Index

EXECUTIVE SUMMARY SHEET

Introduction

1. Procedural issues and consultation of interested parties. 10

1.1.    Internal consultation / Impact Assessment Steering Group. 10

1.2.    Public consultation. 10

1.3.    Workshops and other consultations. 11

1.4.    Study on due diligence compliance costs, benefits and related effects on competitiveness  11

1.5.    Recommendations of the Impact Assessment Board. 12

2. Problem definition.. 13

2.1     Policy context 13

2.2     Definition of problems. 15

2.3     Continued financing of armed groups via the (proceeds of) extraction and trade of minerals in conflict-affected and high-risk areas. 17

2.4     Implementation challenges faced by EU downstream enterprises attempting to sustain legitimate trade, or voluntarily, by performing due diligence within the current frameworks. 23

2.5     Market distortion in the form of reduced demand and prices in formal sector for minerals from the DRC and other Great Lakes Region countries. 26

2.6     Subsidiarity and proportionality. 29

3. Objectives. 31

4. Policy options. 33

4.1     Base line scenario. 33

4.2     Option 1 – Standalone EU Communication. 34

4.3     Option 2 - "Soft-law" approach. 35

4.4     Option 3 - Regulation establishing obligations under an "EU responsible importer" certification based on the OECD Guidance - VOLUNTARY.. 36

4.5     Option 4 - Regulation establishing obligations under an "EU responsible importer" certification based on the OECD Guidance - MANDATORY.. 38

4.6     Option 5 - Directive establishing obligations for EU-listed companies based on the OECD Guidance  38

4.7     Option 6 – Prohibition of imports when EU importers of ores fail to demonstrate compliance with the OECD Guidance – import ban. 39

5. Analysis of impact (including on SMEs) 41

5.1     How will the problem evolve without EU action?. 41

5.2     Option 1 – Standalone EU communication. 42

5.3     Option 2 - "Soft law" approach. 44

5.4     Option 3 – Regulation establishing obligations under an "EU responsible Importer" certification based on the OECD Guidance - VOLUNTARY.. 44

5.5     Option 4 - Regulation establishing obligations under an "EU responsible importer" certification based on the OECD Guidance - MANDATORY.. 51

5.6     Option 5: Directive establishing obligations for EU-listed companies based on the OECD Guidance  55

5.7     Option 6 – Prohibition of imports when EU importers of ores fail to demonstrate compliance with the OECD Guidance – import ban. 58

6. Comparing the options. 61

6.1     Preferred option. 64

7. Monitoring and evaluation.. 66

7.1     Monitoring. 66

7.2     Evaluation. 66

- ANNEX I: Background information

1.    EU initiatives on transparency and natural resources

2.    Overview of support to due diligence initiatives, including by EU Member States

3.    OECD Due Diligence Guidance for responsible supply chains of minerals from conflict-affected and high-risk areas

4.    Other jurisdictions – ICGLR Regional Certification Mechanism

5.    Other jurisdictions – US Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1502

6.    European Commission desk analysis: supply chain due diligence practices by EU companies in targeted industry sector

7.    Detailed information on the options

8.    EC Public Consultation Report

9.    Report of the accompanying study commissioned by DG Trade

10.  Report of the Öko-Institute on conflict minerals

- ANNEX II: Report on the public consultation on a possible EU initiatve on responsible sourcing of minerals originating from conflict-affected and high-risk areas.

- ANNEX III: External study on the assessment of due diligence compliance cost, benefit and related effects on selected operators in relation to the responsible sourcing of selected minerals. Executive Summary Sheet

Impact assessment on a proposal for a regulation setting due diligence requirements for the responsible importation of selected ores, concentrates and metals originating in conflict areas 

A. Need for action

Why? What is the problem being addressed?

· 1. The continued financing of armed groups and security forces via the (proceeds of) extraction and trade of minerals in conflict-affected and high-risk areas. 2. The implementation challenges faced by EU downstream enterprises attempting to sustain legitimate trade, or voluntarily, performing due diligence within the current frameworks. 3. Market distortion in the form of reduced demand and prices in formal sector for minerals from the DRC and other Great Lakes Region countries.

What is this initiative expected to achieve?

· 1. Provide enhanced visibility and transparency for due diligence practices (and level of compliance) of EU and global smelters/refiners. · 2. Raise awareness of due diligence, ethical dimensions, and the importance of improving due diligence compliance with governments of main non-EU smelters/refiners. · 3. Empower downstream users by providing a mechanism to identify due diligence compliant operators (including smelters), and thus to facilitate switching of suppliers. 4. Introduce certainty and transparency in the supply chain nearer to downstream users. · 5. Promote increased awareness of due diligence and ethical dimensions among EU operators. · 6. Create additional financial incentives in order to promote/support due diligence practices among downstream users. · 7. Support the uptake of OECD Guidance among smelters/refiners willing to source in conflict-affected areas. 8. Support demand from conflict-affected areas: facilitate switching by EU operators to due diligence compliant smelters/refiners sourcing in those areas

What is the value added of action at the EU level? 

· EU-level intervention provides more 'critical mass' and leverage at a global level relative to possible action by individual Member States acting on the identified problems. Moreover, there is a clear need for EU-level action to address the demand-side of minerals originating from conflict zones and the associated trade to avoid a fragmented approach in the EU market.

B. Solutions

What legislative and non-legislative policy options have been considered? Is there a preferred choice or not? Why?

· Option 1. Standalone Communication (joint European External Action Service / European Commission) including diplomatic, development and public procurement measures. · Option 2. "Soft Law" approach + measures of Option 1. · Option 3. EU importer self-certification (voluntary), including disclosure requirements and a list of smelters/refiners    + measures of Option 1. · Option 4. EU importer self-certification (mandatory), including disclosure requirements and a list of smelters/refiners + measures of Option 1. · Option 5. EU-listed company disclosure requirements + measures of Option 1. · Option 6. Prohibition of imports of ores + measures of Option 1. · Option 3, which includes the measures of Option 1, as the preferred option is expected to contribute the best to reducing the funding from proceeds of minerals' extraction and trade that reaches armed groups in conflict zones by: providing support to EU downstream companies to comply, without unnecessary burden, to their due diligence requirements (including the US DFA), while contributing to reducing the distortions in the market for minerals from the Great Lakes Region allowing it to benefit from its natural resources wealth. 

Who supports which option?

The preferred Option 3 is supported by the business stakeholders. Mandatory obligations such as under Option 4 are not supported by a majority of stakeholders. Option 5 has been criticised by business stakeholders throughout the consultation process, although considered by a number of civil society organisations as the most – albeit imperfect – means of addressing the financing of armed groups. Option 6 is not supported by a majority of businesses. Over 90% of civil society organisations are in favour of obligations for business actors.    

C. Impacts of the preferred option

What are the benefits of the preferred option (if any, otherwise main ones)?                                      

1. Expected to contribute to reducing the funding from proceeds of minerals’ extraction and trade that reaches armed groups or security forces in conflict-affected areas. 2. Improve the ability of EU downstream operators to comply with existing due diligence frameworks, including US DFA. 3. Contribute to reducing the distortions in the market for minerals from the Great Lakes Region.

What are the costs of the preferred option (if any, otherwise main ones)?

The economic cost of due diligence for EU importers, including SMEs, that voluntarily participate in the self-certification scheme (although partaking triggers mandatory conditions and ex-post controls) are estimated at 0.014% (initial costs) and 0.011% (annual recurrent costs) of turn over.

How will businesses, SMEs and micro-enterprises be affected?

The overwhelming majority of affected EU importers (i.e. traders, smelters/refiners, and manufacturing companies) are SMEs or micro-enterprises.  

Will there be significant impacts on national budgets and administrations?

The expected impact for EU Member States is 1.2 FTE (per Member State) in addition to a possible maximum 0.014% increase of the public procurement budget.  

Will there be other significant impacts?  

Other significant impacts have not been identified.

D. Follow up

When will the policy be reviewed?

EU would undertake an intermediate evaluation of its new initiative within three years of its adoption and the results will be used for decision-making needs on the future of the EU approach and for amendments to the regulatory framework, making it mandatory, if appropriate, on the basis of a further impact assessment.

Glossary

3Ts and GOLD means tin, tantalum and tungsten, their ores, and gold.

ARTISANAL MINING means mineral extraction undertaken by individuals, small groups of individuals, or cooperatives working with hand tools or very basic forms of mechanisation.

BGR means the German Federal Institute for Geoscience and natural resources (Bundesantstalt für Geowissenschften und Rohstoffe).

DOWNSTREAM SECTION OF THE MINERAL SUPPLY CHAIN means the metal supply chain from the smelters or refiners to the end use.

CASSITERITE means the metal ore from which tin is extracted.

CHAIN OF CUSTODY or supply chain traceability system means a record of the sequence of entities which have custody of minerals and metals as they move through a supply chain.

COLOMBITE-TANTALITE also known as COLTAN means the metal ore from which tantalum is extracted.

CONFLICT MINERALS are defined under the 2010 US Dodd-Frank Act (see below) as columbite-tantalite; cassiterite; gold; and wolframite or their derivatives to be financing conflict in the Democratic Republic of Congo or an adjoining country listed in the Act as Angola, Burundi, the Central African Republic, the Republic of Congo, Rwanda, Sudan, Tanzania, Uganda and Zambia.

CONFLICT-AFFECTED and HIGH-RISK AREAS means areas in a state of armed conflict, fragile post-conflict as well as areas witnessing weak or non-existent governance and security, such as failed states, and widespread and systematic violations of international law, including human rights abuses,

COUNTRY OF ORIGIN means the country where a shipment of minerals has been mined or extracted.

SUPPLY CHAIN DUE DILIGENCE refers to the process undertaken by operators in relation to their management system, risk management, third party audit and disclosure of information with a view to identifying and addressing actual and potential risks linked to conflict-affected and high risk-areas to prevent or mitigate adverse impacts associated with their sourcing activities.

DRC is the Democratic Republic of Congo.

ICGLR means the Intergovernmental Conference of the Great Lakes Region.

IMPORTER means any natural or legal person that imports into the European Union.

EICC means the Electronic Industry Citizenship Coalition.

ITRI/iTSCi means the International Tin Research Institute/ITRI Tin Supply Chain Initiative.

METALS are products resulting from smelting or refining processing operations. 

MINERALS are defined as metal ores and concentrates.

MINERAL SUPPLY CHAIN means the system of activities, organisations, actors, technology, information, resources and services involved in moving and processing the minerals from the extraction site to their incorporation in the final product.

OECD GUIDANCE is the 2013 version of the due diligence guidance for responsible supply chains of minerals from conflict-affected and high-risk areas issued by the Organisation for Economic Co-operation and Development (OECD) including its annexes and supplements on tin, tantalum, tungsten and on gold.

SMELTING and REFINING are forms of extractive metallurgy involving processing steps with the aim to produce a metal from its ore or concentrate.

UPSTREAM SECTION OF THE MINERAL SUPPLY CHAIN means the mineral supply chain from the extraction sites to the smelters or refiners, included.

WOLFRAMITE means the metal ore from which tungsten is extracted.

US DFA means the US Dodd-Frank Wall Street Reform and Consumer Protection Act, section 1502.

Introduction

Armed groups and security forces in conflict regions finance their activities inter alia from the proceeds of extraction and the trade of minerals which later enter the global supply chain. Consequently, business operators further down the chain run the risk of supporting armed activities through their purchases of mineral ores or derivatives and have an interest in sourcing from such regions in a responsible manner.   

The concept of responsible sourcing is referred to in the updated OECD Guidelines for Multinational Enterprises[1] and in line with the objectives and principles of the United Nations Guiding Principles on Business and Human Rights[2]. Both aim at encouraging businesses to proactively and reactively verify through an ongoing process known as due diligence, that their commercial activities are not contributing to conflict.

The EU has been actively engaged in an OECD initiative to advance the issue of responsible sourcing of minerals from conflict regions, which has resulted in a government-backed multi-stakeholder process leading to the adoption of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance). In May 2011, the EU made a commitment at the OECD Ministerial Council to promote the observance of the OECD Guidance (Annex I/3).

At the highest international level, UN Security Council Resolution 1952 (2010) specifically targeted the DRC and its neighbours in Central Africa calling for due diligence to be observed; the UN Group of Experts in the DRC that is following up on the response to the Security Council resolution has taken on board the 2011 OECD Guidance.

In June 2013, G8 leaders also expressed their commitment to increase transparency in extractives and noted that minerals should be sourced legitimately - not plundered - from conflict zones. The UN General Assembly is expected to adopt – before the end of 2013 – a resolution on the promotion of sustainable development by means of transparency in the management of natural resources.

Also in 2010, the United States passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (US DFA) whose section 1502 (Annex I/5) requires companies listed on US stock exchanges and which use "conflict minerals"[3] to declare the origin of such minerals used in their supply chain as well as to perform due diligence as appropriate. The Act covers columbite-tantalite, cassiterite, gold, and wolframite whose trade has been a significant source of financing of conflict in the eastern provinces of the DRC sometimes involving adjoining countries.

On 7 October 2010, the European Parliament passed a resolution[4] calling for the EU to legislate along the lines of the US "conflict minerals" law; and the European Commission announced in its Communications of 2011[5] and 2012[6] its intention to explore ways of improving transparency throughout the supply chain, including aspects of due diligence. In the latter communication, and in line with the commitment it had made at the May 2011 OECD Ministerial Council, the Commission also advocated greater support for and use of the OECD Guidelines for Multinational Enterprises, and of the OECD Guidance – even beyond OECD countries.

In line with the commitment undertaken by the EU and based on the issues brought to the attention of the European Commission by stakeholders in the public consultation[7], this impact assessment evaluates the identified policy options to support responsible sourcing of minerals from conflict-affected areas. The options are assessed in accordance with the relevant impact assessment guidance as appropriate, including an assessment of the expected impact on small and medium sized enterprises (SMEs).

An EU initiative also aims at contributing to the EU foreign policy goals and development strategy of better governance and sustainable management and law enforcement in relation to the exploitation of natural resources in mineral-producing conflict areas. Likewise, it should contribute to the policy areas of trade, enterprise, corporate social responsibility (CSR) safeguarding the free but responsible choice of supply for EU operators. The most recent example is the adoption by the EU of Directive 2013/34/EU aiming inter alia at promoting financial transparency in the extractive and logging sector.

