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Responsible supply chains dealing with conflict and high-risk areas
- 1. Responsible supply chains dealing with conflict and high-risk areas What you need to know about the law Senior Lawyer Ronny Rosenvold
- 2. ▪ Trade compliance - US/China trade war impact - Brexit takes form - EU Conflict Mineral Regulation ▪ Product compliance - EU REACH and the Waste Framework Directive (WFD) - EU Medical device regulation - EU Restriction of Hazardous Substances (RoHS) ▪ Corporate Social Responsibility - EU Non-Financial Reporting disclosure - Cybersecurity audit - GDPR Trends for 2019 2
- 3. ▪ The U.S. conflict minerals rules were changing the way the globe sources minerals ▪ Europe’s NGO community was upset by the lack of action ▪ EU started its work with new regulation in 2012 with the European Commission communication on raw materials ▪ The new regulation has set the compliance date to 2021 ▪ The EU regulation requires EU companies to ensure they import 3TG minerals and metals from responsible sources only ▪ The rule is currently estimated to affect between 600 and 1,000 importers, which will impact these importers suppliers Origin and impact of the EU Conflict Minerals Rules 3
- 4. ▪ Prevent the financing of armed groups and security forces in resource-rich areas responsible for human rights abuses which may include: - Child labor - Sexual violence - Abduction - Forced resettlement - Destruction of ritually or culturally significant sites ▪ At the highest international level, UN Security Council Resolution 1952 (2010) specifically targeted the Democratic Republic of Congo (the DRC) and its neighbors in Central Africa calling for supply chain due diligence to be conducted. Why does EU have regulations on conflict minerals 4
- 5. ▪ List of Minerals (Part A) and Metals (Part B) in Annex I containing (3TG): - Tin - Tantalum - Tungsten - Gold ▪ Includes byproducts of the above ▪ Recycled metals out of scope ▪ Does not apply to stocks where a Union importer demonstrates that those stocks were created in the current form on a verifiable date prior to February 2013 What is covered by the regulation 5
- 6. ▪ All who import minerals or metals containing or consisting of tin, tantalum, tungsten, or gold to the EU. ▪ An importer is defined by reference to the EU Customs Code and includes any metals or minerals that are declared for free circulation in the EU. ▪ The regulation does not apply to importers whose annual import volumes are below a certain threshold amount. The volume thresholds are set so that at least 95% of the total imported volumes into the EU of each metal and mineral will be subject to the regulation. Who is covered? 6
- 7. 7 ▪ Key Definitions ▪ Upstream = Firms that search for and extract raw materials for 3TGs ▪ Downstream = Firms that process 3TGs to form finished products
- 9. ▪ The EU regulation focuses on conflict affected or high-risk areas. ▪ It defines these as: - State of armed conflict - Fragile post-conflict areas - Failed states ▪ The European Commission’s guidelines on how to identify conflict-affected and high-risk areas. What regions are covered? 9
- 11. ▪ Assess whether you import conflict minerals ▪ If yes: ▪ Step 1: Develop policies and program governance ▪ Step 2: Establish training and support ▪ Step 3: Set clear expectations for suppliers ▪ Step 4: Gather information and manage risks ▪ Step 5: Develop a reporting process Compliance 11
Editor's Notes
- US/China trade war started in 2018 US Tariffs on products from china Impact import of $ 200 billion Brexit Leave March 29th The divorse comes to a cost UK will lose their position as a gateway to Europe. Understanding the regulation is crucial Know what obligations that are put on the firm Know what the reporting requirements are EU REACH and the Waste Framework Directive REACH stand for: registration, evaluation, authorization and restriction of chemicals. Full chemical transparency & disclosure Practically speaking the most complete and complex regulation EU Medical device regulation Historically, medical device companies have been reluctant to let all suppliers know which purchased components and materials would go into medical devices. The MDR will force due diligence and reveal the use of parts/materials. EU RoHS – July 22, 2019 Corporate Social Responsibility (referanse til HINAS) EU Non-Financial Reporting disclosure Under Directive 2014/95/EU, large companies have to publish reports on the policies they implement in relation to environmental protection social responsibility and treatment of employees respect for human rights anti-corruption and bribery diversity on company boards (in terms of age, gender, educational and professional background) EU rules on non-financial reporting only apply to large public-interest companies with more than 500 employees. This covers approximately 6,000 large companies and groups across the EU, including Cybersecurity audit Facebook Google GDPR
- Trade and investment in natural mineral resources hold great potential for generating income, growth and prosperity, sustaining livelihoods and fostering local development. However, a significant share of these resources is located in conflict-affected and high-risk areas, where they may contribute, directly or indirectly, to armed conflict, including terrorist financing, human rights violations and hinder economic and social development. The U.S. conflict minerals rules were changing the way the globe sources minerals Europe’s NGO community was upset by the lack of action EU started its work with new regulation in 2012 with the European Commission communication on raw materials On 17 May 2017, the EU Parliament and EU Council adopted new import regulation on ‘Conflict Minerals’ under Regulation 2017/821. In align with the Dodd Frank regulation from the US. The new regulation has set the compliance date to 2021 Through the raw materials covered under the EU ‘Conflict Minerals’ Regulation, (tin, tantalum. tungsten, and gold), companies importing the minerals used in producing mobile phones, technology, automotive products, as well as jewelry or medical devices, will especially be impacted. Mush is still to be discussed on how companies shall comply. This is an EU regulation.
