Coming soon - supply chain regulation of conflict minerals

Conflict minerals are defined by draft EU regulation as those materials coming from ‘conflict affected and high risk areas’ across the world. This typically means where there is often considerable loss of life as a result of fighting between armies, rebels and governments, who are battling for access to these valuable resources buried in the ground. In addition, the primitive working conditions of these sites are extremely dangerous with high risk mudslides and tunnel collapses adding to the danger for loss of life.

The 3TGs

The minerals in question are often referred to as the ‘3TGs’ which means minerals extracted as wolframite (for tungsten), casserite (for tin), coltan (for tantalum) and gold.

These type of minerals are used in many components of the latest electronics and consumer products we find in our homes today. They also hold a high value according to data published by InfoMine Inc:

• Ferro Tungsten: 22.75 USD/kg
• Tin: 14.74 USD/kg
• Tantalite Ore: 132.41 USD/kg

It is believed that the sale of these minerals to smelters and brokers is funding much of the civil unrest in places like Democratic Republic of the Congo (DRC). In order to combat this problem and remove funding streams, different measures and legislation have been implemented in the USA and soon in the EU.

Current conflict mineral legislation

Since 2010 legislation in the USA, known as Section 1502 of the US Dodd-Frank Act, places responsibility on the company to report the efforts to remove the conflict implicated 3TGs from the supply chain. Measures imposed on these companies require supply chain analysis to determine origin and status of minerals, and subsequent reporting under the Exchange Act. Companies are required to disclose their use of conflict minerals if those minerals are “necessary to the functionality or production of a product” manufactured by those companies.

Up to now there has been no formal requirement in the EU regarding conflict minerals, other than some EU companies who have a US parent company. However, this could soon change. Since 2014 EC put forward proposals for regulation that could bring some degree of coherence between the EU and the US. At EU level, the legislation was originally proposed as a voluntary scheme, however since originally proposed a revised mandatory compliance stance has been voted in favour by MEP’s.

Reducing the risk of supply

This would require importers to notify all downstream users of 3TGs so they can identify the risks up the supply chain, and hopefully make more informed decisions as to where they source materials for manufacture to reduce the risk of supply by opting for minerals not from areas of conflict.

The difference for the US legislation is that it is limited to DRC, whereas draft EU regulations proposes materials of “conflict-affected and high risk areas”, thereby expanding the scope of due diligence work to a global scale. Although the US legislation seems to be less onerous, in the USA the result of this law has resulted in product manufacturers moving away from material originating from conflict affected DRC areas, and much tighter supply chain analysis similar to that seen in sustainability reporting initiatives. This increased transparency has allowed manufactures to look at supply risks more so than before.

Common supply chain reporting

So far the compliance approach for non-mandatory EU and US legislatively driven supply chain auditing, has seen some common supply chain reporting and shared auditing, allowing development of systems to streamline the responsibilities of the importer to downstream users. This is most similar to the approach taken with the Timber Regulations and builds on principles that already exist within REACH and RoHS.

The US law, now well established, indirectly influences many European businesses who are already starting to adopt global policies on conflict mineral sourcing. We believe this will put them at a competitive advantage if there is an equivalent EU (or even UK) regulation, due to their ability to dovetail existing compliance checks and systems into their business.

Fall into line with the US

This poses an interesting question that is already being challenged by policy makers - when will Europe fall into line with the US and implement a broader scope conflict mineral legislation? The European Union policy is moving fast and needless to say we will be keeping a close eye on this as the topic develops - watch this space for news updates and training webinars in 2016!

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