In the annexes to this document, extensive background information is provided on other relevant EU initiatives currently pursued in relation to natural resources, financial transparency and conflict-sensitive management of international trade in diamonds and forestry products (Annex I/1). Other international voluntary or mandatory transparency and due diligence initiatives are also described, together with the results of the related online public consultation and of the external study conducted in support of this impact assessment.

1. Procedural issues and consultation of interested parties 1.1. Internal consultation / Impact Assessment Steering Group

A Commission Impact Assessment Steering Group (IASG) was set up to guide and monitor the impact assessment. The IASG was led by DG Trade with the participation of the following Commission Directorate Generals and EU Services: Secretariat-General, Development and Cooperation, Employment Social Affairs and Inclusion, Enterprise, Environment, European External Action Service, Eurostat, Informatics, Internal Market and Services, Legal Service, Service for Foreign Policy Instruments, Taxation and Customs Union. Other services were also invited to join but did not respond to the call.[8]

1.2. Public consultation

As part of the impact assessment process the Commission conducted a web-based public consultation between 27 March and 26 June 2013. The consultation sought views on a potential EU initiative for responsible sourcing of minerals coming from conflict-affected and high-risk areas – for example, war zones, post-war zones, and areas vulnerable to political instability or civil unrest. The objective of the consultation was to deepen the understanding of issues such as the sourcing and security of supply of minerals, supply chain transparency and good governance; and to assess whether to complement and/or support, in a reasonable and effective manner, on-going due diligence initiatives on responsible sourcing of minerals and support for good governance in mineral mining, especially in developing countries affected by conflicts. EU Delegations have outreached the authorities of some producing countries - the Democratic Republic of Congo (DRC), Rwanda, Burundi, Colombia, and Venezuela – to raise awareness and invite feedback to the public consultation.

A summary of the results of the public consultation is attached to this Impact Assessment (Annex I/8 and Annex II). The overall message indicates that the Commission should take an approach that is consistent with the global nature of complex supply chains, by relying on an international framework such as that set out in the OECD Guidance.

Overall, 280 replies were received by the deadline. 73.2% of all records came from the business sector, including 146 companies and 59 trade organisations representing business. Large companies represented 47.2% of all replies while SMEs represented 23.4% of all records. The NGOs sector participated with 31 responses while citizens, academics, unions and government authorities contributed with 7.5% of all replies. Most answers originated in the European Union, notably in Germany, UK and Belgium; but a significant amount also came from the US and the DRC. Finally, all relevant sectors are represented including: metals and metal products; energy, mining and quarrying; electrical machinery and equipment; chemicals and plastics; television and communication equipment etc.

1.3. Workshops and other consultations

Stakeholders were also consulted by means of a workshop, and through numerous focused interviews.

In December 2012, the EU organised an internal workshop with the participation of internationally recognised external experts in order to initiate the discussion on possible options for an EU initiative on minerals originating from conflict areas.

At the 5th international OECD/UN/ICGLR (International Conference on the Great Lakes Region) forum on due diligence guidance for responsible sourcing of conflict minerals[9], the Commission organised a consultation workshop on a potential EU initiative on responsible sourcing of minerals originating in conflict areas. More than 150 participants attended. In addition, side meetings were held with about 50 stakeholder organisations including governments, industry, and NGOs.

At the 11th GeSI (Global e-Sustainability Initiative) and EICC (Electronic Industry Citizenship Coalition) Conflict-Free Minerals Supply Chain Workshop[10], the Commission also organised a consultation session on a potential EU conflict minerals initiative that focused on the on-going public consultation. Further side meetings were held with different individual stakeholders throughout the supply chain.

The Commission attended a conference[11] organised by the Federation of German Industries (BDI) and Business Europe at the occasion of the publication of the study "Conflict minerals – an evaluation of the US DFA and other resource related measures" by the Öko-Institute (Annex I/10). The conference was attended by over 150 participants including Members of the European Parliament and industry.   

1.4. Study on due diligence compliance costs, benefits and related effects on competitiveness

In order to better assess the costs of compliance with the US DFA for both public and private organisations, DG Trade commissioned a study (Annex I/9 and Annex III) in 2013 focused on the costs and benefits of performing due diligence; as well as on other effects on the competitiveness of selected operators in relation to responsible sourcing of certain minerals from conflict-affected and high-risk areas. While a number of studies are available to assess the cost for companies of performing due diligence (especially in the US), they tend to estimate the aggregated cost for the economy as a whole[12] and do not compare the costs for individual businesses relative e.g. to turnover. In order to obtain such information, the study included a survey conducted among the different industries that use conflict minerals as defined by the US DFA.

The main finding of the survey was that a majority of the participants reported a relatively low level of cost for due diligence and reporting efforts, with expenditures predominantly estimated at €13,500 for initial efforts (74%), and €2,700 for subsequent on-going efforts (63.8%). Other important findings of the study relates to the main industrial sectors and products involved, position in the supply chain and number of suppliers, and department responsible for conflict minerals reporting.

1.5. Recommendations of the Impact Assessment Board

A first draft of the impact assessment was presented to the Impact Assessment (IA) Board on 18 September 2013. In the opinion it issued on 18 October 2013, the IA Board recommended the report to be strengthened in a number of important respects. The following changes have therefore been made in the revised version that was resubmitted to the IA Board on 2 December 2013:

- The revised version of the assessment report provides a clearer presentation of the main problems to be addressed: the introduction of a third problem (i.e. the market distortion) therefore appeared necessary. It assesses in particular the extent to which EU companies are involved in the financing of armed groups and analyses further the reasons for the current low uptake of the OECD Guidance based on a more explicit analysis of the views expressed by (business) stakeholders of the public consultation: notably, the number of stakeholders who provided similar responses to the open questions has been included, as this clearly indicates the significance of a problem.

- The revised draft includes further elaboration of the baseline scenario, in particular so as to show both how the current initiatives (including the few already taken by EU Member States) and the related implementation issues are likely to evolve, and how well they are likely to address problems identified over time. It also explains in greater detail the implications for EU companies of the entry into force of the US DFA.

- The revised report provides more detail on the different policy options. To better assess the added value of the measures previously presented under Options 3, 4 and 5, a new option (Option 1) has been added combining these measures as a package that could be included in a standalone EU Communication. That package then becomes the foundational element for all the other options.

On 20 December 2013, the IA Board provided a positive opinion on the revised report while recommending it to be strengthened in a number of respects. The following changes have been made to the final version of the impact assessment report in order to:

- Fully present in the baseline the various measures in place at Member State level and clarify the obligations for EU companies arising from legislation in third countries, as well as the associated costs and possible impact on their market position.

- Include further data (recorded export volumes of minerals of the countries concerned) to support the problem of the market distortion occurring in the Great Lakes Region.   

- Provide more detail on the actual content of the options, and better present the different views of industry and stakeholders in relation to each option. In particular, in relation to Option 3, it more concretely describes the key elements of the voluntary self-certification. Also the purpose of the implementing guidelines is further set out and whether an additional impact assessment would be envisaged.

- Strengthen its assessment of the preferred Option 3 and 1 as a package, and further assess the impact the measures may have on the expected uptake (performance) of due diligence practices by downstream companies, the security of supply of the minerals concerned, and the relevant conflict regions. The issue of how to level the playing field for these regions with non-conflict producing countries is also assessed.

- More fully assess the impact of an EU initiative on business/SMEs.

2. Problem definition 2.1           Policy context

Responsible sourcing of minerals from conflict-affected and high-risk areas has received considerable attention from the international community over the past few years. The problem is prevalent in countries rich with natural resources but vulnerable to armed conflict across the whole or part of their territory. While the issue arises world-wide, the impact assessment focuses primarily on the well documented case of the eastern DRC and neighbouring countries, which has received high-profile attention by advocacy groups these last 10-15 years. The challenge posed by the desire to minimise the financing of armed groups and continuing to source legitimately from the region, has been taken up by governments and international organisations together with business communities and civil society organisations.

As a result, the following prescriptive due diligence frameworks (in various forms and with differing scope) are in place:

- In 2010, the United States Dodd-Frank Wall Street Reform and Consumer Protection Act was adopted, whose section 1502 (Annex I/5) requires companies listed on US stock exchanges that are using "conflict minerals"[13] in their supply chain to disclose annually whether any of those minerals originated in the DRC or an adjoining country. If this is the case, companies are required to submit a report including a description of measures taken to exercise due diligence. In the EU there are 40 dual-listed (EU/US) companies subject to the US DFA that are expected to disclose the information by 31 May 2014 for the first time. Moreover, 150,000-200,000 EU companies[14] are indirectly affected as they are in the supply chain of US listed companies. They are expected to provide information to their clients as to the origin of the minerals/ products containing minerals they supply and how they implemented the chain of custody.

–   In 2011, the OECD issued due diligence guidance[15] to assist companies identifying and responding to risks against the "model supply chain policy" (Box 1) in mineral supply chains originating from conflict and high-risk areas. Supplements were developed to provide specific due diligence guidance for tin, tantalum, tungsten and gold. In practical terms, companies are expected to establish a system of controls and transparency over the mineral supply chain by collecting and disclosing information to immediate downstream purchasers on inter alia the mine of origin, trade routes and conditions so as to be able to identify, assess and act (notably through mitigation) on supply chain risks. An independent third-party audit is required to ensure smelters/refiners' due diligence compliance and companies are expected to publish an annual report on their policies and practices with a view to generating public confidence (Box 2).

–   On the 29 February 2012, the DRC issued a Ministerial Order requiring all operators involved in the mineral chain of custody in the DRC to adopt and respect the OECD Guidance.

–   On 28 March 2012, Rwanda adopted legislation based on the five-step framework and the OECD model supply chain policy.

Only a few EU companies are operating, and therefore affected by the due diligence legislation in the DRC and Rwanda. Despite the fact that both countries have legislation in place, serious implementation problems persist as export certificates as part of the conformity procedures have not been issued. Both countries recurrently prolong the deadline for issuing such certificates.

In terms of product scope, the US DFA is comparable to the legislation adopted by the DRC and Rwanda and takes on the coverage determined by the OECD product supplements. US DFA restrictively defines an "armed group" as being one that has been identified as a perpetrator of serious human rights abuses in an annual US State Department report. Contrary to the OECD Guidance – on which the DRC and Rwandan legislation is based – the US DFA leaves open the question of how to treat minerals in situations where public or private security forces are not perpetrators of serious human rights abuses for which a risk management plan can be adopted.

More third countries are preparing to take up the OECD Guidance into law: Uganda is presently revising its mining law and Burundi took steps to integrate the international initiative for building conflict-free and transparent 3Ts extraction and trade. It is expected that more countries will follow based on the political commitment of the Heads of States and Governments of the International Conference of the Great Lakes Region (ICGLR) to fight the illegal exploitation of natural resources in the region and to establish a regional certification mechanism based on the OECD Guidance. Moreover, Colombia and Côte d'Ivoire are presently considering whether to participate in the implementation programme of the OECD with regard to due diligence.

EU Member States have no due diligence legislation in place, but nevertheless provide diplomatic and organisational support and development aid to some specific projects in mineral-rich conflict zones. The aid is targeted at solving some of the practical problems faced by operators and authorities along the upstream side of the supply chain as described in Annex I/2.

On 7 October 2010, the European Parliament passed a resolution calling for the EU to legislate along the lines of the US "conflict minerals" law. In view of this political demand, this report assesses the different policy options which would best take forward this request for EU legislation in collaboration with the European Parliament.

In December 2012, the Commission received a petition signed by hundreds of EU citizens expressing their concern that companies operating within the boundaries of the EU are not held accountable for their involvement in the illicit extraction and trade of conflict minerals. The petition stated that as a consequence conflict minerals present in electronic devices link consumers to the current conflict in the DRC. The petitioners requested that legislation be proposed to the European Parliament to hold companies accountable to OECD and UN Guidelines.

2.2       Definition of problems 

This section outlines the main problems relating to the responsible sourcing of minerals originating from conflict-affected and high-risk areas as identified by stakeholders in the public consultation and analysed by Commission services. The problems include:

(i) the continued financing of armed groups via the (proceeds of) extraction and trade of minerals in conflict-affected and high-risk areas;

(ii) the implementation challenges faced by EU downstream enterprises attempting to sustain legitimate trade, or voluntarily, performing due diligence within the current frameworks;

(iii) market distortion in the form of reduced demand and prices in formal sector for minerals from the DRC and other Great Lakes Region countries.

This is illustrated by the problem tree on the next page where the 3 core problems are shown in the boxes on the second row, the boxes above represent consequences of the core problems, and the boxes below represent underlying factors (drivers) that have been taken into account.

2.3           Continued financing of armed groups via the (proceeds of) extraction and trade of minerals in conflict-affected and high-risk areas

- The problem  

In conflict-affected and high-risk areas, companies are at risk of contributing to, or being associated with the financing of non-state armed groups which perpetuate conflict and the associated human rights abuses. The financing through mining and trading activities takes various forms including where non-state armed groups or their affiliates illegally:

- Control mine sites, transportation routes or points where minerals are traded: in this case militia may enforce compulsory labour or commit other human rights related violations to extract and benefit from the services of a person.  

- Tax or extort money or minerals at points of access to mine sites, along transportation routes or at points where minerals are traded.

- Tax or extort intermediaries, export companies or international traders. 

Those minerals are subsequently traded by local exporters and international traders on global markets including the EU. Smelters/refiners further process those minerals into metals. These metals are then processed for the manufacturing of components, and semi-finished and end products for a large number of industries including automotive, electronics, aerospace, packaging, construction, lightening, industrial machinery and tooling and jewellery.

Figure 1 illustrates a simplified global supply chain for minerals: the upstream section includes companies active in mining, trading and smelting/refining of mineral ores; the downstream sections includes metal traders and producers of components and finished products.

Figure 1

Conflict zones and minerals potentially involved: as reported in 2012 by the Heidelberg Institute[16], the combination of resources and conflict accounts for about 20% of the 396 registered conflicts. Resource-related conflicts are currently present in Africa (27 conflicts, e.g. the DRC, Kenya, Sudan, Uganda), the Americas (21 conflicts, e.g. Colombia, Guatemala, Peru) but rare in Europe, Asia, Oceania and in the Middle East. This situation is not static however and the risk of deeper or new conflicts continues.

