EU Regulation on responsible sourcing of minerals

February 19, 2016

Economical actors, Good governance, Advocacy, Natural resources, European Union

EU trilogue negotiations on the draft regulation started on February 1, 2016. Over the coming months, the European Commission, the European Parliament and the Presidency of the European Council will attempt to agree on a compromise text.

The ravages of the mineral trade linked to conflict and human rights abuses have been widely documented. This problem remains current. Several reports and events have recently highlighted the urgency of addressing this challenge, which damages the reputation of companies and investors who do not fulfill their due diligence duties.

On August 20, 2015, Kardiam, a Belgian company, has been placed on the list of companies targeted by UN sanctions “for having supported armed groups in the Central African Republic […] through the illegal exploitation or trafficking of natural resources (diamonds, gold)” Kardiam denied the UN allegations during his discussions with Global Witness.
There Berne Declaration recently released a report which noted that the world's largest gold smelter, based in Switzerland, "purchases gold produced by children." The Berne Declaration specifies that this company rejected his requests for meetings and did not respond to questions sent to him by email.
• Amnesty International and Afrewatch recently published a report which reveals that “major brands in the electronics sector, such as Apple, Samsung and Sony, do not carry out basic checks to verify that their products do not contain cobalt extracted in mines by children”. The appendix to this report summarizes the responses companies gave to Amnesty's findings ^[2]THE company responses can be found in the annex to the English version of the report, starting on page 75..

The Council's mandate does not provide an effective European response to this problem. Let us first note that the Council is proposing a voluntary system which excludes the vast majority of companies which market tin, tantalum, tungsten and gold ("3TG") on the European market - whether at raw or as components of devices such as laptops or motors. Furthermore, this system significantly undermines the main international framework previously endorsed by the EU, namely the OECD Due Diligence Guidance. En agissant de la sorte, le Conseil édulcore le sens même d’être une entreprise « responsable ».Le Guide OCDE sur le devoir de diligence a été négocié et approuvé par l’industrie, les gouvernements et la société civile. Il forme déjà la base de législations dans d’autres pays et a été avalisé par 34 pays membres de l’OCDE, 19 autres pays et le Conseil de sécurité de l’ONU.. It is also on this Guide that new Chinese industrial standards on due diligence applied to mineral supply chains are based.. Furthermore, the OECD Guidance specifically implements the UN Guiding Principles on Business and Human Rights within mineral supply chains, which outline the responsibility of businesses to respect human rights .Les entreprises de l’UE mettent déjà en œuvre le cadre relatif au devoir de diligence de l’OCDE, en grande partie du fait de la section 1502 de la loi américaine Dodd-Frank (DFA 1502), qui exige des entreprises soumettant des états financiers en vertu du droit américain qu’elles se livrent à un exercice de diligence raisonnable conformément à la norme de l’OCDE..

According to the Commission's estimates, 40 dual-listed companies are directly subject to the requirements of DFA 1502.
In addition, up to 17 % EU companies that work with "3TG" are indirectly affected by the requirements of the US law since they supply US customers ^[7]European Commission, March 5, 2014, Impact Assessment, p. 13, p. 19, p. 23 and p. 36..
Under the impetus of DFA 1502, joint industry initiatives are already helping companies — in very concrete ways — to comply with OECD standards.

Il est donc très inquiétant de constater que le Conseil propose de rediscuter et d’affaiblir cette norme établie, d’une manière qui n’aidera pas les entreprises de l’UE qui la mettent déjà en œuvre et qui, d’une certaine façon, limitera l’efficacité de la réponse de l’UE face au commerce des minerais de conflit.Le contraste entre la position du Conseil et le discours que tient l’UE sur les chaînes d’approvisionnement responsables est des plus saisissants. L’automne dernier, l’UE s’est montrée favorable aux engagements du G7 visant à encourager les chaînes d’approvisionnement mondiales durables Commission européenne, 12 octobre 2015, EU announces support to improve workplace safety and working practices in producing countries. Under its new trade strategy, the Commission argues that “responsible management of global supply chains is essential to align trade policy with European values”. In the context of conflict minerals, it undertakes to “build on the work of the OECD” eu/doclib/docs/2015/october/tra-doc_153879.pdf">Towards a more responsible trade and investment policy, p. 7, p.24 and p. 25.Le Règlement de l’UE offre aux États membres une excellente opportunité de tenir ces engagements. Les gouvernements ont pris des mesures pour rendre plus responsables les chaînes d’approvisionnement dans d’autres secteurs—denrées alimentaires, bois d’œuvre, finance et services financiers. Ainsi, tout récemment, le Royaume-Uni a fait preuve de leadership sur la question de lmodern slavery. However, governments have been slow to promote such a level of transparency and accountability along mineral supply chains, where both aspects are sorely lacking. Of all the corruption cases studied by the OECD in 2014, the extractive industries were the first sector represented (19 %)..En quoi le Conseil affaiblit-il la norme internationale de l’OCDE ?Le mandat du Conseil n’est pas à la hauteur du Guide OCDE sur le devoir de diligence, et ce, sur trois aspects:1. Il propose des mesures spécifiques en matière de diligence raisonnable qui sont nett ment moins strictes que la norme de l’OCDE (Articles 4 et 5 de l’avant-projet de Règlement de l’UE). En imposant des exigences moindres à certaines entreprises — notamment aux manufacturiers et aux négociants — le mandat les fait passer pour des entreprises « responsables » même si elles ne se conforment pas aux normes de l’OCDE. Par exemple :

