Comparison of Conflict Minerals Regulation: EU/United States

by Reed Smith
Contact

The European Union may soon join the United States in requiring certain companies to investigate and disclose whether certain minerals used in their products originated in conflict-affected or high-risk areas. On June 26, 2013, the European Commission (the Commission) closed its public consultation on the development of a conflict minerals regulation.1 While the information culled from responses to the Commission’s consultation questionnaire will have a significant impact on the nature of the regulations, we have analyzed the Commission’s statements and requests for information to anticipate the kind of regulations that will ultimately be put in place. Based on the information accompanying the public consultation, it is clear that the EU initiative may draw on the 2010 conflict minerals regulations in the United States as well as the 2011 Organisation for Economic Co-operation and Development (OECD) guidance related to conflict minerals.2 Our initial thoughts are below.

European Commission Public Consultation

In an increasingly interdependent world with a globalized economy and supply chain, a lack of physical proximity to conflict does not prevent consumers from contributing to foreign struggles and civil unrest. Many products that consumers use on a daily basis – computers and cell phones, for example – include components made from resources such as gold, tin, tungsten and tantalum that armed groups mine to fund their conflicts. Thus, supply chain transparency and diligence are vital if companies and consumers wish to avoid contributing to civil unrest in areas such as Central Africa, and being the targets of unwanted media and NGO attention as a result.

In 2011 and 2012, the Commission released official communications regarding responsible resource acquisition, and the Commission now appears ready to move from discussion to action.

The European regulations may feature an expanded scope compared to the U.S. regulations, as the Commission generally references “resource-rich developing countries” and “conflict-affected or high-risk areas” rather than just the Democratic Republic of the Congo or an adjoining country.3 Such language suggests an alignment with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.4 The Commission also appears open to moving beyond simply imposing regulations, as it identifies its aims as “exploring potential new policy options to assist resource-rich developing countries and to promote due diligence” as well as “looking into possible appropriate incentives to sustain trade and allow for continued EU access to these mineral markets.”5

Notably, the Commission appears focused on promoting social responsibility without unnecessarily hindering industry.6 The EU public consultation requests input regarding the sufficiency of existing guidance from the United Nations and OECD, hopefully so that the Commission can avoid creating duplicative or conflicting regulations.7 Overall, concerns of practicality and market realities appear central; the Commission appears to be trying to devise a workable solution, which addresses the concerns of stakeholders inside and outside the supply chain.

Drawing from Dodd-Frank

Though the goals of U.S. and EU conflict minerals regulations are aligned to a certain extent, the Commission intends to learn from, but not directly adopt, the Dodd-Frank provisions. The public consultation calls for an analysis of advantages and disadvantages, and indicates a desire to avoid encouraging certain strategies businesses have taken in response to the Dodd-Frank changes, such as abandoning Central Africa as a source of minerals.

As with Dodd-Frank, the Commission appears willing to consider exempting some companies from the regulations, though the Commission suggests basing such exemptions on size rather than whether the company files reports with the SEC.8

As was the case with timber regulation (adopted in 2008 and 2010 in the United States and EU, respectively), the EU will not simply mimic U.S. rules. The Commission appears to be considering adopting different standards for specific industry sectors or products, which would permit more flexibility for some companies in terms of compliance measures.9 Another flexibility-focused concern is whether the regulations should be binding or compulsory.10

The EU regulations may build on the Dodd-Frank disclosure requirements by providing clean trade incentives, perhaps intended to boost “brand image and consumer recognition.”11

In addition, the Commission may draw influence from the timber regulations passed in October 2010, which focus on three elements of due diligence: information, risk assessment, and risk mitigation.12 Incorporating those elements would move a step beyond the Dodd-Frank disclosure requirements.

If the EU elects to closely mimic U.S. regulations, companies that manufacture or contract to manufacture products for which conflict minerals are “necessary to the functionality or production” would be subject to the rules.13 Such companies must then make a reasonable inquiry into the minerals’ country of origin and disclose whether the minerals came from any of the relevant countries.14

If companies find conflict minerals in their products have originated from the covered countries, they must disclose this information to the SEC in an annual conflict minerals report and post it online.15 Those companies that can conclude the minerals did not come from a covered country or that can show the minerals were from recycled or scrap sources do not have to create such a report but have to describe their country-of-origin inquiries.16 Finally, companies may also be required to report their due diligence efforts regarding source and chain of custody of conflict minerals and include an independent audit of those measures.17 Following this process, appropriate products can be classified as “DRC conflict-free.”18

Moving Forward

With the closing of the public consultation period the Commission will begin piecing together insights based on the full scope of submitted questionnaires. That information may be incorporated into a proposal to be prepared for submission to the European Parliament and Council. Although the pace of the legislative process can be difficult to predict, preparing for changes sooner rather than later, will promote a smooth transition to a more transparent supply chain. Our experience shows that the optimal time to influence the shape of the future EU law and policy is the current stage, before new proposals are reduced to draft legislation.

Brian Willett also contributed to this article.

1. Public Consultation on a Possible EU Initiative on Responsible Sourcing of Minerals Originating from Conflict-Affected and High-Risk Areas, EUROPEAN COMMISSION, http://ec.europa.eu/yourvoice/ipm/forms/dispatch?form=EuMin&lang=en.
2. See Conflict Minerals, Rule 34-67716, SEC Final Rules, U.S. SECURITIES AND EXCHANGE COMMISSION (Jan. 14, 2013), http://www.sec.gov/rules/final/finalarchive/finalarchive2012.shtml.
3. Public Consultation, supra note 1.
4. See OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, OECD, http://www.oecd.org/fr/daf/inv/mne/mining.htm.
5. Public Consultation, supra note 1.
6. Id. For example, question 4.3 asks, “what could an EU initiative do to support both market access and due diligence concerns?”
7. Id.
8. Id. Question 3.4 asks, “Should an EU initiative include exemptions for Small and Medium-sized Enterprises (SMEs)?”
9. See id. at questions 3.1 to 3.3.
10. Id. at question 5.1.
11. Id. at question 7.1 to 7.3.
12. Timber Regulation, EUROPEAN COMMISSION (April 26, 2013), http://ec.europa.eu/environment/forests/timber_regulation.htm.
13. Conflict Minerals Final Rule, Securities and Exchange Commission 12 (2012), available at http://www.sec.gov/rules/final/2012/34-67716.pdf
14. Id.
15. Id. at 13.
16. Id. at 13-14.
17. Id.
18. Id.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith
Contact
more
less

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.