The OECD so far identified ores containing tin, tantalum, tungsten and gold being the minerals supporting armed groups. To this end, specific supplements have been issued under the OECD Guidance. According to the external study commissioned by DG TRADE, part of the tin, tantalum, tungsten and gold reserves are hold in unstable or extremely unstable countries. The production figures in 2011 are as follows:

Tin: resources are principally located in western Africa, south-eastern Asia, Australia, Bolivia, Brazil, China and Russia. The main mine producers by decreasing order of importance are China (46.8%), Indonesia (26.9%) and Peru (8.7%). Rwanda, the DRC, Nigeria and Myanmar respectively produce 1.4%, 1%, 0.5% and 0.2% of the world production. The DRC has important global reserves.  

Tungsten: main world producer is China (85%), followed from a far distance by Russia (3%) and Canada (2.9%). Rwanda, Myanmar, Burundi, Uganda and the DRC respectively produce 0.7%, 0.2%, 0.1% and 0.01% of the world production. In addition, tungsten is on the EU critical raw materials' list[17].

Tantalum: the main producers are Brazil (96%) and Canada (3%).  Rwanda, Mozambique, the DRC, Ethiopia, Nigeria and Burundi respectively produce 0.5%, 0.3%, 0.2%, 0.1%, 0.1%, 0.04% of the world production. Somalia is also a small producer. Moreover, the latter countries following the US Geological Survey host important global reserves.

Gold: China is the leading gold-producing nation, followed by Australia, the US and South Africa. The DRC holds important gold reserves. The gold production in countries with known instability includes Colombia: 55,900 (kg), Mali: 42,100 (kg), Sudan: 23,700 (kg), Guatemala: 11,900 (kg) and Côte d'Ivoire: 11,700 (kg).

Scale of the problem: the best documented and known case is related to the problems in the Eastern DRC. The United Nations Group of Experts[18] on the DRC reported again on 15 November 2012 to the President of the Security Council on the instability created by foreign and national armed groups generating revenue through their control over natural resources. In successive reports since 2004, the Group has documented the involvement of armed groups in the exploitation and trade of natural resources. Smugglers, export houses and members of armed groups are mentioned by name.

Some stakeholders in the public consultation highlighted that the on-going conflict in the DRC is the deadliest war since World War II. It has claimed more than 5.5 million lives and is responsible for countless incidents of sexual violence. The exploitation of natural resources – notably in the Eastern part of the country – is an underlying driver of this war. For almost two decades, the DRC government has essentially competed for control over mines with armed groups who continue to thrive and finance their unlawful activities by controlling the mines and taxing trading routes for the tantalum, tungsten tin and gold minerals.

IPIS,[19] a research group, is developing an interactive map of militarised mine sites in the DRC and reported in November 2013 that gold mining is currently the most important subsector in Eastern DRC’s artisanal mining business. The collected data suggests that the number of miners active in gold mining is up to 4 times higher than that for tin, tantalum and tungsten combined. The current scale of artisanal gold mining has important consequences on the issue of armed group financing, especially because the DRC’s gold production is exported almost entirely unrecorded. Out of 800 3T and gold mines mapped by IPIS, at least 410 cases involve illegal taxation by armed groups or the Congolese army. This is more than half of the mines monitored.

Presently out of the estimated 2,000 artisanal 3Ts-mining sites in the DRC, only 78 have been validated and only 3 mines have a traceability system in place in conformity with OECD Guidance. Despite all efforts, the region continues to face the challenge of how to trigger the virtuous cycle of the collection of royalties and taxes that in turn allows the State to uphold good governance and rule of law thereby boosting investor confidence and pressing on with the formalisation of the mining sector.

Stakeholders also provided other examples of problematic areas such as in Colombia, Côte d'Ivoire, Panama, Peru, Venezuela and Guatemala where gold, tantalum or tungsten can be a source of illegality and conflict.[20] Paragraph 25 of UN Security Council resolution 2101 (2013) encourages the Government of Côte d'Ivoire to participate in OECD implementation programmes for due diligence guidance.

EU companies implicated in the funding armed groups: in the DRC, though there are no European companies on the latest update of the UN list of persons and entities violating UN Security Council Resolution 1533[21], previous reports by the UN Group of Experts have named European companies involved in the minerals supply chain in the DRC with links to local private operators whose record is not impeccable. These and other international companies have since been delisted after having restructured their operations and after their local business counterparts got involved in cleaner supply chains. More generally, the UN list can be used for due diligence purposes to help determine persons and entities with whom business relations could be damaging to a corporate reputation.

In the EU, it is estimated that almost 880,000 companies are trading and processing tin, tantalum, tungsten ores and their metals and gold (Annex I/7). These include about 300 EU traders and 19 EU smelters/refiners importing ores and metals, and over 100 manufacturers of components and semi-finished products importing metals. The other EU companies, further downstream, are manufacturers of components, semi-finished or end-products based on those minerals and metals. As all of them potentially use tin, tantalum, tungsten and gold, they can be linked to the financing of armed groups. The volume of funds from EU companies reaching armed groups cannot be reliably estimated precisely because so little due diligence is currently performed on the sourcing and supply of the 3Ts and gold. Nevertheless, the following data give an indication of the extent to which EU companies may be implicated in the funding of armed groups.

In 2011, trade statistics[22] indicate that 7% of the EU's tantalum and tungsten ores imports originated in the DRC and Rwanda representing more than €10 million – €3 million of these are likely to have been smuggled through Tanzania via land, water or air routes, involving other countries bordering the eastern provinces of the DRC[23]. Moreover, EU tin metal imports from Malaysia represent €67 million while 17% of Malaysia's tin ores consumption originated in the DRC and Rwanda. Furthermore, the EU imports tantalum metal from China for €80 million and from Kazakhstan for €5 million while 25% of Kazakhstan's and 17% of China's tantalum ore consumption originates in the DRC and Rwanda.

The UN Group of Experts reported on 12 November 2012 that nearly all gold from Eastern DRC is smuggled out of the country and traded through Burundi and Uganda to the United Arab Emirates where most of the gold is smelted and sold to jewellers.  

The EU in 2011 also imported large volumes of components, semi-finished and end products[24] including an unknown percentage of minerals from conflict zones. For instance, the EU imported safety glass containing a certain amount of tin from Malaysia for the amount of €2 million while 17% of Malaysia's tin originated in the DRC and Rwanda. Furthermore, the EU imported electrical tantalum capacitors from China for the amount of €40 million while 17% of China's tantalum ore consumption originates in the DRC and Rwanda.

In all cases, a proportionate share of EU imports can be expected to have originated in the DRC and Rwanda. However, trade statistics do not reveal the exact extent to which minerals from the DRC and Rwanda enter the EU market through the various products. Also, trade statistics do not capture illegal and unreported flows of minerals which make it difficult to establish with precision the full extent of possible involvement of EU companies in "contaminated" supply chains. At best, due diligence can help establish which entities in the upstream part of a supply chain have a clean record.

In terms of risk mitigation and given that the DRC is not the only conflict region where trade in minerals is funding militant activity, the EU, is in a position where it can leverage more constructive outcomes in view of the high number of minerals, metals and related components and final products entering the EU market. This is because it cannot be excluded that the supply chains delivering minerals to EU consumers - mostly in highly processed forms - are, beyond any reasonable doubt, conflict-free.

- Underlying drivers

Conflict zones are generally characterised by lack of governance and control of the government over its territory. This underlying driver is important but cannot be acted upon through this supply chain initiative.

The objective of this initiative is to act on other underlying drivers. Minerals from conflict regions continue to experience global demand from smelters/refiners. Smelters/refiners are well placed to identify and record the origin of the purchased mineral as they are the last stage in the supply chain where all minerals pass (see Figure 2) and where it is still technically feasible to trace back the origin of minerals and leverage responsible supply behaviour in producer countries.

When smelters/refiners fail to conduct due diligence, useful information on origin is impossible to retrieve further down the supply chain. As illustrated by the figures in the box, not all smelters/refiners conduct due diligence so as to minimise the risk of financing of armed groups as:

- Minerals from conflict zones represent a cheap source in a very competitive market offered at a discount estimated at 30-40% of normal value by BGR (Annex I/2).

- They are insufficiently aware, or ethically concerned about, the importance of the link between minerals and the financing of armed groups. This was indicated by 7 trade associations in the public consultation as a problem for companies to conduct due diligence. For a number of smelters/refiners supplying conflict minerals, ignoring the issue reduces their immediate exposure to the corporate social responsibility priorities compared to their purchasers further down the supply chain.

- They or do not experience sufficient pressure from clients and other downstream operators to change their behaviour and conduct due diligence: over 13 companies, including 5 trade organisations, mentioned that their efforts to purchase metals from smelters/refiners conducting due diligence are thwarted as they lack influence on the latter to obtain due diligence information i.e. smelters/refiners are often in a better bargaining position representing a dominant force relative to the often less powerful downstream companies.

Based on DG Trade desk research,[25] Box 4 illustrates that out of a total estimated number of 300 smelters for tin, tantalum and tungsten currently only 16-18% conduct due diligence. Out of a total estimated number of 150 refiners of gold, 40-89% conduct due diligence so as to minimise the risk of financing armed groups. Most of the smelters/refiners are located outside the EU.

So far, the US DFA has not been fully effective in addressing the problems in terms of exerting adequate pressure on smelters/refiners to change their behaviour and conduct due diligence. Box 4 shows that a critical mass of smelters engaging in responsible sourcing still has to be reached for tin, tantalum and tungsten in particular. Many smelters/refiners are state-owned, yet few of them are exercising due diligence. The problems faced by downstream operators to identify the smelters/refiners in their supply chain and to exert pressure on them are described in section 2.4.

Actions conducted by EU Member States – Germany, Belgium, the Netherlands (Annex I/2) – to date have not resulted in smelters/refiners' increased uptake of due diligence as these actions do not effectively address the problems, impacting only a specific segment i.e. upstream of the supply chain or a low volume of trade in minerals.   

2.4           Implementation challenges faced by EU downstream enterprises attempting to sustain legitimate trade, or voluntarily, by performing due diligence within the current frameworks

- The problem

The public consultation revealed that over 50% of downstream respondents is interested – or indeed legally compelled – to engage in responsible sourcing by tracing back the origin of minerals and conducting due diligence over their supply chain. In this respect, downstream operators, for various reasons (CSR, regulatory obligation, image and consumer satisfaction) are ahead of smelters/refiners' due diligence practices.

However, DG Trade own analysis (Annex I/6) indicated that out of a sample of 153 relevant EU companies in 24 Member States only 7% refer in their annual reports or on their corporate websites to a conflict minerals supply chain due diligence corporate policy. Moreover, a recent SOMO paper[26] revealed that only 12% of EU-listed companies that are not directly subject to the US DFA, refer to conflict minerals on their websites. This discrepancy between companies' intentions and their practices can be explained by the fact that a high number of companies and trade organisations, including 50% of small companies and civil society respondents in the public consultation, report that existing instruments such as the OECD Guidance and the US DFA do not appropriately support due diligence efforts.

Indeed, the structure of international supply chains and their inherent opacity act in such a way that existing schemes have not provided downstream users with enough of the necessary tools and/or the necessary leverage to effectively engage smelters/refiners and prompt them to provide information on the source of minerals and their trading routes. Industry sources report that the present frameworks lack reliable mechanisms to collect the necessary data. If and when the data is obtained it is fraught with errors. Companies do not expect to have any reasonable or reliable data for the next upcoming years given the lack of maturity of the entire process.

These challenges are all the more relevant for those operators compelled to engage in due diligence efforts under the US DFA[27] such as the 40 dual-listed (EU/US) companies. DG Trade carried out desk research into the Annual Reports (CSR, or sustainability chapters) indicating that so far only 13 dual-listed companies have conflict minerals supply chain due diligence policies and measures in place. In other words, at the date of the analysis, only about 30% of EU companies directly affected by mandatory compliance requirements had taken the steps necessary to ensure that they can meet the conditions of US legislation.

This relatively low level of compliance on the one hand may be explained by the wait-and-see approach adopted by some companies in view of the recently rejected legal challenge brought by the US Chamber of Commerce against US DFA[28], on the other hand it is also evidence that a number of real challenges remain in conducting due diligence as reported by companies in the stakeholder consultation. US DFA is unlikely to be successfully challenged in the future. Therefore, EU companies and their suppliers are now under increased pressure to support by 31 May 2014 the compliance requirements of filers to the US Securities and Exchange Commission with respect to US DFA and trace back the origin of the minerals in their products.

Moreover, many more EU companies are receiving requests from their US clients to disclose the origin of minerals in their supply chain[29]. Several EU trade organisations responding to the public consultation indicated that many of their SME-members simply lack the information and do not know how to handle these requests. They fear that clients further downstream including from the US may seek and switch to other suppliers that are better able to trace back the source of the minerals used. To this end, they have asked the EU for assistance. Considering that there are about 880,000 EU companies active in the relevant sectors (Annex I/7) and based on the public consultation results that a proportion of 20 to 30% of respondents are indirectly subject to the US DFA, it is estimated that presently 150,000 and 200,000 EU companies[30] need to take action.

The following EU export values to the US in 2012 for relevant sectors illustrate the importance of the US market for EU companies: office and telecommunication equipment (€10 billion), chemicals (€66 billion), transport equipment (€52 billion) and other machinery (€ 60 billion). The bottom-line consequence is that EU companies have difficulties to comply even though their customers require that these serious concerns are dealt with in their supply chains.

- Underlying drivers

EU downstream operators report the following challenges in collecting the required information from their suppliers to conduct due diligence under the present frameworks: first, the identification of the smelters/refiners in their supply chain is a problem, and second, if and when identified, it is difficult to exert adequate pressure on the smelter/refiner so as to obtain the required information. As there is a limited number of smelters/refiners who trace back the origin of the minerals and conduct due diligence over their supply chain, this situation can be considered to be widespread.

