The EU’s Drastically Different Conflict Minerals Approach: Targeting Smelters

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Last week, the European Union proposed conflict minerals legislation wildly different than what US manufacturers must currently comply with, calling for voluntary participation from importers only.

And yet the proposed EU legislation sees the pinch-point where it exists – at the smelter level.

“Focusing efforts at the root of the issue – material going into smelters and refiners – is a more efficient approach than the SEC’s ‘push from the top’ mandate,” said Lawrence Heim, Director of the Elm Consulting Group International, LLC and frequent contributor to MetalMiner.

The proposed European legislation incorporates the widely publicized and often discussed OECD conflict minerals framework. In some respects, the proposed legislation goes further than the SEC rules as the European legislation “applies to minerals sourced from conflict-affected and high-risk areas worldwide.”

In other words, the European legislation would go beyond the geographic boundaries of the SEC requirements or just the DRC region, according to Michael Littenberg of Schulte Roth and Zabel, who was also a recent speaker at MetalMiner’s Conflict Minerals EDGE conference held back in May 2013.

“If you are the responsible importer and you choose to follow the EU proposal as it stands, you will have to implement a program consistent with OECD and undergo an audit by a third party,” Heim said. “The audit scope appears broader than what is required under the SEC requirements, but the EU proposal still leaves a great deal of ambiguity in what the audit would entail.”

According to Heim, there is a concern that importers won’t participate because the proposal is voluntary. But since the document only became available March 5, we don’t yet know if it will receive approval and become adopted. It still has to go through Parliament and then individual member states may also develop their own laws or requirements to go along with the EU directive.

Though Heim indicates a risk that some importers may simply “opt out” of compliance and, since they don’t face the “name and shame” issue as they may in the US, in many respects the combination of the US requirements and the EU legislation (if enacted) may be complementary and more effectively address “end-to-end supply chains.”

What This Means for Metal Buyers

Though the compliance aspect of conflict minerals rules from the SEC creates a sharper “stick” for manufacturers than the proposed EU program does for importers (with no burden on manufacturers), the European legislation may make compliance much easier for US publicly traded companies.

This is because the rules will effectively create a government-backed conflict-free smelter program, or list of ore/intermediate importers identified as conflict-free, which may be cross-referenced against smelter/refiner purchases.

This legislation will go to a vote later this year.

In the meantime, check out MetalMiner’s Conflict Minerals Compliance Kits.

Much more conflict minerals compliance coverage here.

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