April 2017

Law AlertEU, Competition and Trade Law

The Council of the EuropeanUnion (“EU”) has adopted anew Regulation imposing duediligence obligations on EUimporters of tin, tantalum andtungsten, their ores and goldoriginating in conflict areas.1

1 Proposal for a Regulation of the EuropeanParliament and of the Council setting up a Unionsystem for supply chain due diligence self-certification of responsible importers of tin,tantalum and tungsten, their ores, and gold

On 3 April 2017, the Council of theEuropean Union (the “Council”) hasadopted a Regulation whichimposes supply chain due diligenceobligations on EU importers of tin,tantalum, tungsten and gold (3 TG)whether in the form of minerals orprocessed metals. The adoption ofthe Regulation by the Council is thelast step in the EU legislativeprocedure, which means that theRegulation will soon enter intoforce.

The Regulation applies to allimports of minerals, which aredefined by the Regulation as oresand concentrates containing 3 TG(“minerals”), as well as metalscontaining or consisting of 3 TG(“metals”). 3 TG are used in

originating in conflict-affected and high-risk areas,COM/2014/0111 final - 2014/0059 (COD).2 Conflict-affected and high-risk areas are definedby the Regulation as areas in a state of armedconflict or fragile post-conflict as well as areas

everyday products such asjewellery, mobile phones andautomobiles. In conflict affectedand high risk areas,2 such asWestern and Central Africa, theseproducts can be used by armedgroups to finance conflicts andhuman rights abuses. By ensuringproduct traceability, the Regulationaims at reducing a major source oftheir income.

The Regulation builds upon the2011 OECD Due Diligence Guidancefor Responsible Supply chains ofMinerals from Conflicted-Affectedand High-Risk Areas (the “OECDguidance”), which provides theinternational framework for supplychain due diligence.

witnessing weak or non-existent governance andsecurity, such as failed states, and widespread andsystematic violations of international law, includinghuman rights abuses.

The EU adopts newrules imposingsupply chain duediligence obligationson EU importers ofminerals and metals

The EU adopts new rules imposing supply chain due diligence obligations on EU importers of minerals and metals

2

At least 95% of all EU imports of metals and minerals willbe covered by the Regulation, while small volumeimporters will be exempted. The EU Member States willbe responsible for ensuring the implementation of theRegulation, in cooperation with the EuropeanCommission (the “Commission”).

New obligations for EU importersAs of 1 January 2021, EU importers of minerals andmetals, including smelters and refiners processingminerals inside the EU, will have to implement four typesof obligations set by the Regulation. The regime isstricter for importers of minerals than for importers ofmetals.

• Management system obligations

The Regulation will oblige EU importers of minerals andmetals to adopt a supply chain policy that is consistentwith the standards provided in Annex II of the OECDguidance. In particular, they will have to commit not todirectly or indirectly contribute to the financing ofconflicts through the extraction, transport, trade,handling or export of minerals. The Regulation will alsooblige EU importers of minerals and metals toincorporate their supply chain policy into contracts andagreements with suppliers. In addition, they will have toimplement a supply chain traceability system by keepingrecords of certain information such as, the name andaddress of the suppliers, the country of origin of theminerals and metals and the volumes purchased.

• Risk management obligations

EU importers of minerals will have to identify and assesswhether there are any risks of “adverse impacts”associated with their activities or sourcing decisions. Inline with the OECD guidelines such “adverse impacts”may include human rights abuses as well as financingconflict or fuelling, facilitating or exacerbatingconditions of conflict. When such risks are identified, EUimporters of minerals will have to implement riskmitigation efforts, and if this does not work, stoppurchasing from problematic suppliers. Similar rules willapply to importers of metals, except that they will haveto rely primarily on the third party audit reports fromthe smelters and refiners (whether located inside oroutside the EU) in their supply chain drawn up in linewith the OECD guidelines. In the absence of suchreports, they will have to carry out audits of their ownsupply chain through independent third-parties.