First, EU downstream companies attempting to exercise due diligence, are faced with the following difficulties linked to the identification of smelters/refiners in the supply chain:

- Opaque supply chains: the complexity, length and breadth of the supply chain with thousands of downstream companies changing over the years is by far the biggest problem in the identification of smelters and the verification of the origin of the minerals. The reason is the high number of steps and participants (potentially up to 10-20) from the downstream operator up to the smelter where relevant information may be lost, withheld, modified etc. This was reported by over 30% of the companies and trade organisations in the public consultation. In particular, companies without direct smelter contacts indicated serious challenges in obtaining information from the smelters.  Several companies indicated that the maximum number of steps in order to realistically trace back a mineral is 2 to 3 tiers in the supply chain. Moreover, a high number of large trade associations also indicated that SMEs in particular often lack the organisational capacity to manage due diligence properly which entails consequences for all supply chain actors since it results in a damageable interruption of the information flow. The problem is further exacerbated, as reported in the public consultation by the fact that sub-suppliers and smelters/refiners in the supply chain change over time depending on transactions. The information must therefore be updated regularly. Moreover the accuracy of smelter/refinery data can be compromised since a number of companies are known under multiple names or have subsidiaries with a different name.

- Confidentiality concerns: a substantial number of downstream companies (15) in the public consultation as a reply to an open question indicated intellectual property protection, contractual agreements and other corporate secrets as a major obstacle to exercise due diligence as suppliers are not in a position to disclose sensitive technical and business-related information, including smelters/refiners’ names. This is a recurring debate among OECD Guidance stakeholders since traders in particular report instances in which they have had to disclose the origin of their minerals and quickly found themselves by-passed by their clients who immediately seized the opportunity to source directly from the disclosed sources. This concern acts as an important disincentive to inject transparency into the supply chain thereby preventing downstream users from accessing the necessary information to source responsibly.

Secondly, when and if smelters/refiners have been identified by EU downstream companies in their supply chain, they face the following additional problems to obtain information from them on the origin of minerals and on the chain of custody:

- Lack of leverage over the smelter: over 13 companies, including 5 trade organisations in the public consultation in reply to an open question, mentioned that their desire to purchase metals from smelters/refiners conducting due diligence is frustrated as they lack influence on the smelter to obtain due diligence information i.e. smelters are often in a better bargaining position representing a dominant force relative to the often less powerful downstream companies. The OECD Guidance in this case proposes to downstream players to group together so as to create leverage. Grouping in itself is however a difficult process as it should involve a high number of possibly globally scattered and difficult to identify downstream players. Moreover, it requires potential competitors to overcome their confidentiality concerns to cooperate.

- Language barriers: the OECD mentions this is a problematic aspect of communication with smelters/refiners with limited ability to interact in English, particularly in Asia where a high number of smelters operate.

- Lack of awareness and of ethical concerns about due diligence in mineral markets among suppliers, particularly small companies in third countries, and smelters/refiners located in Asia. This was indicated by 7 trade associations in the public consultation as a problem for companies to conduct due diligence. For a number of smelters supplying conflict minerals, ignoring the issue reduces the immediate exposure to the corporate social responsibility priorities compared to purchasers further down the supply chain.

Until today, the US DFA and the voluntary application by companies of the OECD Guidance have not effectively addressed the underlying problems identified in this section. EU Member States' actions do not address these problems either.

2.5           Market distortion in the form of reduced demand and prices in formal sector for minerals from the DRC and other Great Lakes Region countries

- The Problem

Since 2010, the DRC has experienced a de facto "embargo" on tin, tantalum and tungsten ores in the form of reduced formal export volumes and lower prices as well as an important increase of informal trade (i.e. smuggling) of 3Ts and gold. This has been confirmed in various UN Group of Experts reports.   

In the wake of the international campaign against the financing of armed groups in the DRC and the adoption of the US DFA in particular, the 10 countries covered suffered an immediate collapse in their formal exports of 3Ts and gold with the negative side effect that exports were largely squeezed into low-profit parallel trading channels[31]. Price penalties could be up to 30-40% according to BGR (Annex I/2).

In response, Rwanda and the DRC passed their own legislation mirroring OECD requirements that were also agreed on at a regional level (ICGLR). The rest of the covered countries and notably Uganda, Burundi, Tanzania and Zambia have been much slower in taking legislative action which remains to be adopted to this date.

On 19 July 2013, in its midterm report the UN Group of Experts on the DRC informed that the production of tin, tantalum and tungsten varied greatly by province. In the province of north Kivu no tin and tungsten ore was officially exported from January to April 2013, tantalum production had significantly increased. In south Kivu only exports of tin were recorded. In Maniema the mining authorities recorded a gradual increase in tin exports but no tantalum and tungsten exports. The Group has confirmed that smuggling of minerals continuous within and from the eastern DRC. The Group has documented smuggling from Maniema province to Bukavu (South Kivu) and Goma and from Bisie to Goma and Bukavu.

In the Ituri region gold production had not declined in recent years; in fact, it might have increased as the price of gold had increased dramatically after 2007. Nevertheless, the Group was informed that in 2012 only 16.17 kg of gold had been legally exported from Ituri. In south Kivu business people only exported 39 kg of gold. However the Group was informed that gold production was in the order of several tonnes per year. The Group notes that nearly all gold smuggling continuous to follow the path from the eastern DRC through Kampala and Bujumbura to Dubai and the United Arab Emirates.

Finally, the Group reported about efforts in the region to tackle smuggling notably seizures by the customs or mining authorities of Burundi, Rwanda and Uganda in 2013. 

As a result, as reported by the Öko Institut[32] seven due diligence and traceability schemes following the OECD Guidance have since been implemented locally. Some are entirely private-sector-led such as the Motorola Solutions for Hope in Katanga. Others involve government, donors, companies and civil society such as the ITRI/iTSCI certification instrument for tin. Capacity-building is provided by donors, such as the German BGR, or NGOs. Thanks to these international efforts and support schemes significant progress has been achieved to develop a credible chain of custody for a number of mines and upstream supply chains.

However, so far only one traceability scheme in the DRC (ITRI/iTSCi implemented via PACT) is recognised by the major buyers mainly operating in closed pipe supply chains. In the overwhelming majority of cases, the other schemes in the region have not provided a sufficient level of confidence and effectiveness to attract the involvement of smelters/refiners actively engaged in the US and EU markets. The consequence is that mining communities and local traders fail to benefit from their natural resource wealth as even minerals from conflict-free regions are sold at a discount to the normal market price.

The current fragmented situation hampers reconstruction, development and social cohesion prospects as well as the formalisation of the small-scale mining sector which reduces taxation revenues for central and provincial governments. An important corollary is the undermining of the significant potential of wealth creation, empowerment and improved livelihoods of local communities and territories associated with the artisanal mines.

- Underlying drivers

Between September 2010 and March 2011, the DRC imposed a presidential ban on minerals exports from artisanal mining in order to reorganise the sector on the basis of legislation that was later adopted to enforce due diligence in the country (Annex I/4). This had the effect of collapsing the entire artisanal sector together with the corresponding employment and trading opportunities. After the ban was lifted, it was almost immediately followed by the new implementing provisions of the US DFA whose reporting obligations are stimulating reorientation of US and some international supply away from the Great Lakes region. The loss of trade is in turn stimulating the emergence of an informal market for the minerals concerned.

Reporting in October 2012, the UN Group of Experts also attributes the steep decline in trade to the suspension in May 2012 by the DRC Minister of Mines in north and south Kivus of two export houses, Huaying and TTT Mining, for failure to undertake due diligence in compliance with UN and OECD Guidance. Around the same time the DRC minister of mines banned the transport of minerals by air from Maniema to Goma and Bukavu. Also, some Chinese importers previously buying untagged minerals had started to require mineral tagging under the ITRI Tin Supply Chain Initiative and their clients were not yet organised to meet these requests.[33]

As reported by IPIS[34], some DRC provinces such as Maniema that were considered relatively conflict-free, are as a result presently also negatively affected by the US DFA as their products need to be evacuated via other provinces considered conflict-prone. The resulting market distortion is largely due to business choices made by companies which choose to avoid sourcing from the region altogether rather than even considering engagement in due diligence and adopting a nuanced risk assessment. By requiring no additional action and cost for enterprises when they can reasonably establish that "conflict minerals" do not originate in the DRC or the adjoining countries the US DFA has created an incentive to avoid sourcing from the region, and in particular from DRC. Sourcing outside the region is therefore a low-cost and a low-risk business decision whereas remaining engaged entails significant due diligence, audit and organisational costs. The probably unintended result is that DRC minerals continue to be exported, yet informally and at very low prices, to countries from which sourcing is considered conflict free.

In contacts with stakeholders in 2013, other challenges in relation to the validation of mines and minerals in the DRC have been reported. Presently, an insufficient number of mines are OECD-compliant which requires more capacity: more mines need to have traceability systems in place so as to allow for OECD-compliant exports. As reported by smelters, the traceability services provided by organisations such as iTSCi are open for improvement in terms of capacity and swiftness so as to be relevant for smelters/refiners. Closed pipeline projects such as the CFTI which uses iTSCi (Annex I/2) have been shown to carry a certain risk of predatory pricing as they create a situation of (quasi) monopoly. Overall, more competition between systems and between buyers will certainly benefit local artisanal small-scale miners as well as downstream operators. Various stakeholders expressed views in bilateral contacts that the political support at regional level should be reinforced compared to the national level where the government is highly motivated to formalise the mining sector.

Until today, the mandatory and voluntary application of the OECD Guidance, including actions by EU Member States has not effectively addressed the underlying problems identified in this section.

2.6           Subsidiarity and proportionality

According to the subsidiarity principle, the EU should act only where it can provide better results than by intervention at EU Member States' level. In addition, the preferred option identified in this document should be limited to what is necessary in order to attain the objectives laid down in section 3 of this report and comply with the principles of proportionality.

With respect to the identified problems and the underlying drivers in the previous sections, there is a clear need for EU-level action in order to have the largest impact on EU companies' due diligence objectives and in conflict zones: EU intervention will provide more 'critical mass' and leverage at a global level compared to possible action by individual Member States. To this end, for example, the Belgium Senate has adopted a resolution asking for more transparency in the supply chain based on an EU-level initiative.

The risk however is that if EU Member States take individual initiatives, EU companies will be treated differently across the EU internal market, with mixed results and leading to confusion in the market. It therefore appears preferable to take action or legislate through EU law rather than at Member State level, also with a view to better organising the ongoing parallel due diligence responses.

The regulatory approach described under the options in section 4.4, 4.5 and 4.7 dealing with trade in minerals and metals from outside the EU, falls within the exclusive competence for external trade (Article 207 TFEU) granted to the EU by the Treaties. The option considered in section 4.6 would be based on Articles 50 (freedom of establishment) and 114 (approximation of laws) TFEU.

Finally, the current situation is not satisfactory. Existing interventions via the actions of a few EU Member States, third-country legislation and some voluntary frameworks, have not effectively addressed the identified problems and underlying issues. There is a very strong push on the demand side, especially through the actions of downstream users, and it is safe to assume that this situation will continue in a context where the US DFA is unchanged. Stronger engagement from the upstream side of the supply chain would help develop more efficient ways of conducting due diligence, and this is precisely where action at EU level is needed. Options for action at EU level considered in this report would come on top of Member States' action and would in this sense re-enforce due diligence practices in the entire supply chain.

3. Objectives

Article 3 TFEU lays out that in its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to inter alia peace and security as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter.

In this respect, the Union shall contribute to the overall policy objective of the proposal by means of its common commercial policy as defined under Article 207 TFEU which shall be conducted in the context of the principles and objectives of the Union's external action and in accordance with the UN Guiding principles on Business and Human Rights as well as UN Security Council Resolution 1952 (2010).

An EU initiative should contribute to the EU foreign policy goals and development strategy of better governance, sustainable management and law enforcement in relation to the exploitation of natural resources in mineral-producing conflict areas. It should also contribute to EU trade and enterprise policy, which inter alia concerns corporate social responsibility safeguarding the free but responsible choice of supply of EU operators.

General objectives (GOs)

1. Contribute to reducing the funding from proceeds of minerals’ extraction and trade that reaches armed groups in conflict-affected areas.

2. Improve the ability of EU downstream operators to comply with existing due diligence frameworks, including US DFA.

3. Contribute to reducing the distortions in the market for minerals from the Great Lakes Region.

Specific objectives (SOs)

1. Increase the proportion of EU and global smelters/refiners that perform due diligence.

2. Raise the level of public accountability for due diligence performance (and level of compliance) by EU and global smelters.

3. Increase the ability of EU downstream companies to successfully identify smelters/refiners.

4. Improve the bargaining position of EU downstream companies (on due diligence) vis-à-vis companies further back in the supply chain.

5. Improve awareness of due diligence, of the importance of due diligence compliance, and of ethical dimensions throughout the supply chain – both inside and outside the EU.

6. Increase the uptake (performance) of due diligence practices by downstream companies.

7. Offset/reduce the adverse commercial incentive created or exacerbated by US DFA.

Operational objectives (OOs)

1. Provide enhanced visibility and transparency for due diligence practices (and level of compliance) of EU and global smelters.

2. Raise awareness of due diligence, ethical dimensions, and the importance of improving due diligence compliance with governments of main non-EU smelters/refiners.

3. Empower downstream users by providing a mechanism to identify due diligence compliant operators (including smelters), and thus to facilitate switching of suppliers.

4. Introduce certainty and transparency in the supply chain nearer to downstream users.

5. Promote increased awareness of due diligence and ethical dimensions among EU operators.

6. Create additional financial incentives in order to promote/support due diligence practices among downstream users.

7. Support the uptake of OECD Guidance among smelters/refiners willing to source in conflict-affected areas.

8. Support demand from conflict-affected areas: facilitate switching by EU operators to due diligence compliant smelters/refiners sourcing in those areas.

4. Policy options

Commission Services have considered the following broad range of policy options:

4.1           Base line scenario  

Under the baseline scenario, no additional EU action is undertaken to address the identified problems. The Commission provides - in the context of the Instrument for Stability - support for a committed amount of up to €1 million during a maximum two years, for the implementation programme of the OECD Guidance by providing capacity-building in conflict-affected and high-risk areas in particular, by targeting the authorities, the private sector and civil society organisations.

A few EU Member States (Germany, Belgium and the Netherlands) continue providing support to the DRC and Rwanda as presented in Box 10 and as fully described in Annex I/2.

Under the baseline scenario, Member States are not expected to adopt legal due diligence requirements targeting their downstream operators, nor are they expected to introduce the application of performance clauses on due diligence in their public procurement contracts to incentivise downstream operators carrying out due diligence.

