Since the US Presidential Election 2 weeks ago, some have been looking forward to a possible repeal of the US conflict minerals rule by a newly-elected Trump Administration. But, the completion of the negotiations on the new EU conflict minerals regulation makes it clear that companies should not slow their due diligence efforts on the source and chain of custody of the tin, tantalum, tungsten and gold in their products.
The negotiations of the EU conflict minerals regulation concluded yesterday (November 22, 2016) through the so-called “trilogue negotiations.” This is another major step toward the final adoption of the legislation and the establishment of an EU legislative framework for conflict minerals.
How Did We Get Here? — After the European Parliament and Council agreed on their respective negotiating mandates, the trilogue negotiations started. The EU’s trilogue negotiations are held between the European Commission, European Parliament and Council. In June 2016, an important breakthrough occurred when these three institutions reached a political understanding on certain contentious elements of the conflict minerals legislation. At that point in the negotiations, the obligations on upstream companies in the conflict minerals supply chain were set.
Once this political understanding was reached, the negotiations continued on a more technical level. It is important to note that the Netherlands led the Council’s negotiations until June 2016 until Slovakia assumed the Council Presidency role in July 2016.
What Just Happened? — The negotiations among the three institutions continued for several months. Ultimately, on November 22, 2016 the trilogue negotiations were “successfully” concluded. Under the new regulation, starting on January 1, 2021, an estimated 95 percent plus of the minerals processed in smelters or refiners within the EU will be required to go through a due diligence process. Large manufacturers in the EU will be obliged to disclose their strategies for monitoring the sources of their minerals.
One of the controversial issues that was battled through until the end was whether the due diligence system would be mandatory or voluntary. The European Parliament finally won the battle with mandatory due diligence requirements for importers of conflict minerals from all conflict-affected and high-risk areas (not just central Africa) making it into the final text. The due diligence review will be required to be in accordance with the OECD guidelines. Then, authorities from the EU Member States themselves will be responsible for ensuring and enforcing compliance. They will determine any sanctions for non-compliance as well.
One important accommodation was made in the agreement that was reached. Smaller importers of minerals and metals (for example, jewelers and dentists) will not be obliged to comply with the mandatory due diligence requirements. The European Commission will, however, closely monitor the gold market and EU gold imports in an attempt to assure that efforts on responsible sourcing are not defeated by these exemptions.
An additional term that is now part of the final text is a disclosure regime for large EU manufacturers and sellers. This provision will apply to large EU firms that are subject to the EU law on non-financial reporting for their purchases of tin, tantalum, tungsten and gold for use in their products. This term puts into place a voluntary reporting mechanism to encourage these companies to report on their sourcing practices by addressing certain performance indicators. The reports would be made to an EU registry.
Finally, a review clause has been introduced into the regulation, whereby the European Commission will review and report to the European Parliament and Council on the effectiveness of the new regulation two years after the implementation date and every three years thereafter. More specifically, the European Commission’s effectiveness report will cover both the impact of the regulation on the ground in conflict-affected and high-risk areas as well as compliance by EU companies. The report will also propose possible additional measures if companies’ due diligence efforts are deemed to be insufficient.
What Happens Now? — While the trilogue negotiations have concluded, there are still a few procedural steps to take before the regulation becomes official EU legislation. The legislative text as agreed during the trilogue negotiations (in English) will be submitted to judicial linguists who will review the text for legal consistency and translate it into all EU official languages. Any resulting amendments would consist of only minor linguistic changes which would not alter the content of what was agreed upon in the trilogue negotiations. The judicial linguist process should take a few months. Once this process is finished, the text will be submitted for a final approval by the Council and the European Parliament. The exact timing of the final approval is not known yet, but it is likely to occur during the first quarter of 2017. The conflict minerals regulation will become official EU legislation once it is published at the Official Journal of the EU and will enter into force 20 days after its publication.
- Dynda A. Thomas (US) and Christina Economides (Belgium)