Explanatory Memorandum to COM(2014)111 - System for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold from conflictaffected and high-risk areas - Main contents
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| dossier | COM(2014)111 - System for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, ... |
|---|---|
| source | COM(2014)111  |
| date | 05-03-2014 |
The main objective of this proposal is to help reduce the financing of armed groups and security forces through mineral proceeds in conflict-affected and high-risk areas by supporting and further promoting responsible sourcing practices of EU companies in relation to tin, tantalum, tungsten and gold originating from such areas. The proposal builds on existing international due diligence frameworks and principles.
Today, international measures exist to promote responsible sourcing of minerals in areas at risk or affected by armed conflict. The two best-known were adopted in 2011 and 2010 respectively: the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Due Diligence Guidance) and Section 1502 of the United States Dodd-Frank Wall Street Reform and Consumer Protection Act.
The former is not country or region-specific and sets out a process to be followed by countries interested in developing responsible sourcing capabilities. While primarily at the disposal of companies in OECD jurisdictions, the Due Diligence Guidance is also a source of inspiration attracting the participation of companies performing significant transformative or trading functions in mineral supply chains for gold, tin, tantalum and tungsten. In 2011, the EU took a political commitment in the OECD framework to support the further uptake of the Guidance.
The Dodd-Frank Act focuses on the Democratic Republic of Congo (DRC) and nine adjoining countries. Section 1502 of the Act requires companies listed on US stock exchanges which use conflict minerals to report to the Security Exchange Commission on the origin of such minerals and on relevant due diligence measures. These reports require an extensive supply chain inquiry. US-listed companies are turning increasingly to their suppliers, including in the EU, for relevant information and evidence of due diligence. One of the business responses to the Act has been to redirect trade away from Central Africa with impacts on the local markets for gold, tin, tantalum and tungsten. Legitimately mined minerals make it to US and EU markets with some difficulty.
The trade of conflict minerals is very well documented in the case of the DRC and is the subject of UN Security Council Resolution 1952 (2010). However, other cases abound elsewhere in Africa, Asia and Latin America and the cause is being taken up outside the OECD too. In June 2013, G8 leaders expressed their commitment to increase transparency in the extractive industry.
Against this background, the European Commission and the High Representative have been working to develop a comprehensive EU responsible mineral sourcing framework. This work follows up a 2010 European Parliament Resolution calling for the EU to legislate along the lines of US legislation as well as two Communications in 2011 and 2012 that announced the Commission's intention to explore ways of improving supply chain transparency. This legislative proposal will therefore be accompanied by a Communication detailing other policy measures that can be deployed to tackle the problem as broadly as possible.
Existing EU initiatives in relation to natural resources, financial transparency and conflict-sensitive management of international diamond trade and forestry:
– Council Regulation (EC) No 2368/2002 of 20 December 2002 implementing the Kimberley Process certification scheme for the international trade in rough diamonds
– Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market.
– Directive 2013/34/EU of the European Parliament and the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and the Council and repealing Council Directives 78/660/EEC and 83/349/EEC.
The proposal is consistent with, and aims at contributing to the EU foreign policy goals and development strategy of better governance, sustainable management and law enforcement in relation to the exploitation of natural resources in mineral-producing conflict-affected and high-risk areas as well as to EU enterprises and corporate social responsibility policies, which recommend companies to mitigate any potential negative impacts that they might have on society, and therefore pay attention to any potential human rights violations.
Contents
- RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- Ground for and objectives for a proposal
- General context
- Existing provisions in the area of the proposal
- Consistency with the other policies and objectives of the Union
- Consultation of interested parties
- Summary of the proposed action
- Legal basis
- The principles of subsidiarity and proportionality
- Choice of the instrument
A broad consultation process was held between December 2012 and June 2013 which included a web-based public consultation and numerous meetings with stakeholders. An assessment study into due diligence compliance costs, benefits and related effects on selected operators in relation to the responsible sourcing of minerals was finalised mid-September 2013.
A summary of the results of the public consultation and the final report of the assessment study are made available on the Commission's web-site concurrently with this proposal.
The Commission carried out an impact assessment of the proposed policy options taking into account the results of the public consultation and the assessment study, which led to the publication of a report. The following six options were considered:
· Option 1 – Standalone EU Communication
This option consists of the following measures to be included in a joint Communication of the Commission and the High Representative: (i) National Contact Points (NCPs) and the Enterprise Europe Network (EEN) would advocate the uptake of the OECD Due Diligence Guidance; (ii) EU public procurement: the application of performance clauses in Commission and EU Member States' public procurement contracts for relevant products (e.g. computers, cell phones); (iii) financial assistance to the existing OECD programmes; (iv) Commission support to Letters of Intent by the European industry, and (v) government-to-government actions.
· Option 2 – Soft-law approach
This option combines the measures described under Option 1 with a Council Recommendation to raise awareness of and promote the voluntary uptake by EU enterprises of the OECD Due Diligence Guidance notably for those enterprises that are not already subject to a mandatory third country scheme.
· Option 3 - Regulation establishing obligations under an EU Responsible Importer certification based on the OECD Due Diligence Guidance - VOLUNTARY
This option combines the measures described under Option 1, with a Regulation targeting all EU importers of tin, tantalum and tungsten ores and metals, and gold, regardless of the origin of the products. The Regulation relies on the OECD Due Diligence Guidance to define obligations for EU importers that opt to be self-certified as responsible importers of tin, tantalum and tungsten ores and metals, and gold, on the basis of a self-declaration of compliance.