Furthermore the baseline case takes into account the impacts of the US DFA on businesses and the Great Lakes Region as well as ongoing actions by countries in this region, and beyond, to implement the OECD Guidance. This includes ongoing efforts by ICGLR States formalising the mineral sector and implementing regional certification mechanisms. Presently, Rwanda is the most advanced in terms of implementing its OECD consistent legislation and can be expected to remain a forerunner. The DRC while having OECD-based law in place is expected to build up only gradually its capacity to effectively implement the OECD Guidance: this requires more mines to be validated and to put traceability systems in place. The other States such as Uganda and Burundi are expected to make progress on formalising the mining sector by integrating the OECD Guidance. EU companies are presently not operating in the above countries.

Côte d'Ivoire and Colombia are expected to take initial action which would allow them to better understand the functioning of the OECD Guidance, and the benefits it would bring to their countries' mining sector.

Except for the United States, other third-countries are not expected to promote the uptake of due diligence by their operators.

4.2           Option 1 – Standalone EU Communication  

This option consists of the following measures to be included in a joint Commission/High Representative Communication in order to address the objectives set in section 3.

1. National Contact Points (NCPs) would be established under the OECD Guidelines for Multinational Enterprises and other relevant networks to help raise awareness. By way of example, the Enterprise Europe Network (EEN) – a business support network that offers services supporting European enterprises – could raise the awareness of EU operators about the importance of due diligence and the consequences of irresponsible sourcing from conflict zones. To this end, the Commission, in cooperation with the OECD, would develop material for outreach events as well as awareness-raising actions through NCPs and EEN websites.  

2. EU public procurement: the application of performance clauses in European Commission public procurement purchases for relevant products (e.g. computers, mobile phones, printers) which contain 3Ts and/or gold: eligibility would depend on compliance with OECD Guidance or other equivalent due diligence schemes in order to satisfy contractual obligations. To this end, the Commission will develop implementing Guidance for authorising officers.     

Moreover, the application of performance clauses in public procurement purchases by EU Member State authorities (as foreseen under the EU Public Procurement Directive) is possible to foster the uptake of OECD Guidance or equivalent schemes. To this end, the Commission develops recommendations and implementing guidance to Member States' authorising officers. EU Member States presently do not have performance clauses in public procurement contracts in place to promote due diligence.

3. Financial support to the activities of OECD: to further promote and develop Guidance and assistance in support of due diligence practices of EU and global smelters/refiners when sourcing responsibly in conflict-affected and high-risk areas. Notably, the OECD would be required to identify the smelters/refiners with a keen interest in sourcing in conflict zones and their problems when dealing with traders in conflict zones. The EU assistance may support outreach and training activities as well as capacity building and the promotion of those smelters/refiners.

4. 'Letters of Intent' by the European industry: the EU industry has signalled its readiness through the public consultation, position papers and studies to increase its engagement in the responsible sourcing of minerals from conflict-affected and high-risk areas. The EU would take action to provide visibility to the efforts of companies that provide 'Letters of Intent' announcing relevant commitments and steps for concrete action to purchase conflict-free material from smelters or refiners sourcing responsibly from conflict regions.

5. Government-to-government actions: Governments in producing countries have the regulatory power to set national requirements for companies involved in the extraction, handling and trading of mineral resources. The Commission and the High Representative would use their existing contacts and political, security, trade and development dialogues to engage with governments in resource-rich developing countries to further promote responsible sourcing including through project-funding.

- Honest broker – raw materials diplomacy

The EU would develop a role to act as an honest broker in the context of multi-stakeholder initiatives and will consider ways of supporting and encouraging responsible sourcing and trade between third parties. EU Delegations, as well as the operations and missions are also used to gather data gathering and perform analysis which could be the basis for mediation or prevention of conflicts originating around or in close relation to mining activities. 

- Policy dialogues with third countries and other stakeholders

The EU would use its existing dialogues and contacts with governments, industry and NGOs to further develop the common understanding – at country and regional level – of the needs, challenges and opportunities of conflict-free and responsible mineral extraction.

The EU would also increase engagement with countries where the majority of the world's smelters/refiners are located, notably China, Malaysia, Indonesia, Thailand and Russia. The EU would set out specific outreach strategies to this end. The EU would call an international conference on the role of, and contribution of responsible sourcing in 2015.

The EU would use its raw materials dialogues with China, Japan and Mongolia to promote the EU conflict minerals approach. The Commission would also launch a raw materials dialogue with Myanmar/Burma in the near future.  

- Development cooperation with third countries

The EU would also use its existing cooperation relation with governments to address conflict-free and responsible mineral extraction. The key lines of intervention through which the EU may support partner countries are:

· Transposing the OECD Guidance into national due diligence frameworks.

· Building further capacity to implement the national due diligence frameworks.

· Supporting advocacy and political dialogues in the country between local and central government authorities, civil society organisations and companies operating in the regions.

· Creating visibility for the actions carried out and the results achieved by the country.

The EU would also foster cooperation between producer and consumer countries, including through joint projects, for instance on sustainable mining and good governance, also taking into account the specificity of artisanal mining.

4.3           Option 2 - "Soft-law" approach

This option combines the measures described under Option 1, with a Council Recommendation that would be instrumental in raising awareness of, and promoting the voluntary uptake by EU enterprises of the OECD Guidance for the 3Ts and gold, notably for those enterprises that are not already subject to a mandatory third-country scheme.

4.4           Option 3 - Regulation establishing obligations under an "EU responsible importer" certification based on the OECD Guidance - VOLUNTARY

This option combines the measures described under Option 1 with a Regulation targeting all EU importers of tin, tantalum and tungsten ores and metals, and gold, regardless of the origin of the products. The number and type of EU importers directly targeted under this Regulation are:  > 300 traders, 19 smelters/refiners and > 100 manufactures of components and semi-finished goods of which the majority are small and medium sized companies (SMEs).

The EU is a relatively large importer of the above mentioned ores with a 34% share of global trade.

The Regulation relies on the OECD Guidance to define obligations for EU importers that opt to be self-certified as responsible importers of tin, tantalum and tungsten ores and metals, and gold on the basis of a self-declaration of compliance.

Although the Regulation is voluntary, EU importers choosing self-certification are obliged to integrate all elements of the OECD Guidance in their management system by: (i) maintaining a system of controls and transparency over the mineral supply chain, which includes inter alia the mine of mineral origin and the smelters/refiners; (ii) when minerals and/or metal originate from conflict-affected and high-risk areas, identifying and assessing risks in the supply chain against the OECD model supply chain policy (see Box 11); (iii) designing and implementing a strategy to respond to identified risks; (iv) obtaining independent third-party audits of supply chain due diligence of the EU importer; and (v) reporting publicly on supply chain due diligence.

In order to be self-certified, the EU importer is also required to provide annually to the Member State competent authority independent third-part audits. When importing metals, also the identity of the smelters/refiners in its supply chain as well as independent third-party audits of those smelters/refiners is required. When sourcing from conflict-affected and high-risk areas, the EU importer should disclose the proportion of minerals originating from such areas relative to its total amounts of minerals purchased as confirmed by independent third party audits. When importing metals, this information should be provided relative to the smelters/refiners in the supply chain.

On the basis of the information disclosed by the importer to the Member States' competent authorities and transmitted by them to the European Commission, the latter as part of the Regulation would draw up annually a list (by implementing act) of the responsible smelters/refiners which conduct due diligence as confirmed by an independent third-party audit. This list of responsible smelters/refiners will be issued after consultation with the OECD. Responsible smelters and refiners sourcing from conflict-affected and high-risk areas will be specifically identified on the list.

The number of smelters/refiners in the EU targeted by the list is presently 19. The number of global smelters/refiners also targeted cannot be determined at this point since information on the name of exporters to each of the Member States is only available to customs authorities. It should be noted however, that the EU is a relatively large importer of 3Ts and gold metals with presently a 23% and 13% share of global trade respectively.

The Regulation would be followed by a Commission communication as regards implementing guidelines. The purpose of this communication will be to set out the detailed rules and additional guidance necessary to ensure a uniform application by the Member States' competent authorities of the Regulation. To this end, no further impact assessment would be envisaged.

Ex-post compliance checks by the Member State competent authority to verify if the self-certified EU importer complies with the set obligations would be conducted in accordance with a periodically reviewed plan following a risk-based approach. In addition, checks may be conducted when a competent authority is in possession of relevant information, including on the basis of substantiated concerns provided by third parties, concerning compliance by an importer with this Regulation. In case of an infringement of the Regulation, competent authorities would issue a notice of remedial action to be taken by the importer. Inadequate remedial action would result in the withdrawal of the responsible importer certificate, and where applicable the smelter/refiner would be removed from the list.

 

Finally, the voluntary application of the Regulation should be reviewed after 3 years and the results will be used for decision making needs on the future of the EU approach and for amendments to the regulatory framework, making it mandatory, if appropriate, on the basis of a further impact assessment.

4.5           Option 4 - Regulation establishing obligations under an "EU responsible importer" certification based on the OECD Guidance - MANDATORY

This option combines the measures described under Option 1, with a compulsory version of the Regulation described in section 4.4 under which all EU importers of tin, tantalum and tungsten ores and metals, and gold, are subject to the obligations defined under the Regulation. The number and type of EU importers concerned are: > 300 traders, 19 smelters/refiners and > 100 manufactures of components and semi-finished goods.

As per Option 3, the EU would establish under the Regulation a list of smelters/refiners.

From the entry into force of the Regulation, Member States' competent authorities should carry out ex-post checks on EU importers' compliance with the set obligations. Checks should be conducted in accordance with a periodic review plan following a risk-based approach. In addition, checks may be conducted when a competent authority is in possession of relevant information, including on the basis of substantiated concerns provided by third parties, concerning compliance by an importer with this Regulation. In case of an infringement of the Regulation, competent authorities will issue effective and proportional financial penalties.

4.6           Option 5 - Directive establishing obligations for EU-listed companies based on the OECD Guidance

This option combines the measures described under Option 1, with a Directive targeting almost 1,000 EU-listed companies using tin, tantalum, tungsten and gold, regardless of origin, in their supply chain.

The Directive would define the obligations for EU-listed companies to integrate the "five-step" OECD Guidance framework in their management system by (i) maintaining a system of controls and transparency over the mineral supply chain, which includes the mine of mineral origin and the smelter/refiner; (ii) identifying and assess risks in the supply chain against the OECD model supply chain policy (see Box 10); (iii) designing and implementing a strategy to respond to identified risks;  (iv) obtaining an independent third-party audits of supply chain due diligence of the EU-listed company; and (v) reporting publicly on supply chain due diligence.

EU-listed companies should disclose to Member States' competent authorities on an annual basis the result of their third-party audited due diligence.

From the entry into force of the Directive, Member States' competent authorities should carry out ex-post checks on EU-listed companies' compliance with the set obligations. Checks should be conducted in accordance with a period review plan following a risk-based approach. In addition, checks may be conducted when a competent authority is in possession of relevant information, including on the basis of substantiated concerns provided by third parties, concerning compliance by the company with this Directive. In case of an infringement of the Directive, competent authorities shall issue effective and proportional financial penalties.

This option partly mirrors the requirements of US DFA, however with a different geographical scope: whereas US DFA targets "conflict minerals" originating in the DRC and the adjoining countries this option targets the same minerals regardless of origin.

In contrast to the Regulation proposed under Options 3 and 4, the legal basis of Option 5 would be an EU Directive that builds on existing EU legal frameworks (i.e. the Accounting and Transparency Directives) under which EU-listed companies are required to disclose financial and notably non-financial information. If this option were to be adopted, this legal framework would serve as a basis for the new rules to be adopted.

4.7           Option 6 – Prohibition of imports when EU importers of ores fail to demonstrate compliance with the OECD Guidance – import ban

This option consists of the measures described under Option 1, and in addition it would require EU importers to mandatorily demonstrate compliance with the OECD Guidance. Providing evidence on compliance to Member States' customs authorities, importers will be eligible to access the EU market. 

This option would follow the approach taken by the Kimberley Process Certification Scheme (KPCS) targeting the trade in rough diamonds and Council Regulation 2368/2002 of 20 December 2002 based on Article 133 EC (now Article 207 TFEU) which sets out the rules applicable for imports and exports of rough diamonds (Annex I/1). In this case an international agreement supports the importation ban for so called "conflict diamonds".

As regards minerals from conflict-affected and high-risk areas, such an international agreement between countries would define the exact trading arrangement based on the OECD Guidance. Based on the KPCS model, the agreement would impose a requirement on its members to enable them to certify shipments of minerals as ‘conflict-free' and prevent conflict minerals from entering the legitimate trade.

To this end, the option targets the following number of EU importers of mineral ores: > 50 traders and 19 smelters/refiners.

From an EU perspective the preferred mineral scope of the agreement would be tin, tantalum, tungsten ores and gold, whereas the preferred geographical scope consists of all mineral producing countries where risks exist in relation to mineral mining and the financing of armed groups through trade.

Ex-ante border controls/compliance checks by Member States' competent authorities are carried out to determine whether the EU importer meets the obligations set in the agreement. This may result in an EU import ban of minerals when requirements are not fulfilled on the basis of documentation.

However, it should however be noted that setting up an international agreement requires a lengthy process with an uncertain outcome. There is presently no certainty that such an agreement can be achieved in the foreseeable future. 

Summary of the options:

OPTIONS || Instrument || Application || Scope (product, geographical) || Measures

1. Communication || Commission/ High Representative Communication || NA || NA || - NCP and EEN - EU Public Procurement - Financial assistance OECD - Letters of Intent - Government to Government actions

2. "Soft law" || Council Recommendation || Voluntary || 3Ts and gold + Global || - NCP and EEN - EU Public Procurement - Financial assistance OECD - Letters of Intent - Government to Government actions

3. EU importer certification, including disclosure requirements + list of smelters/ refiners || Regulation || Voluntary || 3Ts and gold + Global || - NCP and EEN - EU Public Procurement - Financial assistance OECD - Letters of Intent - Government to Government actions

4. EU importer certification, including disclosure requirements + list of smelters/ refiners || Regulation || Mandatory || 3Ts and gold + Global || - NCP and EEN - EU Public Procurement - Financial assistance OECD - Letters of Intent - Government to Government actions

5. EU-listed company disclosure requirements || Directive || Mandatory || 3Ts and gold + Global || - NCP and EEN - EU Public Procurement - Financial assistance OECD - Letters of Intent - Government to Government actions

6. Prohibition of imports (ores) || Regulation || Mandatory || 3Ts and gold + Participating countries || - NCP and EEN - EU Public Procurement - Financial assistance OECD - Letters of Intent - Government to Government actions

Table 1

5. Analysis of impact (including on SMEs)

The analysis of impact for the different options is as follows.  