The Council significantly reduces the assessment of supply chain risks expected from metal manufacturers and traders (“metal importers”). It restricts the information that these companies must review to "available audits", without taking into account other data in their possession (for example the policy governing their relations with their suppliers and information on the countries from which the foundries source) or in the public domain (e.g. UN and NGO reports). In addition to not being up to OECD standards, this system also has very concrete consequences. Thus, a metal importer may be compliant with the Regulation, and therefore be considered "responsible", if it reviews the audit reports of the smelters in its supply chain and concludes, solely on the basis of these audit reports, that these foundries are responsible. It is free to ignore all other information, even if it knows full well that one of the smelters behaved irresponsibly, for example by not properly examining its supply chain to identify a possible risk of financing of conflict or human rights abuses.
In the event that a smelter's audit report is not available, the Council only expects the metal importer to carry out ad hoc risk assessments. However, the OECD clearly specifies that in such situations, companies should put in place individual and permanent risk management processes in order to respond to risks at any time and at any level of their supply chain. 'supply.
The Council removes any reference to the OECD Guidance as a standard of due diligence with which metal importers must comply to identify, assess or mitigate risks associated with their supply chains. Thus, these companies have no obligation to assess or manage risk in accordance with any standard, and the authorities of the Member States have no standard on the basis of which to evaluate the practices of these companies.

Nous croyons comprendre que les normes de diligence raisonnable ont en partie été restreintes pour répondre aux préoccupations entourant les petites et moyennes entreprises (PME). Cependant, les PME jouent un rôle important dans les chaînes d’approvisionnement en minerais et elles sont capables de se conformer aux normes de l’OCDE, à condition de disposer d’outils et de conseils appropriés. La diligence raisonnable a été conçue de manière à donner aux PME la souplesse dont elles ont besoin ; en effet, ces normes sont adaptables en fonction de la taille de l’entreprise, de la place qu’elle occupe au sein de la chaîne d’approvisionnement et de l’influence qu’elle exerce sur ses fournisseurs. Une étude réalisée récemment dans le secteur du bois a révélé que la taille de l’entreprise « n’est pas forcément importante lorsqu’il s’agit de gérer le risque au sein des chaînes d’approvisionnement. […] Même les entreprises de très petite taille sont capables de mettre en œuvre un système qui fonctionne pour elles ».Global Timber Forum, 22 juillet 2015, Survey on due diligence finds SMEs to be performing well. See also the website of the Timber Trade Federation 2. Le mandat ne couvre pas un nombre significatif d’entreprises en aval, ignorant celles qui sont les premières à placer sur le marché de l’UE des produits contenant des 3TG.Le Guide OCDE précise clairement que le devoir de diligence est conçu pour inclure un nombre d’entreprises en aval bien plus important que les seuls importateurs de métaux couverts par le mandat du Conseil. Une telle approche est propice à une amélioration de la transparence et de la résilience des chaînes d’approvisionnement, au sein desquelles les entreprises peuvent collaborer au partage d’informations, faire pression de manière conjointe sur les fournisseurs (y compris les fournisseurs qui se trouvent en dehors de l’UE), concevoir des programmes et élaborer les meilleures pratiques au niveau sectoriel. Les entreprises en aval ont un rôle unique à jouer à cet égard : elles sont susceptibles de compter parmi les entreprises les plus puissantes et les plus rentables au monde, d’exercer une pression considérable sur les fournisseurs en amont et de devenir des acteurs clés des programmes sectoriels. En mettant l’accent sur 300 à 400 importateurs, les États membres passent à côté d’une opportunité importante de tirer parti d’une influence commerciale bien plus grande.3. Le mandat ne tient pas compte de la progressivité et de la flexibilité de la diligence raisonnable prévues par le Guide OCDE sur le devoir de diligence (voir Considérant 9(a) et Article 1, paragraphes 2(b) et (d)) de la position du Parlement européen).