• Third party audit obligations

The Regulation will oblige EU importers of minerals tohave all of their activities, processes and systemsaudited by an independent third-party. The objective ofthe audit will be to assess the compatibility of theimporter’s supply chain due diligence practices, andmake recommendations. EU importers of metals will beexempted from the obligation to carry out third-partyaudits provided that they can demonstrate that allsmelters and refiners in their supply chain comply withthe Regulation.

The EU adopts new rules imposing supply chain due diligence obligations on EU importers of minerals and metals

3

This requirement will be considered as fulfilled if EUimporters of metals can demonstrate that they aresourcing exclusively from suppliers which are on the listof “responsible” smelters and refiners established by theCommission.

• Disclosure obligations

EU importers of minerals and metals will have to disclosethe audit reports carried out under the Regulation to thecompetent national authorities. They will also have todisclose non-confidential versions of these reports totheir customers.

Possible exemptionsEU importers of minerals or metals will be exemptedfrom the obligations set in the Regulation when theirannual import volume of each of the minerals or metalsis below the volume thresholds set out in Annex I to theRegulation. For instance, operators importing less than5000 Kg of tin ores into the EU per year will beexempted from the application of the Regulation. Inaddition, the Regulation does not apply to recycledmetals, and stocks existing prior to 1 February 2013.

EnforcementThe EU Member States will be responsible for ensuringthe effective and uniform implementation of theRegulation, in cooperation with the Commission. Inparticular, Member States’ competent authorities will bein charge of carrying out ex-post checks in order toensure that EU importers of minerals or metals complywith the obligations set in the Regulation. Such ex-postchecks will include on-the-spot inspections at the EUimporters’ premises.

In case of an infringement of the Regulation, MemberStates’ competent authorities will be required to issue anotice of remedial action to be taken by the EU importer.Such notices will be submitted to the Commission. TheCommission will publish a list of “responsible” smeltersand refiners (whether located inside or outside the EU)and remove from the list those that are no longerrecognised as “responsible”, on the basis of theinformation provided by the Member States.

By 1 January 2023 and every three years thereafter, theCommission will review the functioning and effectivenessof the Regulation. In particular, the Commission willassess whether Member States’ competent authoritiesshould have competence to impose penalties on EUimporters in the event of a persistent failure to complythe obligations set out in the Regulation. Therefore,before the Commission allows the EU Member States doso, no penalties can be imposed in case of aninfringement of the Regulation.

What’s next?The Regulation is expected to be published by the end ofMay 2017. However, it will only apply from 1 January2021, which will give EU importers time to adapt to thenew rules. Nonetheless, the Commission encouragescompanies to start carrying out due diligence alreadybefore this date.

Furthermore, by the end of 2017, the Commission willpublish non-binding guidelines to help companies,especially SMEs, with the identification of conflict-affected and high-risks areas. The Commission will alsoprovide an indicative list of conflict-affected and high riskareas. The objective is to help EU importers comply withtheir due diligence obligations before these becomebinding in 2021.

ContactsSteven Verschuur

+32 2 774 6440steven.verschuur@hvglaw.nl

Laurène Mélia

+32 2 774 9928laurene.melia@hvglaw.be

Melina Stroungi

+32 2 774 9062melina.stroungi@hvglaw.be

HVG Law

About HVG LawHVG Law LLP (HVG Law) is a leading Dutch law firm with anoutstanding reputation with regard to providing legal services.Our lawyers and civil law notaries are active in all areas of lawwhich are relevant to entrepreneurs, shareholders, authoritiesand their businesses. With offices in Amsterdam, The Hague,Eindhoven, Rotterdam, Utrecht, Brussels and New York we areable to provide you with fitting answers to all your legalquestions. In the Netherlands, HVG Law LLP has a strategicalliance with Ernst & Young Belastingadviseurs LLP and is partof the global EY Law network.hvglaw.nl

hvglaw.nlhvglaw.be

HVG Law LLP is a limited liability partnership establishedunder the laws of England and Wales and registered withCompanies House under number OC335658 and is registeredwith the Dutch trade register of the Chamber of Commercenumber 24433164.

© 2017 HVG Law LLP

HVG Law is not liable for any inaccuracies or incompleteness in theinformation provided in this publication, nor can any rights be derivedfrom its contents.