5.1           How will the problem evolve without EU action?

Under the baseline only a moderate uptake of supply chain due diligence, including as per the requirements of the US DFA, can be expected by EU downstream companies as they presently lack reliable data to effectively review their supply chain. This situation is likely to persist for the coming years: under the present conditions, EU businesses and their supply chains are not prepared for implementation as the entire due diligence process and practices lack maturity. The current trend of EU downstream companies strengthening their management systems (i.e. assuming associated costs) and simply sending forms mainly up the supply chain to receive declarations from their suppliers that they do not source from conflict areas will continue, and meaningful due diligence efforts are expected to be rare.

Similarly, the uptake of supply chain due diligence by smelter/refiners is also expected to be modest at best as access to minerals from conflict zones will continue to represent a cheap source in a very competitive market. Furthermore, smelters/refiners will continue to be insufficiently aware or ethically concerned about the issues, and finally in the absence of sufficient pressure from clients and other downstream operators they will not be compelled to change behaviour and conduct due diligence. The existing legal frameworks or other actions such as those carried out by EU Member States do not address those issues. 

In sum, we could expect mainly as a result of the US DFA, an improvement of the situation on the medium-term basis where the total number of EU downstream operators and EU and global smelters/refiners carrying out due diligence will moderately improve over time. However, this will certainly be a difficult process, notably with a problematic start as global supply chains need to reorganise by selecting or switching to those suppliers that carry out due diligence. EU companies trading with the US not being able to satisfy due diligence requests see face their US clients switch to other more capable suppliers[35], which in a baseline scenario should not necessarily be easily available.     

Under the baseline scenario, the market distortion experienced by the Great Lakes Region is expected to worsen as an increasing number of global companies, including EU companies, are expected to comply with the US DFA requirements avoiding sourcing in the covered countries. Only the ongoing efforts by the DRC and other neighbouring country governments and operators, with some development assistance by inter alia EU Member States, can result in a gradual improvement of the situation: more mines validated, and trading routes and exports certified.

Finally, as also considered by stakeholders in the public consultation, EU non-action would undermine global efforts to reduce funding to armed groups and the perpetuation of conflict, and not strengthen political and resource governance including the mining sector in affected conflict areas and would generate a perception that the EU does not take the issues of transparency and due diligence in mineral supply chains seriously.

Nine business respondents (including 3 trade organisations) in the public consultation argue that they will continue to experience problems taking up due diligence and that this would negatively affect their image and performance relative to US clients.   

Likewise, non-intervention fails to support the development of sustainable economic models relying on natural resource wealth and transparent extractive sector providing better prospects for reconstruction and social cohesion as well as investment by international corporations in those areas.

5.2       Option 1 – Standalone EU communication

- Effectiveness of the option

The effectiveness of this option in achieving the operational objectives set out in section 3, are assessed as follows:

OO2: raise awareness of due diligence, ethical dimensions, and the importance of improving due diligence compliance with governments of main non-EU smelters/refiners: this option, through the government to government actions (honest broker, existing policy dialogues) contributes to this objective.

OO5: promote increased awareness of due diligence and ethical dimensions among EU operators: this option through actions outlined for the NCPs and EEN contributes to this objective.  

OO6: create additional financial incentives in order to promote/support due diligence practices among downstream users: the EU public procurement measures contribute to this objective.

OO7: support the uptake of OECD Guidance among smelters/refiners willing to source in conflict-affected areas: the financial assistance to the existing OECD activities in particular support to EU and global smelters/refiners sourcing responsibly in conflict areas, contributes to this objective. 

The other operational objectives (1, 3, 4 and 8) are not addressed by this option.

As regards the overall effectiveness of this option achieving the specific objectives set out in section 3, this option contributes to SO5 (i.e. improving awareness of due diligence, of the importance of due diligence compliance, and of ethical dimensions throughout the supply chain, both inside and outside EU), SO6 (i.e. increasing the take-up (performance) of due diligence practices by downstream companies), and SO7 through European Commission funding to the OECD the option contributes to offset/reduce the adverse commercial incentive created or exacerbated by US DFA. This option is therefore expected to moderately impact the uptake of due diligence practices by downstream operators but is only marginally expected to increase the proportion of EU and global smelters/refiners performing due diligence. The contribution to the reduction of the distortion in the market for minerals from the Great Lakes Region is addressed to a limited extent. Overall the impact on reducing the funding of armed groups from proceeds of minerals' extraction and trade in conflict zones is expected to be limited.

- Economic impact, including on SMEs

This option does not create additional administrative costs for EU downstream operators, including SMEs. On the contrary, it creates positive financial incentives for downstream companies to take up due diligence. Moreover, the other forms of assistance could alleviate the burden to acquire specialised competences when setting up a system for due diligence. As the option does not address all of the objectives set it implies that not all companies are expected to successfully take up due diligence and that some of them may face downstream clients switching to other suppliers.

- Social impact

The social impact of this option is limited to a slight positive impact that might result from the measures provided to smelters/refiners that are willing to source from the conflict zones. This impact should not be overstated.

As this option only addresses the EU downstream problems to a limited extent this could result in the possible withdrawal of some clients.

- Environmental impact

This option does not create any specific impact on the environment.

- Administrative impact for European Commission and Member State authorities

The cost of promotion via the NCPs and the Enterprise Europe Network (EEN) is estimated at 0.05 FTE[36].

The cost of providing financial assistance to the OECD due diligence action is estimated at €0.2 million annually over period of 5 years. The annual budgetary provisions are subject to the on-going negotiations between the co-legislators and future programming of these instruments.

Due diligence requirements relating to the European Commission's public procurement contracts for IT hardware are expected to impose an additional cost of about 0.014% of the total annual of the DG DIGIT budget of about €50 million; which amounts to maximum €7,000 per annum. It is however expected that these small cost increases will not be passed on to the final consumer, in this case the EU Institutions, in the form of a price increase. In terms of Commission staff, one full-time equivalent (FTE) is expected to be involved in drafting of public procurement guidance and further outreach.

Voluntary uptake of due diligence requirements (under the EU Public Procurement Directive) by Member States’ public authorities is expected to give rise to a similar level of additional costs. In the EU 18% of GDP, which is €420 billion, is used for public procurement. A maximum of 0.014% cost increase would apply to procurement contracts in the relevant sectors in case opting for introducing due diligence requirements. Again, it is expected that these small cost increases will not be passed on to the final consumer (i.e. Public Authorities) in the form of a price increase. In terms of staff, 0.2 full-time equivalent (FTE) is expected to be involved in contractual procurement work.

- Stakeholders' views of the option

Finally, public procurement measures were mentioned by 3 trade organisations and 5 downstream companies in the public consultation as a possible incentive to stimulate uptake of due diligence.

Also, many business stakeholders (42) recommend diplomatic efforts in order to engage other economies. A number of business stakeholders have expressed concern about the feasibility of reaching critical mass for the effective uptake of due diligence on a global scale. Indeed, a large number of companies and trade organisations (51) participating in the public consultation emphasised that a system would need to include at least all major economies in order to be effective.

5.3       Option 2 - "Soft law" approach

- Effectiveness of the option

The effectiveness of this option is comparable to Option 1. However, it could be expected that the added value of a Council Recommendation would reside in the improved visibility that a soft law option would entail for the EU to promote due diligence. This might result in some improved awareness of EU operators resulting in some increased due diligence up-take.

To the extent that such an approach succeeded in raising awareness of EU companies’ responsibilities in respect of OECD Guidance, there might be some improvement in the underlying situation, i.e. a diminution in the potentially perverse role played by minerals extraction and trade in conflict-affected and high-risk areas. 

- Impacts

The overall impact of such a soft law option would essentially be equivalent to the first option (see section 5.2).

5.4           Option 3 – Regulation establishing obligations under an "EU responsible Importer" certification based on the OECD Guidance - VOLUNTARY

- Effectiveness of the option

The effectiveness of this option achieving the operational objectives set out in section 3, are assessed as follows:

OO1: provide enhanced visibility and transparency for due diligence practices (and level of compliance) of EU and global smelters: this option contributes to this objective through the list of responsible smelters/refiners established under the Regulation.

OO2: raise awareness of due diligence, ethical dimensions, and the importance of improving due diligence compliance with governments of main non-EU smelters/refiners: this option, through the government to government actions (honest broker, existing policy dialogues) contributes to this objective.

OO3: empower downstream users by providing a mechanism to identify due diligence compliant operators (including smelters), and thus to facilitate switching of suppliers: this option does address this issue by providing a certificate to EU importers and through the list of responsible smelters/refiners.

The "EU responsible importer" certificate would facilitate the identification of operators including smelters/refiners exercising due diligence for downstream operators to rely on. Moreover, the list of responsible smelters/refiners drawn up on the basis of information provided by self-declaration will represent an important reference point for downstream producers to facilitate and redirect their purchasing activities to the smelters identified in the list. In itself, the list will act as an incentive for smelters/refiners, especially those based in the EU since most of their downstream clients have an interest in responsible sourcing inter alia because of the indirect effects of the US DFA. 

OO4: Introduce certainty and transparency in the supply chain nearer to downstream users: this option does address this issue by providing a certificate to EU importers and through the list of responsible smelters/refiners.

The implementation of an EU due diligence scheme would coincide with the first years of full implementation of the US DFA which also encourages affected companies to identify the smelters/refiners in their supply chain and leverage greater transparency about commercial relations in the upstream part of the supply chain, including information about the origin of the minerals used. This option therefore offers support to those EU companies (according to the public consultation 20 to 30 % of EU businesses) subject to the US DFA due diligence requirements (directly/indirectly) facing implementation challenges linked to the lack of transparency in the supply chain.

OO5: promote increased awareness of due diligence and ethical dimensions among EU operators: this option through actions outlined for the NCPs and EEN contributes to this objective. The list of responsible smelters/refiners may contribute to this as well. 

OO6: create additional financial incentives in order to promote/support due diligence practices among downstream users: the EU public procurement measures contribute to this objective.

The effectiveness of Option 3 is further enhanced by this measure which allows for downstream producers of end products to give visibility to their due diligence efforts through performance clauses in public procurement contracts of EU institutions for relevant products (e.g. computers, cell phones) which include 3Ts and gold.

Moreover, this measure would provide an additional incentive to conflict-free downstream products from abroad. Performance clauses would indeed make the award of contracts by the European Commission and Member States conditional upon compliance with OECD Guidance or with an equivalent scheme including for instance the EU list, a Dodd-Frank DRC conflict free report or recognised industry schemes.

OO7: support the uptake of OECD Guidance among smelters/refiners willing to source in conflict-affected areas: the list of responsible smelters/refiners is important in this respect as it identifies those entities that source from conflict-zones. Also the financial assistance to the existing OECD activities in particular support to EU and global smelters/refiners sourcing responsibly in conflict areas contributes to this objective. 

OO8: support demand from conflict-affected areas: facilitate switching by EU operators to due diligence compliant smelters/refiners sourcing in those areas: the list of responsible smelters/refiners will be instrumental to this end.  

Moreover, as the list of responsible smelters/refiners would explicitly highlight those which in spite of conflict continue to source from these regions, and as this option also envisages to provide financial support to the OECD to promote the scheme so as to facilitate decisions to support sourcing from such areas, this will have direct consequences in favour of local populations and their livelihoods. This logic is not borne out by the present reality. On the contrary, local communities dependent on mining activities should continue to be able to exercise their legitimate trade through improved access to global mineral markets.

Overall the effectiveness of this option in achieving the specific objectives set out in section 3 is high, as all of them are met. In order to allow for a detailed comparison between the options the following assessment is carried out:

SO1: with the list and other measures in place it might be expected that over time the proportion of EU and global smelters/refiners performing due diligence will gradually increase, as it raises the level of public accountability (SO2) for due diligence performance (and level of compliance) by EU and global smelters that clearly have an interest to get on the list and being visible for downstream operators.  

SO3: the list increases, at the same time, the ability of EU downstream companies to successfully identify smelters/refiners and improves their bargaining position (SO4) on due diligence vis-à-vis companies further back in the supply chain.

SO5: this option improves awareness of due diligence, of the importance of due diligence compliance, and of ethical dimensions throughout the supply chain, both inside and outside EU.

SO6: this option increases the take-up (performance) of due diligence practices by downstream companies.

EU importers (traders) could be motivated to apply the "EU responsible importer" certificate in relation to their downstream identification. An increased uptake by importers – both those which supply ores/concentrates to EU smelters/refiners, and those which supply metals/derivatives to component producers – is expected to be driven by increased awareness in the EU and buyers' interest. Public recognition is viewed as an important incentive by a substantial number of companies. During the public consultation, 20 business respondents (including a smelter and 3 other upstream companies) indicated that a label, stamp of excellence, award or similar form of public signalling would increase motivation to join the initiative, because it would enhance the corporate image and/or brand value.

In combination with the list, the public procurement measures are expected to act as strong incentives for downstream companies to take up due diligence.

SO7: this option also offsets/reduces the adverse commercial incentive created or exacerbated by US DFA.

By focussing on importers, who are only a few steps removed from the mines where minerals are extracted, the scheme is applied at an effective point in the supply chain. As a result this option improves the ability of EU downstream operators to comply with existing due diligence frameworks, including US DFA. It also contributes to the reduction of funding of armed groups from proceeds of minerals' extraction and trade in conflict affected areas and reduces the market distortion for minerals from the Great Lakes Region.

- Economic impacts including on SMEs

Due to the voluntary nature of this option, we can assume that EU importers will not take on the burden of due diligence compliance unless the expected benefits are higher than the expected costs. As resulted from the public consultation over 80% of business respondents indicate that they are interested in responsible sourcing, an indication of the fact that the benefits for companies are expected to exceed the cost. Some of the benefits to companies participating in the self-certification scheme may derive from unquantifiable externalities which can be used for marketing purposes such as public image, Corporate Social Responsibility (CSR) and consumer satisfaction.