Due diligence is proportionate — it is not a “one size fits all” strategy. It gives businesses the flexibility they need to tailor due diligence measures to their particular circumstances, including their size, industry and position in the supply chain.
Due diligence is not a one-time compliance exercise. This involves companies proactively, continuously and individually identifying and managing risks associated with their supply chains, and demonstrating that progress is being made over time. These fundamental principles have been taken up in several European and national legislations in force. Legal entities are required to take “appropriate” measures to identify, assess and manage the risks of money laundering and terrorist financing, which measures must be “proportionate to [their] nature and [their] size”. ^[10]EU Anti-Money Laundering Directive, Article 8, paragraphs 1 and 3.. The British anti-corruption law, the Bribery Act, requires organizations to put in place procedures to prevent the payment of bribes, measures which must be proportionate to the risks they actually face, and to the nature, scale and complexity of their own activities. Companies must monitor these procedures and make improvements.^[11]UK Department of Justice, March 2011, Guidance about procedures which relevant commercial organizations can put into place to prevent persons associated with them from bribing (section 9 … Continue reading.

Our coalition of more than 80 civil society organizations hopes that Member States will take this opportunity to show leadership and engage in constructive dialogue to send unequivocal messages to businesses, investors, consumers and people affected by the trade in conflict minerals that the EU makes a strong commitment to more responsible and transparent supply chains. This will require a real commitment to exploit the progress already made – progress which the victims of this deadly trade still find too slow – and not to seek shortcuts which constitute a step backwards. We recommend that Member States review their positions and:

Show leadership on this issue by supporting mandatory due diligence requirements for businesses covered by the legislation
Support Regulation that complies with the OECD Due Diligence Guidance by:

Ensuring that all due diligence obligations are consistent with the OECD standard
Including companies located downstream of metal importers, in particular companies which market products containing minerals covered by the legislation on the European market
Using language that explicitly reflects the progressiveness and flexibility of due diligence.

Attachments

EU Regulation on responsible sourcing of minerals

Notes[+]

Notes
↑1	See for example several information documents from members of our coalition: https://www.globalwitness. org/documents/18087/NGO_Coali- tion_Briefing_-_EU_Regulation_on_Responsible_Mineral_Sourcing.pdf And https://www.globalwitness.org/docu- ments/18060/Breaking_the_Links_-_Joint_NGO_Position_Paper_FR.pdf. See also http://business-hu- manrights.org/en/background-con- flict-minerals-eu-responsible-miner-al-sourcing-regulation.
↑2	THE company responses can be found in the annex to the English version of the report, starting on page 75.
↑3	The OECD Guide has been endorsed by 34 OECD member countries, as well as by Romania, Lithuania, Latvia, Brazil, Argentina, Peru, Morocco, the 12 member states of the International Conference of the Great Lakes Region (ICGLR) and the UN Security Council. Nine non-member countries, namely Argentina, Brazil, Colombia, Costa Rica, Latvia, Lithuania, Morocco, Peru and Romania, all of which adhere to the Declaration on International Investment and multinational companies, have adhered to the Recommendation of the OECD Council
↑4	Global Witness, December 2, 2015, Global Witness welcomes China's adoption of progressive new mineral supply chain guidelines
↑5	Office of the UN High Commissioner for Human Rights, 2011, Guiding Principles on Business and Human Rights: Implementing the “Protect, Respect and Remedy” Framework of the United Nations, Doc. UN HR/PUB/11/04.
↑6	For example, Vodafone recently admitted to Amnesty International that it only carries out OECD-compliant due diligence on tin, tantalum, tungsten and gold as this is required under DFA 1502 Vodafone said: "It is important to note that cobalt is not one of the minerals included in the Conflict Minerals report [required by law] and is therefore [not] subject to the same level due diligence than the other minerals listed above [tantalum, tin, tungsten or gold]. » See Amnesty International, January 19, 2016, This is why we die: Human rights abuses in the Democratic Republic of Congo are fueling the global cobalt trade, Appendix, p. 81
↑7	European Commission, March 5, 2014, Impact Assessment, p. 13, p. 19, p. 23 and p. 36.
↑8	European Commission, October 2015, Trade for all: http://trade.ec.europa. eu/doclib/docs/2015/october/tra-doc_153879.pdf">Towards a more responsible trade and investment policy, p. 7, p.24 and p. 25
↑9	OECD, December 2, 2014, OECD report on international corruption
↑10	EU Anti-Money Laundering Directive, Article 8, paragraphs 1 and 3.
↑11	British Ministry of Justice, March 2011, Guidance about procedures which relevant commercial organizations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010), Principles 1 and 6, p. 21 and p.31