SUGGESTED EU RULES ON CONFLICT MINERAL TRADE RISK EXCLUSION OF 90% OF IMPORTERS
Could financing conflict up to a point be excused with control and preventive measures being too ‘cumbersome’? And if so where would the threshold for this amount lie? At 100 Euros, 1000 or 3.4 million Euros? This is the crux of current negotiations on the Conflict Minerals Regulations. Legislators intend to exclude importers who import gold or other conflict minerals to Europe which fall under a certain threshold from requirements to check whether their imports are linked to conflict.
In June 2016, the Council, European Commission and European Parliament came to a political understanding that “all but the smallest EU firms importing tin, tungsten, tantalum, gold and their ores will have to do "due diligence" checks on their suppliers.” The agreement was broadly welcomed and hailed by the European Council as a tool that “will help trade to work for peace and prosperity in communities and areas around the globe affected by armed conflict.”
Even at that time, Amnesty International and its partners criticised the limited scope of the forthcoming legislation, as the regulation only covered importers of the minerals and metals themselves, but excluded companies importing products which contain conflict minerals. The loophole this creates is obvious. All the goods produced and assembled abroad would be left out.
Today I fear that what looked like a reasonable exemption for a small minority of importers is becoming another major loophole. Allegedly with the aim to relieve “the smallest importers (e.g. for dentistry)” the original agreement on the legislation (‘the political understanding’) foresaw the introduction of thresholds of annual volumes which would exclude small importers from the requirements of the regulation. However, current information suggests that institutions are negotiating thresholds which would exclude about 90% of the importers from the obligation, hardly a minority.
Concretely, the Council suggested a 100 kg threshold for the imports of gold powder. Consequently, a company would be able to import gold worth about 3.4 million Euros in one year without being required to check them for links to conflict. We are not talking about “smallest importers’ anymore. How many guns would one be able to buy with this sum?
In the political understanding, legislators committed that even after introducing thresholds, the vast volume of imports will be covered by the regulation. While this remains true, the suggested thresholds will still hugely impact on the effectiveness of the legislation.
First, small volumes of imports might carry a particular risk of being linked to conflicts. Already in 2005, the US House of Representatives was informed that Al Qaeda training manuals “included not only chapters on how to build explosives and clean weapons, but sections on how to smuggle gold either on small boats or concealed on the body. Using specially-made vests, gold smugglers can carry up 80 pounds, worth up to $500,000, on their person. Cash is far bulkier.” It seems therefore counter-productive to allow small imports to go unscreened as a general rule.
Second, due diligence – the process of identifying and mitigating risks of funding conflict – depends on transparency and shared responsibilities within the supply chain. Due diligence benefits from collective influence and joint leverage over suppliers and is most effective if many companies are involved. If only a handful of economic operators are carrying out due diligence, their efforts will be limited by the fact that the majority of others are not mitigating their risks or not obliged to share essential information. In many areas, for example gold, the bulk of imports are handled by a small number of companies that import high amounts of minerals, while the majority of importers trade in lower quantities and will be excluded from the regulation.
Legislators are aware that about 90% of EU’s gold importers would fall under the 100 kg threshold, and consequently would be excluded from due diligence obligations. So one wonders whether the objective of the legislative efforts is indeed setting up an effective due diligence system or rather window dressing and white washing.
EU institutions want to finalise their negotiations by mid to end November. They should not allow this deadline to prevent them from looking into the very concrete consequences of the thresholds they want to introduce. Relieving the very smallest importers from due diligence obligations is acceptable, but exemptions should not go beyond and surely not exclude the majority of EU’s importers. Exemptions from the due diligence requirements must not impair the objective of the regulation – namely breaking the link between EU trade in minerals and the financing of conflicts.
Senior Executive Officer - Economic, Social and Cultural Rights