As a result of the voluntary measure, EU importers opting in would incur the costs involved with self-certification. These costs can be either internal or external and are associated with gathering information and reporting, IT systems and software, strengthening internal management systems, consulting and training and audits.

As shown in the study commissioned by DG Trade, estimated initial costs for nearly three quarters of the 330 respondents already carrying out due diligence as per the US DFA requirements are around €13,500 while recurrent costs are estimated at €2,700 for approximately two-thirds of surveyed companies (a breakdown of cost is provided in Annex I/9). More specifically, the average initial costs add up to 0.014% of average turnover of surveyed companies, while recurrent costs represent about 0.011%. For SMEs, in absolute terms, these costs are estimated at the same level (€13,500, while recurrent costs are estimated at €2,700) however resulting in somewhat higher average initial cost of 0.154% of average turnover, while recurrent costs reach 0.127%.

A further decomposition of these cost-equivalents by sector and company size (Table 2 below) underlines the fact that the estimated costs for complying with due diligence guidelines represent only a small fraction of total turnover. Initial and recurrent costs vary among the sectors identified. Initial costs for large companies vary from 0.001% of total turnover in Manufacturing of basic metals and Wholesale and Retail trade of goods except of motor vehicles and motorcycles to 0.02% in Other manufacturing. The recurrent costs for large companies of complying with due diligence requirements tend to be lower.

Because of lower turnover, the relative burden on SMEs tends to be higher, with initial costs that range from 0.011% in Manufacture of machinery and equipment n.e.c. to 0.382% in Manufacture of fabricated metal products, except machinery. The high initial cost of 0.382% for SMEs in the manufacture of fabricated metal product sector can be explained by the fact that although the sector was well represented in terms of respondents (with a total of 21 SMEs in this sector answering the question) two SMEs estimated the cost over 1 million, and one SME estimating it over 5 million, which drove up the average. While the impact on SMEs tends to be somewhat greater, these costs are thought to be manageable notably in the context of a voluntary approach allowing for sufficient adjustment time.  

Therefore based on the results of the study the total initial cost for the roughly 400 EU importers (smelters/refiners, traders, and manufactures) if they would all decide to carry out due diligence is estimated at €5.4 million. The recurrent annual cost would reach €1.1 million.

As a consequence of the low compliance cost presented above, no significant impact on the competitiveness of EU industries, including SMEs, or on delocalisation is expected. As the scheme is voluntary, companies can time, phase-in and thereby adjust the introduction cost to the level appropriate to their business. A total number of 17 companies and trade organisations feared a price increase for (certified) minerals, which would put upstream EU/US companies at a competitive disadvantage and/or decrease access to certain minerals. 43 business stakeholders felt that this concern applied to downstream industries. On the other hand, concerning the upstream part of the supply chain, 15 business stakeholders pointed out that an EU initiative could encourage demand for ethically and legitimately sourced minerals, and that it could create a level playing field for conflict and non-conflict regions alike. Concerning the downstream part, this opinion was echoed by 6 companies and trade organisations. 

The subset of EU importers which currently source from non-compliant sources and choose to undergo self-certification will also have to bear the costs of mitigating risks and/or switching suppliers.

Due to the voluntary nature of this self-certification, the overall cost of due diligence compliance for EU importers will depend on the exact participation rate and the due diligence cost in relation to the company turnover. As shown above, these costs are nevertheless expected to be manageable – if not minor – over the long run for most companies. If an importer is certified, the cost for downstream companies is very low. Under the scheme, an importer opting for self-certification is obliged to pass on to clients due diligence information while duly respecting business confidentiality concerns. Downstream operators should gain by this requirement which allows them to minimise the costs for their own due diligence needs. The availability of incentives as offered in Option 1 as well as the annual publishing by the Commission of a list of smelters that perform due diligence should enhance interest in the scheme. This is important as it provides an incentive to EU downstream product manufacturers relying on the import of minerals/metals to buy EU certified materials and continue producing in the EU rather than to shift their production outside the EU where due diligence requirements may differ.

|| Large companies || SMEs

Industrial Sectors surveyed || Initial costs || Recurrent costs || Initial costs || Recurrent costs

Manufacture of basic metals || 0.001% || 0.000% || 0.022% || 0.010%

Manufacture of computer, electronic and optical products || 0.005% || 0.002% || 0.024% || 0.009%

Manufacture of electrical equipment || 0.005% || 0.002% || 0.076% || 0.035%

Manufacture of fabricated metal products, except machinery & || 0.015% || 0.011% || 0.382% || 0.345%

Manufacture of machinery and equipment n.e.c. || 0.002% || 0.001% || 0.011% || 0.002%

Manufacture of motor vehicles, trailers and semi-trailers || 0.008% || 0.006% || 0.020% || 0.010%

Manufacture of other transport equipment || 0.003% || 0.002% || 0.037% || 0.004%

Manufacture of rubber & plastics products || 0.005% || 0.004% || 0.043% || 0.024%

Other manufacturing || 0.020% || 0.012% || 0.029% || 0.008%

Repair and installation of machinery and equipment || || || 0.026% || 0.005%

Retail trade, except of motor vehicles & motorcycles || 0.000% || 0.000% || 0.131% || 0.026%

Specialised construction activities || || || 0.026% || 0.011%

Wholesale trade, except of motor vehicles & motorcycles || 0.001% || 0.000% || 0.191% || 0.150%

Overall || 0.010% || 0.007% || 0.154% || 0.127%

Table 2: Cost equivalents (% of turnover) of complying with due diligence

From a dynamic perspective it is expected that the due diligence participation rate of downstream companies will increase over time as the market provides incentives for certification, i.e. downstream operators place a preference or a premium on certified final and intermediate products, in addition to the European Commission and Member State public procurement incentives envisaged under the measures accompanying this option.

The costs of downstream companies taking up due diligence are expected to be only a small fraction of total costs of producing a good, so it is likely that these costs will be absorbed by companies and not passed on to the final consumer in the form of a price increase. However, if the costs of due diligence certification are passed on to consumers, a price differential may emerge for certified products over non-certified ones, since not all consumers may be willing to pay higher prices for certified products. Once the number of participants in this scheme would be above a certain critical mass, price premiums are expected to disappear. Complementary awareness-raising initiatives (by NGOs in particular) are useful in this regard. Studies in the economic literature highlight the point of consumers' willingness to pay higher prices for certified products[37]. According to a 2010 survey commissioned by the European Commission on international trade, a significant proportion of Europeans (about 40%) are willing to pay more for products which help the environment, respect social standards, help developing countries or which are made in their countries.[38]

With respect to the security of supply of the minerals within the scope of this Option, the certificate provides EU importers legitimacy as to their imports of ores from conflict zones. This is notably important for tungsten that is on the EU critical raw material list[39] and that is found in some conflict zones. 

Finally, under this option EU downstream companies are expected to be able to serve better their US clients' due diligence requests which might avoid them switching to other compliant suppliers as the EU Regulation is supportive of the efforts mandated by the US DFA and helps to generate the required due diligence information[40].

- Social and environmental impact   

The impact on EU jobs is expected to be limited given that the cost of compliance represents only a small share of the total costs of the EU importers' companies, which are not expected to change hiring practices but potentially allocate existing workforce to the task of assuring compliance. Furthermore, limited job creation is expected in the areas of audit, consulting and training etc.

In view of its effectiveness and the expectation by stakeholders that an EU initiative could encourage demand for ethically and legitimately sourced minerals as it would create a level playing field for conflict and non-conflict regions[41], this option is expected to contribute to reduce the funding of armed groups from proceeds of minerals' extraction and the distortions in the minerals markets from the Great Lakes Region. This option is effective in that it gives a positive signal to business whose decisions to source or not in conflict-affected areas have a direct impact on demand for minerals. As reported by respondents to the public consultation positive impacts can be expected in the region including increased governments revenues though taxation and reduced corruption, formalized mining sectors, more sustainable development and environment, increased prospects for private investment and jobs in mining communities that in turn stimulate local economies. This potentially can translate into improved public services and benefits for local communities depending on mineral extraction and trade.

As shown in the study commissioned by DG Trade, 60% of the 330 respondents believe that an EU due diligence scheme would bring political and social stability for local operators and communities in conflict regions. Moreover, 7% of those respondents consider an EU scheme to contribute to strengthen environmental aspects. 22% of the respondents believe that an EU due diligence scheme would result in further impoverishment and unemployment of local operators and communities in conflict zones. Also, 18% considers that an EU initiative could create an embargo and reduced economic activity in the regions concerned. Finally, respectively 18% and 16% of the respondents consider that an EU initiative would create increased bureaucracy for companies and governments and more corruption. The outcome of the study in this respect could also bear relevance for the assessment of the other options.

Some respondents to the public consultation also expect that an EU initiative would promote conflict-free economies and reduce financial flows to warring parties, changing conflict dynamics and potentially reducing conflict.   

- Administrative impact for European Commission and Member State authorities

The additional costs compared to option 1 incurred by the European Commission and Member State administrations are estimated[42] as follows:

The Regulation would require 1.5 full-time equivalents (FTE) at the European Commission to deal with the implementing guidance.  Additional financial resources required are estimated at €200,000 for one external study on the implementing guidance; and at €60,000 for the cost of management committee meetings twice a year with Member States.

In each of the EU Member States, the scheme would require one FTE in designated control bodies to deal with the coordination of ex-post compliance controls and inspections.

- ICT impact

The ICT implications of the proposed Regulation on the concerned companies and the Members States’ responsible authorities present low implementation complexity at low budget. As regard the EU Institutions, no budgetary impact is foreseen to operationally support the Regulation; should the ICT providers of the EU Institutions decide to shift all or some of the cost to their customers, a slight increase in the prices could be expected. The list of responsible smelters/refiners will most probably be hosted and operated by the EU Institutions preferably by the means of a, web-based information system that, with a moderate staff input, should collect, retrieve, update, publish data and produce statistics reports. However, these are all generic functionalities supported already by existing solutions within the Commission and their re-use should result in negligible fees or costs in terms of staff time. It should be highlighted that whatever decision to proceed with a new IT development (which would practically mean additional cost and longer implementation time) should first receive the approval of the EU Institutions’ governance bodies which will examine why the business needs cannot be fulfilled by re-using existing solutions.

Finally, it has to be noted that the ICT implications as presented in this options are generally applicable to Options 4, 5 and 6 that follow.

- Stakeholders' views of the option

The responses received during the public consultation confirm that failure to undertake due diligence at an early stage in the supply chain significantly complicates attempts further downstream for operators interested in, or required to perform due diligence. Given the supply chain difficulties that downstream companies face (see section 2.4) many (43) business respondents agree that any EU initiative should focus on the upstream. Of these, over half specify that certification of smelters/refiners would enable companies to implement an effective due diligence scheme.

A significant number (15) of business stakeholders in the public consultation suggested that a list of certified global smelters/refiners would help overcome practical difficulties in the identification of smelters/refiners. It would, therefore, be a support for the work of those downstream companies that want to give preference to trustworthy smelters/refiners in their supply chain they can rely on.

Those EU companies importing the minerals and metals concerned and already applying the OECD Guidance would therefore be in a position to declare compliance without additional efforts. A large number of companies would welcome an initiative that provides maximum recognition of existing initiatives, as highlighted by 35 business stakeholders during the public consultation. Another 20 companies and trade organisations expressed a wish for mutual recognition of schemes between the US and the EU.

Only a low proportion of global smelters/refiners currently exercise due diligence. In the public consultation, companies repeatedly suggested that if and when a sufficiently large list of certified smelters/refiners becomes available, they would gradually be able to redirect sourcing to those certified smelters/refiners. This approach aims at progressively building a critical mass of responsible smelters/refiners.

5.5           Option 4 - Regulation establishing obligations under an "EU responsible importer" certification based on the OECD Guidance - MANDATORY

- Effectiveness of the option

The effectiveness of this option achieving the operational objectives set out in section 3, are assessed as follows:

OO1: provide enhanced visibility and transparency for due diligence practices (and level of compliance) of EU and global smelters: this option contributes to this objective through the list of responsible smelters/refiners established under the Regulation. Since the participation of EU importers is mandatory it is expected that a higher number of EU and global smelters/refiners as compared to option 3 will be included on the list and more transparency would be injected into the system.

OO2: raise awareness of due diligence, ethical dimensions, and the importance of improving due diligence compliance with governments of main non-EU smelters/refiners: this option, through the government to government actions (honest broker, existing policy dialogues) contributes to this objective.

OO3: empower downstream users by providing a mechanism to identify due diligence compliant operators (including smelters), and thus to facilitate switching of suppliers: this option does address this issue by providing a certificate to EU importers and through the list of responsible smelters/refiners. Compared to Option 3 a higher number of importers and smelters/refiners might be captured under this option since all EU importers would be required to demonstrate due diligence for the benefit of a higher number of downstream operators.

OO4: Introduce certainty and transparency in the supply chain nearer to downstream users: this option does address this issue by providing a certificate to EU importers and through the list of responsible smelters/refiners. Compared to Option 3 a higher number of importers and smelters/refiners might be captured under this option.

OO5: promote increased awareness of due diligence and ethical dimensions among EU operators: this option through actions outlined for the NCPs and EEN contributes to this objective. The list of responsible smelters/refiners contributes to this as well. 

OO6: create additional financial incentives in order to promote/support due diligence practices among downstream users: the EU public procurement measures contribute to this objective.

OO7: support the uptake of OECD Guidance among smelters/refiners willing to source in conflict-affected areas: the financial assistance to the existing OECD activities in particular supports to EU and global smelters/refiners sourcing responsibly in conflict areas contribute to this objective. 

OO8: support demand from conflict-affected areas: facilitate switching by EU operators to due diligence compliant smelters/refiners sourcing in those areas: this objective is not expected to materialise, possibly worsen the situation, since under this mandatory option some disengagement of companies may occur as sourcing from conflict zones would represent an additional administrative burden.

Overall the effectiveness of this option achieving the specific objectives set out in section 3 is high as all of them are met. In order to allow for a detailed comparison between the options the following assessment is carried out:

SO1: with the list and other measures in place, and based on its mandatory character, it might be expected that a large proportion of EU smelters/refiners as they also directly import will respond by carrying out due diligence.  Similarly, it can be expected that the number of global smelters/refiners taking up due diligence will increase somewhat faster as compared to option 3.  The level of public accountability (SO2) for due diligence performance (and level of compliance) by EU and global smelters will raise as this option is mandatory and as they clearly have an interest to get on the list and being able to supply EU downstream operators. 

