EU Conflict Minerals Regulation — What’s Going On?
Many of you are asking what is happening with the European Union conflict minerals regulation, what is the likely timing for adopting the regulation, and what should you do now to prepare.
Process — The development of the EU conflict minerals regulation has now entered the final negotiation phase. This phase, known as the “trialogue negotiations,” involves informal meetings between the Council of the EU, European Parliament and European Commission. This phase follows the adoption of the official position by the Council of the EU at the end of December 2015. The position of the Council of the EU is unfortunately not publically available.
The Council’s position was reached during the Luxembourg presidency which ended on 31 December 2015. The presidency of the Council rotates every 6 months between member states and moved from Luxembourg to the Netherlands on January 1, 2016. The issue of conflict minerals has been identified by the Netherlands as one of its priorities with the aim of concluding the negotiations by the end of its term on June 30, 2016. However, the presidency has acknowledged that given the complexity of the issue, a final resolution may not be accomplished until the next presidency, which will be Slovakia.
Timing and Content — The most controversial issue to be resolved continues to be whether the due diligence system will be mandatory or voluntary. This issue was hotly debated in the European Parliament last May. The Parliament voted to adopt many amendments to the Commission’s proposed regulation. It is expected that the discussions between the three European institutions will be difficult because of the divergent views of the Council and the Parliament on several points. We believe that the negotiations will ultimately result in some form of regulation being adopted. But, because a consensus must be reached, the resulting regulation may be a slightly watered-down version of the current European Parliament proposal. Although the Council is hoping to adopt the regulation by the end of June, it is possible that negotiations will extend into the fall because of the lack of agreement on whether the regulation will be mandatory and because of the need to address assistance to small and medium-sized enterprises if the final regulation covers downstream companies.
Following the adoption of a final regulation, a date will be set for its entry into force. The regulation will be directly and uniformly applicable in all member states from that date, and it will not be necessary for each member state to draft separate legislation to incorporate it into national law. This means that once the trialogue negotiations are completed and a regulation is adopted, it will not take long for companies to feel the pressure to commence their compliance programs.
If the final regulation is mandatory, there will likely be some transition period to allow companies to build up some compliance efforts before the regulation takes effect. The Parliament amendments proposed a 2-year transition period to allow time to create a third-party smelter and refiner audit system.
What To Do Now — The good news is that the due diligence procedures and framework called for in the draft EU regulation are based on the same OECD Guidelines that are used for compliance with the US rule. So, depending on the strength of your existing program, you may be able to simply expand your existing compliance plan to meet the European requirements. And, don’t be fooled by the concept of a “transition period.” It would be wise to start laying the groundwork for compliance as soon as the regulation is finalized because it takes many months to gather the relevant information about your business, your products, and your supply chains. Regardless of any transition period, putting a good process in place quickly will help you comply with the regulation when it does become effective.