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The EU’s Conflict Minerals Regulation to impact supply chains for trade of the 3TG

market insights

November 20, 2020

The Conflict Minerals Regulation will affect the trade and production of tin, tantalum, tungsten, and gold in as well as outside the EU. How this will impact different market participants will be explained here.

January 1st, 2021 won’t just be the beginning of a new year. It is also the date where the EU’s new legislation, The Conflict Minerals Regulation, comes into effect. The law stands to combat human rights abuse and the unwilling finance of armed groups through conflict minerals.

The new Conflict Minerals Regulation will contribute to vast changes, especially for companies that import tin, tungsten, tantalum, and gold (also known as the 3TG) into the EU, but also for smelters and refiners, and those owning a due diligence scheme.

EU importers, smelters, and refiners will be obligated to implement practices that will increase the due diligence in the supply chain. As well as, prohibiting imports of 3TG from conflict zones.

Between 600-1,000 EU importers stands to be directly impacted, where they must install measures to make sure they comply with the regulation. While indirectly, the law will influence 500 smelters and refiners of tin, tantalum, tungsten, and gold whether they are based inside the EU or not.

Overall terms of the Conflict Minerals Regulation

The goal of the EU regulation is to ensure that minerals and metals traded in the EU aren’t funding armed groups, corruption, human rights abuses, and child labour. As well as ensuring that EU importers meet international sourcing standards set by the OECD.

The first step to diminish that risk is to identify conflict-affected and high-risk areas. The companies are supposed to determine whether parts of their supply chains are located in those areas through the due diligence principle in the regulation.

In other words, a company must control the origin of the conflict minerals and metals and ensure that they have been processed responsibly. If that is not the case, the firm must manage the problem, by e.g. ending the partnership.

How the Conflict Minerals Regulation will impact the industry

Exactly how the new regulation will impact market participants depends on where they are located in the supply chain.

From the new year, EU importers are required to implement a five-step plan set out by the OECD in the document “Due Diligence Guidance for Responsible Supply Chains from Conflict-Affected and High-Risk Areas”.

These are the five steps that all companies importing 3TG into the EU will have to follow:

  1. Establish strong company management systems
  2. Identify and assess risk in the supply chain
  3. Design and implement a strategy to respond to identified risks
  4. Carry out an independent third-party audit of supply chain due diligence
  5. Report annually on supply chain due diligence

By following the new due diligence principle, the EU importers have to document the origin of the product, quantity, price, taxes paid, etc. All the files that will need to be documented can be found in the document “OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.”

Smelters, refiners, and owners of industry schemes

According to the EU, smelters and refiners won’t be directly affected by the new EU regulation if they’re not acting as importers. However, the companies are obliged to adhere to the same due diligence principles as the EU importers.

Furthermore, the European Commission has decided to help traders find responsible smelters and refiners with a global list. This list will entail the smelters and refiners that live up to the requirements in the new EU regulation and apply the supply chain due diligence principle from the regulation.

Owners of due diligence schemes, or more commonly known as industry schemes, can apply to the European Commission to have their schemes recognized as an equivalent to the five-step plan. If their application is rejected, they will have to adhere to the five steps set out by OECD.

Catching up with the regulation

It is now four years since the text of the regulation was published back in 2017. As time has gone by, responsible supply chain regulations are no longer new initiatives. Several proposals have already been implemented in the mining industry in response to the OECD Guide for Conflict-Affected and High-Risk Areas. These include The International Tin Supply Chain Initiative and The Responsible Gold Mining Principles.

Now, many of the companies that will have to comply with the new EU regulation will already have adopted many of the requirements. Despite market critique for late implementation, the last four years have given market participants across the supply chain time to implement those requirements. That way, the regulation is still helping the industry move forward.

With the new regulation, it will be up to the companies themselves to determine when an area is a conflict-affected or high-risk area. Not only has the guidance from the OECD been cause for confusion as to their broad definitions of such areas. Many companies have also seen the task as one that could potentially damage their business relations.

To help the industry determining which places should be considered risk areas, the European Commission has decided it will ensure that a list of the conflict-affected and high-risk areas will be made available by the end of 2021. However, this list will not be exhaustive, but an indicative one that will be regularly updated.

Metalshub and the new regulation

The new regulation can also be relevant for members of Metalshub, as tin and tungsten are two of the available products on the platform. Nonetheless, using the online trading platform on Metalshub can make it easier for market participants to follow the new due diligence principle.

At Metalshub, increasing supply chain visibility is at the forefront. The online trading platform makes it easier to comply with the new regulation as there is no middleman. In effect, having fewer participants in the supply chain.

At the same time, transactions on the platform are easy to audit, so the increasing amount of documentation will be simpler to accomplish. Those advantages can help businesses overcome the new processes and structures that are implemented by the new regulation.

If you want to learn more about how Metalshub can help your business, schedule a demo now.

\Main cover image by Guillaume Périgois on Unsplash*

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