Although the Regulation is voluntary, EU importers opting for self-certification are obliged to integrate all elements of the OECD Due Diligence Guidance in their management system by: (i) maintaining a system of controls and transparency over the mineral supply chain, which includes inter alia the country of mineral origin and the smelters/refiners; (ii) identifying and assessing risks in the supply chain against the OECD model supply chain policy; (iii) designing and implementing a strategy to respond to identified risks; (iv) obtaining independent third-party audit assurances of supply chain due diligence; and (v) reporting publicly on supply chain due diligence.
The EU self-certified importer is required to disclose annually to the Member State competent authority the identity and geographical location of the smelters/refiners in its supply chain. On this basis, an EU list of responsible smelters/refiners established in or supplying to the EU, would be drawn up.
The scheme will be evaluated after three years, or before in case available information will allow it, and the results will be used for decision-making needs on the future of the EU approach and for amendments to the regulatory framework, making it mandatory, if appropriate, on the basis of a further impact assessment.
· Option 4 - Regulation establishing obligations under an EU responsible importer certification based on the OECD Due Diligence Guidance – MANDATORY
This option combines the measures described under Option 1, with a compulsory version of the Regulation described in Option 3 under which all EU importers of tin, tantalum and tungsten ores and metals, and gold, would be subject to the obligations defined under the Regulation.
· Option 5 - Directive establishing obligations for EU-listed companies based on the OECD Due Diligence Guidance
This option combines the measures described under Option 1, with a Directive targeting almost 1,000 EU-listed companies using tin, tantalum, tungsten and gold, regardless of origin, in their supply chain.
The Directive would define the obligations for EU-listed companies to integrate OECD Due Diligence Guidance in their management system by (i) maintaining a system of controls and transparency over the mineral supply chain, which includes inter alia the country of mineral origin and the smelters/refiners; (ii) identifying and assessing risks in the supply chain against the OECD model supply chain policy; (iii) designing and implementing a strategy to respond to identified risks; (iv) obtaining an independent third-party audit of supply chain due diligence of the EU-listed company; and (v) reporting publicly on supply chain due diligence.
EU-listed companies should disclose to Member States' competent authorities the outcome of the independent third-party audit.
· Option 6 - Prohibition of imports when EU importers of mineral ores fail to demonstrate compliance with OECD Due Diligence Guidance
This option consists of the measures described under Option 1, and in addition it would require EU importers to mandatorily demonstrate compliance with the OECD Due Diligence Guidance. Providing evidence on compliance to Member States' customs authorities, importers will be eligible to access the EU market.
This option would follow the approach taken by the Kimberley Process Certification Scheme targeting the trade in rough diamonds and Council Regulation (EC) No 2368/2002 of 20 December 2002 based on Article 133 EC (now Article 207 TFEU) which sets out the rules applicable for imports and exports of rough diamonds. In this case, an international agreement supports the importation ban for so-called 'conflict diamonds'.
The proposed action is Option 3. It focuses on all EU operators importing tin, tantalum and tungsten, their ores, and gold into the EU market. It defines the conditions for them to be self-certified as responsible importers of the mineral and metals in scope. The proposal is based on a due diligence framework allowing EU importers to apply the principles and processes set out in the OECD Due Diligence Guidance and thereby addressing the risk of financing armed groups and security forces and mitigating other adverse impacts including serious abuses associated with the extraction, transport or trade of the minerals in scope.
The due diligence framework requires responsible importers of the mineral and metal within the scope of the Regulation to establish a strong company management system; to identify and assess risks in the supply chain; to design and implement a strategy to respond to identified risks; to carry out independent third-party audits of supply chain due diligence at identified points in the supply chain; and to report on supply chain due diligence.
In addition, responsible importers of those minerals and metals are required to make available on an annual basis, where applicable, the identity of all smelters and/or refiners supplying them, as well as to provide independent third-party audit assurances and pass them on to Member States' competent authorities and to downstream purchasers, with due regard to business confidentiality and other competitive concerns.
The proposal aims to help reduce the financing of armed groups and security forces through mineral proceeds in conflict-affected and high-risk areas by encouraging EU operators importing the minerals and metals within the scope of the Regulation from such areas, to do so responsibly and facilitate due diligence efforts of downstream purchasers.
On the basis of the information disclosed to the competent authorities, the EU will publish annually, after consultation with the OECD, a list of responsible smelters and refiners that source according to the Regulation.
Article 207 of the Treaty on the Functioning of the European Union.
The proposal falls under the exclusive competence of the Union. The subsidiarity principle does therefore not apply. It should however be noted that in the light of the problems outlined above, EU-level action provides more critical mass and global leverage relative to individual Member State action.
The principle of proportionality requires that any intervention is targeted and does not go beyond what is necessary to achieve the objectives. This principle has guided the preparation of this proposal from the identification and evaluation of alternative policy options to the drafting of the legislative proposal.
The proposed instrument is a Regulation to ensure the highest level of harmonisation across Member States and guarantee sufficient authority over participating operators and leverage in relation to the identification of smelters and refiners.
The present proposal entails limited financial implications for the Union budget for administrative purposes.