- The intention is to starve one of the main economic sources for military groups.
- Import regulation Requirements for import from responsible sources only Grand father clause. Rather long time, but it has been included to make sure that it is clearly regulated. CN Code – custom code. Does identify a lot of things, ex. special import regulation. Volume thresholds. Try to exclude to many small companies. What about cobalt? Used in lithium batteries. It is possible that it may be included in the list.
- A lot of discussion on who that should be covered. All who import minerals or metals containing or consisting of tin, tantalum, tungsten, or gold to the EU. An importer is defined by reference to the EU Customs Code and includes any metals or minerals that are declared for free circulation in the EU. There is not an import if they are shipped through Norway, but if Norway is where they are sold or used. The rule is currently estimated to affect between 600 and 1,000 importers If you are only importing products that are not covered by the custom code, you are not covered. Can affect downstreamn companies. Must understand the volume trecholds. The regulation does not apply to importers whose annual import volumes are below a certain threshold amount. The volume thresholds are set so that at least 95% of the total imported volumes into the EU of each metal and mineral will be subject to the regulation. Ex. Dentist, smaller jewleries. De minimis – effort vs. effect
- Holistic view. Electronic manufacture. Import parts that are used in production. If you do not import any products that are covered by the CN codes it is not covered. But if you import a big volume of electronic part you may be covered.
- Importers of minerals or metals shall comply with the supply chain due diligence obligations set out in this Regulation and shall keep documentation demonstrating their respective compliance with those obligations, including the results of the independent third-party audits. Supply chain due diligence steps must be consistent with the OECD Guidance or another diligence scheme that may be approved by the Commission. A five-step framework. This is set out in a document called "Due Diligence Guidance for Responsible Supply Chains from Conflict-Affected and High-Risk Areas“, by the OECD. These steps are also reflected in the EU regulation. Will be able to leverage schemes which facilitate the due diligence obligations. Establish a strong management system: Most important: Incorporate due diligence standards based on OECD Due Diligence Guidance Operate a chain of traceability for minerals and metals, supported by documentation providing detailed information on, among others, the supplier and country of origin (for minerals), or smelter/refinery (for metals) When minerals come from conflict-affected and high-risk areas, importers must provide extra information on: the mine the minerals came from where the minerals were consolidated, traded and processed the taxes, fees and royalties paid The Commission, with consultation to the OECD, will be able to recognize third-party due diligence schemes. The Commission shall establish and keep up-to-date a register of recognized supply chain due diligence schemes. That register shall be made publicly available on the internet. Risk management Obligations: Identify and assess risk in the supply chain based on the information retrieved pursuant to article 4 Regulation. Must perform risk assessment based on the information acquired in the supply chain. If an EU importer of minerals pursues risk mitigation efforts while continuing trade or temporarily suspending trade, it shall consult with suppliers and with the stakeholders concerned, including local and central government authorities, international or civil society organizations and affected third parties, and agree on a strategy for measurable risk mitigation in the risk management plan. Implement a strategy to respond to the identified risks, including: - Reporting of findings to senior management - Adopting risk management measures consistent with OECD Due Diligence Guidance, including suspension of trade or disengagement of suppliers - Implementing the risk management plan and undertaking additional fact and risk assessments Third-party audit (not an requirement in the US) Carry out independent third-party audits, including all supply chain due diligence activities of the importer, in order to establish compliance with article 4, 5 and 7. The audit will not be required if all the smelters and refiners in the supply chains are recognized as “responsible” smelters and refiners by the Commission. If you can show that your supply chain only has responsible smelters and refiners you can forget the audit. Disclosure obligations - Must disclose third-party audits to the Member State Competent Authorities - Provide customers access to their due diligence efforts taking into consideration business confidentiality - Public statements/summaries of the above on internet updated on an annual basis. For investors, NGOs that can review these public statements. That may be a risk for the reputation. Make available the third-party audits to the competent authorities of the Member State Communicate information gained pursuant to supply chain due diligence measures with downstream purchasers, with due regard of business confidentiality Publicly communicate supply chain due diligence policies and practices for responsible sourcing as widely as possible.
- There will be build guidlines on how to identify and also build a list special regions. State of armed conflict Presence of armed conflict, widespread violence or other risks of harm to people as decribed under international humanitarian law, which regulates the conduct of armed conflict by combatants. Armed conflict may take a variety of forms, such as a conflict of international or non-international character. Fragile post-conflict areas Fragile post-conflict areas are areas witnessing cessation of active hostilities and that are in a state of fragility, meaning that the region or state has a weak capacity to carry out basic governance functions and lacks the ability to develop mutually constructive relations within society due to the prior conflictual state. The absence of a formal mining licensing procedure would for instance constitute evidence of lack of governance. Failed states A ‘failed state’ is an illustration of a situation of extreme institutional weakness.