tin bars, rods, profiles and wires

• Tin, other articles

• Tungsten, powder

• Tungsten, unwrought, includes bars and rods obtained simply by sintering

• Tungsten wire

• Tungsten bars and rods, other than those obtained simply by sintering, profiles, plates, sheets, strip and foil, and other

• Tantalum, unwrought including bars and rods, obtained simply by sintering; powders

• Tantalum bars and rods, other than those obtained simply by sintering, profiles, wire, plates, sheets, strip and foil, and other

Like the US rule, recycled metals are not covered by the EU regulation.

What Must The EU Importers Do?

The EU regulation includes many specific due diligence and disclosure obligations. Any importer of the metals or minerals into the EU must undertake the supply chain due diligence steps that are set out in the regulation. The due diligence steps must be consistent with the OECD Guidance or another diligence scheme that may be approved by the Commission.  The covered entities are also required to communicate their policies to suppliers and the public.  Their policies must state the standard that the entity used to develop its due diligence, they must assure that senior staff is responsible for overseeing the due diligence process, they must incorporate their policies into their contracts and agreements, and they must have a grievance mechanism for reporting concerns about the diligence process.  They are obligated to gather information about the source and chain of custody of the metals and minerals, including even more detailed information for those sourced from conflict-affected and high-risk areas.

They are also required to provide third-party audit reports on smelter and refiner diligence practices. They must identify and assess the risks of adverse human rights impacts in their supply chains. Importers that pursue risk mitigation efforts as they continue to trade with, or even if they temporarily suspend trade with, certain suppliers are required to consult with suppliers, government authorities, civil society organizations, and other third parties on a risk mitigation strategy. This is a burdensome additional step, and such consultation is likely to take significant time and resources. Enterprises will make significant efforts to actively manage their supply chains and use only compliant smelters and refiners so that such consultation is not required.

Because of the focus on smelters and refiners, the importers are required to carry out audits by an independent third-party.  Those third-party audits will review the importers’ activities and systems to determine if they comply with the requirements of the regulation and to provide recommendations for improvement.  Importantly, the importers will not be required to carry out the third-party audit if they can show that all the smelters and refiners in their supply chains are recognized as “responsible” smelters and refiners by Commission.  This is another requirement that will motivate importers to get their supply chains in order before the obligations of the regulation take effect.

Finally, the importers must make annual public disclosures about their supply chain due diligence policies and procedures relating to responsible sourcing.

What Geographies Are Covered?

The EU regulation focuses on conflict minerals from all “conflict-affected and high-risk areas” around the world. In this way, the EU regulation is different from the US rule, which focuses on conflict minerals only from the Democratic Republic of the Congo and adjoining countries.

What Due Diligence Framework Applies?

As is true for the US rule, the due diligence review is required to be undertaken in accordance with the due diligence guidelines of the Organisation of Economic Co-operation and Development (OECD).  The OECD Due Diligence Guidance on Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas is the same framework that has been used by nearly all of the companies that have filed conflict minerals reports with the Securities and Exchange Commission as required by the US rule.  The final EU regulation leaves it to the European Commission to establish the specifics of the supply chain due diligence schemes that will apply to enterprises so other frameworks could be accepted by the Commission.

When Does The Regulation Take Effect?

Technically, the EU regulation enters into force shortly after it is published.  But, the real compliance and reporting obligations on companies do not take effect until January 1, 2021.

What Is Still Not Settled?

The EU regulation calls for the European Commission to adopt several important “Delegated Acts,” which will create specific implementing provisions in connection with the regulation.  By these Delegated Acts, the Commission will amend the thresholds for certain concentrates and for certain tin-related and tantalum-related substances.  The Commission will also adopt Delegated Acts to set out the methodology and criteria to determine whether other due diligence schemes comply with the regulation. The Commission is to consult with the OECD to develop the requirements.  And, the Conflict-Free Sourcing Initiative (CFSI) has indicated that it is already doing a pilot assessment to determine how industry’s standards, systems, and implementation align with the OECD Guidance.  The CFSI’s conflict minerals reporting template (CMRT) has become the due diligence information gathering tool of choice for all industries, and importers covered by the EU regulation will likely use that tool as well.

What Additional Materials And Guidelines Will Be Provided?

To assist companies with their compliance efforts, the European Commission is required to publish a list of responsible smelters and refiners, and tell which of those smelters and refiners source any of their metals or minerals from conflict-affected and high-risk areas.   The Commission is required to prepare a non-binding handbook explaining how to identify what is a “conflict-affected and high-risk area.”  And, it will provide a regularly updated (but non-exhaustive) list of conflict-affected and high-risk areas.

What Should EU Importers Do First?

Although the effective date of the compliance requirements is several years out, importers that will be covered by the regulation would be wise to take some action soon to start preparing and put themselves in the best position to comply with the requirements of the regulation.  It will take many months to gather information about their supply chains and, if they wish to do so, assure that they only deal with responsible smelters and refiners before the regulation takes effect.  To get started, they could include these among their initial steps:

• Name internal conflict minerals team

• Develop conflict minerals policy

• Map supply chains and gather product recipes and materials content data

• Develop supplier engagement information

• Watch for the Delegated Acts to be adopted by the European Commission

• Review the outcome of the CFSI’s OECD Alignment Assessment (results expected in 2018)

• Watch for developments to limit, weaken, or suspend the US conflict minerals rule