Keywords: responsible sourcing, self-certification, EU importers, OECD
In March 2014, the European Commission proposed a draft Regulation establishing an EU system of self-certification for EU importers of tin, tantalum, tungsten and gold.1 The aim of the Regulation is to help reduce the financing of armed groups and security forces through mineral proceeds and to promote responsible sourcing practices of EU companies.
This self-certification—i.e., declaring one's adherence to the supply chain due diligence obligations set out in the Regulation—is voluntary, and is aimed at a large number of EU importers, including almost 300 traders, 20 refiners/smelters and approximately 100 component manufacturers. Self-certification requires EU importers to monitor and administer purchases and sales in line with the Organisation for Economic Co-operation and Development's (OECD's) due diligence guidelines, so as to ensure they do not contribute to the financing of armed conflict. Self-certified importers are considered "responsible importers."
The draft Regulation does not target those manufacturers or importers of end products (electronics, mobile telephones, cars, machinery, jewelry, etc.) that include the products concerned. Instead it targets the upstream part of the supply chain as it requires importers to exercise due diligence on this upstream part of the supply chain covering extraction, trade and smelting for the selected minerals from conflict areas. This is the part of the supply chain where most of the risks are situated and where, according to the Commission, it is still technically feasible to trace the origin of the minerals.
Together with the draft Regulation, the Commission issued a "Communication on the responsible sourcing of minerals in conflict-affected and high-risk areas" that sets out the Commission's policy approach but that also contains a number of proposed incentives supporting the Regulation to encourage supply chain due diligence by EU companies.
The product scope of the Regulation is limited to tin, tantalum and tungsten ores and metals and gold.
The scope is global and covers any conflict-affected and high-risk areas worldwide. Because of the fluid nature of such conditions, the Commission does not intend to publish a list of affected locations. At the time of this writing, examples of such regions would include Africa's Great Lakes sub-region, Columbia, Mali, Sudan and Ivory Coast.
EU Importers and Their Obligations
The Regulation is voluntary and relies on the OECD due diligence guidelines to define the obligations for EU importers that opt to be self-certified as responsible importers. Such importers would be obliged to integrate all elements of the OECD due diligence guidelines by:
- Setting up a management system to track the origin of the minerals purchases;
- Applying supply chain risk management procedures to address and mitigate adverse impact related to the financing of armed groups; and
- Carrying out audits via an independent third party and disclosing relevant supply chain information to downstream purchasers and the public, including to the Member State competent authorities.
The EU responsible importer must annually disclose to the Member State's competent authority the identity and geographical location of smelters/refiners in its supply chain; the EU will use this disclosure to draft a list of responsible smelters and refiners that downstream purchasers can use to identify responsible smelters/refiners.
The self-certification is monitored and enforced by the competent authorities in the Member States in which the declaration of compliance with supply chain due diligence is made (containing all relevant information). These authorities would then carry out the appropriate checks. In this regard, the competent authorities may examine the importer's implementation of supply chain due diligence, including all documentation, records and third-party audits, and they may carry out on-site inspections. In the event that an importer ceases to comply with the self-certification process, the competent authority can take the necessary measures to restore compliance—e.g., sending the importer a notice of remedial action—and if non-compliance persists, can send a notice of non-recognition.
The Regulation's effectiveness will be evaluated three years after it goes into effect, at which time amendments can be made—including the possibility of making the system mandatory.
EU Accompanying Measures Supporting the Regulation to Promote Responsible Sourcing
Even though the proposed system is voluntary, the EU intends to promote the uptake of supply chain due diligence among EU companies. Methods to be used include:
- Public procurement incentives—under the Commission's public procurement contracts, it must be demonstrated that products purchased containing the minerals concerned (e.g., mobile phones, computers and printers) comply with OECD due diligence guidelines;
- Financial support for SMEs to carry out due diligence;
- Promoting the certification procedure by raising the awareness of EU operators and taking action to provide visibility to the efforts of companies that commit to supply chain due diligence.
The Commission expects that such incentives, as well as commercial and public pressure will make companies comply with the Regulation.
The draft Regulation must still go through the legislative process, which involves review by the Council and the European Parliament (the EP). This procedure will be started this year, but due to the EP elections in May 2014, the legislative process may be slower than usual. In addition, certain EP members have already expressed their unhappiness about the narrow product scope of the Regulation as well as its voluntary nature, which may point at a more intense debate lying ahead and the possibility of amendments to the draft Regulation. As such, it is unlikely that the Regulation will become effective before 2015.
1 Proposal for a Regulation of the European Parliament and of the Council setting up a Union system for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold originating in conflicted affected and high-risk areas, 5 March 2014, COM(2014) 111.
Originally published March 17, 2014
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