SO3: the number of entities on the list increases the ability of EU downstream companies to successfully identify smelters/refiners and improves their bargaining position (SO4) on due diligence vis-à-vis companies further back in the supply chain.

SO5: this option improves awareness of due diligence, of the importance of due diligence compliance, and of ethical dimensions throughout the supply chain, both inside and outside EU.

SO6: this option increases the take-up (performance) of due diligence practices by downstream companies. In combination with the list the Public procurement measures are expected to act as strong incentives for downstream companies to take up due diligence.

As a result this option improves the ability of EU downstream operators to comply with existing due diligence frameworks, including US DFA. It also contributes to the reduction of funding of armed groups from proceeds of minerals' extraction and it is expected to possibly worsen the market distortion for minerals from the Great Lakes Region caused by profoundly risk averse sourcing decisions.  

- Economic impacts including on SMEs

The impact of a mandatory self-certification scheme on economic agents in the supply chain of 3Ts and gold might be different from that of a voluntary scheme. The working assumption of this impact assessment is that the more binding the Regulation, the more additional distortions may emerge compared to those described in option 3.

While the participation rate of EU firms can be increased with a mandatory self-certification scheme, this option does not necessarily mean that the overall benefits would be maximised. If the costs of such an undertaking override the benefits, companies will take appropriate decisions. Those EU importers unable to adequately address the challenges in a timely way may potentially lose market share to more efficient EU competitors or be displaced. This may also trigger an incentive for some EU downstream product manufacturers relying on the import of minerals/metals to avoid buying EU certified materials but rather shift their production outside the EU where due diligence requirements do not exist. If it is not mitigated properly through incentives (e.g. public procurement) EU competitiveness in these sectors could be affected.

Although these risks exist, one should bear in mind the relatively limited costs associated with due diligence compliance as shown in Table 2. According to the industry survey conducted in the external study commissioned by DG Trade, a majority of respondents face marginal to manageable costs which may or may not be passed on to downstream customers. The resulting market distortion and incentive for EU businesses to somewhat fundamentally review structural business relations and patterns may only involve a minority of operators.

With respect to the security of supply of the minerals within the scope of this Option, the certificate provides EU importers legitimacy as to their imports of ores from conflict zones. This is notably important for tungsten as discussed in Option 3. However, the mandatory self-certification could result in importers avoiding sourcing from conflict zones which would be the least risky and burdensome way of compliance. This could diminish some of the security of supply of the minerals in scope.

Finally, under this option EU downstream companies are expected to be able to serve better relative to Option 3 their US clients' due diligence requests which might avoid switching them to other compliant suppliers: due to the mandatory character of the scheme by nature it involves a higher number of EU upstream operators relative to the voluntary option 3.

- Social and environmental impact   

As regards EU jobs, this Option - despite the limited cost associated with due diligence - could result in some undesired economic impact on EU operators notably SMEs and their trading and production facilities in the EU; it might likewise affect to a certain extent the employment situation.  

A mandatory approach may incentivise companies to seek the least risky and burdensome way of complying – by avoiding sourcing from conflict–affected and high-risk areas. It is expected that initially such areas will experience a relative fall in demand for their 3Ts and gold; as well as prices below the normal market price. Re-establishing demand for minerals from those regions will depend heavily on the readiness of companies to re-direct their sourcing to conflict-affected and high-risk areas, which the Regulation would allow provided due diligence is undertaken.

Some respondents to the public consultation also expect that an EU initiative could create negative social impacts similar to the consequences of a de facto embargo resulting from disengagement from conflict zones. This could lead to an increase in conflict mineral smuggling into neighbouring regions.

Negative impacts on the environment could also be triggered to the extent that operators replacing international companies that have redirected their sourcing elsewhere are less environmentally responsible. However, this applies only to companies with direct business links to or that are physically established in conflict and high-risk areas.

On balance, the compulsory scheme is expected to produce some possible negative impacts on local livelihoods, and may increase the good governance challenges in conflict-affected and high-risk regions especially in the early years of its existence when perceived costs may inhibit compliance. Falls in mineral exports would imply reduced revenues for the local/central governments and as well as a lower chance of economic and social development in the affected regions not to mention worsening working conditions in the mines.

To enhance the positive impact of such an option, stakeholders in the EU public consultation indicated that, in addition, considerable capacity building measures in the affected regions would be required in order to increase the supply of certified minerals from the regions, and thus mitigate the impact on local livelihoods.

- Administrative impact for European Commission and Member State authorities

The additional costs compared to Option 1 incurred by the European Commission and Member State administrations are estimated as follows:

The Regulation would require two FTEs at the European Commission to deal with the implementing guidance. Additional financial resources required are estimated at €200,000 for one external study on the implementing guidance; and at €120,000 for the cost of management committee meetings four times a year with Member States.

In each of the EU Member States, the scheme would require 1.5 FTEs in designated control bodies to deal with the coordination of ex-post compliance controls and inspections.

- Stakeholders' views of the option

Similarly to the views of stakeholders presented under Option 3, business respondents advocate that any EU initiative should focus on the upstream of the supply chain. However, a majority of 49% of the respondents to the public consultation disagree that an EU initiative should include a degree of obligation on business operators. For the business sector, almost 80% of trade organisations and almost 62% of companies are against a mandatory initiative. Specifically large companies lead this trend with 60% of them willing to avoid any mandatory provision. SMEs are open to a certain degree of obligation with 48% of medium-sized companies and 52% small companies in favour. As to the civil society, over 90% of NGOs and citizens are in favour of an obligation for business actors.     

5.6           Option 5: Directive establishing obligations for EU-listed companies based on the OECD Guidance

- Effectiveness of the option

The effectiveness of this option achieving the operational objectives set out in section 3 are assessed as follows:

OO2: raise awareness of due diligence, ethical dimensions, and the importance of improving due diligence compliance with governments of main non-EU smelters/refiners: this option, through the government-to-government actions (honest broker, existing policy dialogues) contributes to this objective.

OO5: promote increased awareness of due diligence and ethical dimensions among EU operators: this option through actions outlined for the NCPs and EEN contributes to this objective.

OO6: create additional financial incentives in order to promote/support due diligence practices among downstream users: the EU public procurement measures contribute to this objective.

OO7: support the uptake of OECD Guidance among smelters/refiners willing to source in conflict-affected areas: the financial assistance to the existing OECD activities in particular supports to EU and global smelters/refiners sourcing responsibly in conflict areas contribute to this objective. 

OO8: support demand from conflict-affected areas: facilitate switching by EU operators to due diligence compliant smelters/refiners sourcing in those areas: this objective is not expected to materialise since under this proposed Directive some disengagement of companies avoiding sourcing in conflict zones may occur as this would lessen the additional burden.

The other operational objectives (1, 3 and 4) are not addressed by this option as EU-listed companies are typically not situated at one specific point in the supply chain, but mainly operate in the downstream part of the mineral supply chain. They are therefore unlikely to effectively reduce the risk present in the upstream part of the supply chain. The implementation challenges described in the problem definition would therefore not be solved (i.e. the problem for downstream companies of successfully identifying and exercising leverage on the smelters/refiners, and/or for smelters/refiners of identifying the source of the minerals).

Overall the effectiveness of this option achieving the specific objectives set out in section 3 is not very high as only a few are addressed. In order to allow for a detailed comparison between the options the following assessment is carried out:

SO5: this option improves awareness of due diligence, of the importance of due diligence compliance, and of ethical dimensions throughout the supply chain, both inside and outside EU.

SO6: this option attempts to increase the uptake (performance) of due diligence practices by downstream companies. As under this option there are no effective tools in place to support downstream operators taking up due diligence, the extent to which they might be successful remains uncertain.

SO7: this option does not offset/reduce the adverse commercial incentive created or exacerbated by US DFA.

As a result, this option improves the awareness of due diligence among EU downstream companies, however it does not contribute to the implementation challenges to take up the due diligence effectively. This is because downstream companies are further removed from the entry point of minerals into the EU market, sometimes with dozens of suppliers in between. The further the position of the company in the supply chain, the higher the cost of implementing due diligence. As such, the reduction of funding of armed groups from proceeds of minerals' extraction is not expected to be effectively addressed. The option does not address the market distortion for minerals from the Great Lakes Region some disengagement from the region cannot be excluded.

- Economic impact, including on SMEs

This option would initially apply to an estimated number of roughly 1,000 EU-listed companies out of a total of 7,959 EU-listed companies in the relevant industry sectors; that is to say, companies in the relevant industry sectors which are thought to use tin, tantalum, tungsten and gold in their supply chains (Table 2 and Annex I/7).

This option would indirectly affect up to 880,000 EU downstream companies in the same industry sectors: that is to say, those companies using tin, tantalum, tungsten and gold that potentially are in the supply chains of the roughly 1,000 EU-listed companies that would be directly affected.

About 99% of these downstream companies are small and medium-sized enterprises (SMEs). The number of companies identified as being potentially affected represents a ceiling, since there are no accurate statistics available on the actual number of companies using specifically the 3Ts and gold in the selected industry sectors (Annex I/7). Based on the due diligence costs summarised under option 3, the total cost incurred by all EU downstream companies potentially concerned (excluding the estimated 20 to 30% of EU companies that already exercise due diligence on request of their US clients) is estimated at €8.4 billion initially, and approximately €1.7 billion on a recurrent annual basis thereafter. It should be stressed that these costs are mainly attributable to carrying out the tasks concerning due diligence and not to reporting obligations.  

While Options 3 and 4 apply only to the subset of EU companies that are involved in the direct importation of 3Ts and gold in the form of mineral ores and metals, Option 5 would affect a much larger number of downstream companies, i.e. EU-listed companies that import products that contain these minerals in either raw or processed form. Given the sheer number of companies involved and the length of the supply chains concerned, this option could easily become unworkable. The excessive burden implied by this option on EU industries that use 3Ts and gold as an input into their production will probably exceed the benefits from imposing such a stringent measure (when compared for instance with Option 3).

The risk of EU companies delocalising as a result of the requirements introduced under this option is assessed to be potentially small as the cost represents only a fraction of the total cost of EU downstream companies. Nevertheless, the possible target population (1000 companies) is wider than for Options 3 and 4.

As to the security of supply of the aforesaid minerals, since the Option is compulsory it might be expected that downstream companies may seek the least burdensome and lower-risk risk form of compliance: i.e. by avoiding sourcing from conflict-affected regions which could diminish some of the security of supply of EU companies. However, this impact might be considered less pronounced than under Option 4 because of lengthy supply chains and the distance from upstream entities.

- Social and environmental impact

As regards EU jobs, since this option is not expected to have only a small impact on delocalisation and as due diligence costs are relatively limited, a noticeable impact on the overall employment situation in the EU is not expected. There might be some limited job creation in the areas of audit, consulting and training.

Since the option is compulsory it might be expected that downstream companies may seek the easiest, least risky and burdensome way of complying: i.e. by avoiding sourcing from conflict-affected regions. Although because of the lengthy supply chains and the distance from upstream entities this impact might be considered less than under Option 4. However, as a consequence these regions potentially could experience a fall in demand and prices below the global norm, for their 3Ts and gold. Re-building demand for minerals from the affected regions would depend heavily on the readiness of companies to source in the conflict areas.

Negative impacts on the environment potentially could also be triggered: following the possible trend as described in the previous paragraph, but mainly in the case of companies with direct business links to or a physical presence in conflict- and high-risk areas. Indeed, mineral flows could be diverted towards other companies with lower environmental standards and norms, and thus result in negative impacts on the environment.

Some respondents to the public consultation also expect an EU initiative could create negative social impacts similar to the consequences of a de facto embargo resulting from disengagement from conflict zones. This could lead to an increase in conflict mineral smuggling into neighbouring regions.

On balance, the proposed Directive may produce some undesirable impacts in conflict regions as described Option 4 but to a lesser extent.

To enhance the positive impact of such an option, stakeholders in the EU public consultation indicated also that considerable capacity building measures in the affected regions would be required in order to increase the supply of certified minerals from the regions, and thus mitigate the impact on local livelihoods.

- Administrative impact for  European Commission and Member State authorities

The additional cost compared to option 1 incurred by the different EU and Member States’ administrations are estimated as follows:

The scheme would require two FTEs at the Commission to deal with the implementing guidance. Additional financial resources required are estimated at €300,000 for one external study on the implementing guidance.

In each of the EU Member States, the scheme would require two FTEs in designated control bodies to deal with the coordination of ex-post compliance controls and inspections.

- Stakeholders' views of the option

This option has been extensively criticised by stakeholders throughout the information process in particular in light of the consequences deriving from the implementation of US DFA. Although considered by a number of civil society organisations as the most effective - albeit imperfect - means of addressing the issue of the financing of armed conflicts, a majority of stakeholders views the disclosure approach for EU listed companies as a system that would generate disproportionately high costs for EU downstream businesses while strengthening the tendency to avoid sourcing from difficult regions.

From the public consultation, there emerged a sub-category, namely of 44% of US-listed company respondents, that are in favour of a mandatory EU initiative. 

5.7           Option 6 – Prohibition of imports when EU importers of ores fail to demonstrate compliance with the OECD Guidance – import ban

- Effectiveness of the option

The effectiveness of this option achieving the operational objectives set out in section 3, are assessed as follows:

OO2: raise awareness of due diligence, ethical dimensions, and the importance of improving due diligence compliance with governments of main non-EU smelters/refiners: the international agreement will by definition be instrumental in achieving this objective. In addition, this option, through the government to government actions (honest broker, existing policy dialogues) contributes to this objective.

OO4: introduce certainty and transparency in the supply chain nearer to downstream users: this option does address this issue by having in place a system of export and import certificates for minerals which downstream operators can rely on for their due diligence.  

OO5: promote increased awareness of due diligence and ethical dimensions among EU operators: this option through the international agreement and actions outlined for the NCPs and EEN contributes to this objective.

OO6: create additional financial incentives in order to promote/support due diligence practices among downstream users: the EU public procurement measures contribute to this objective.

OO7: support the uptake of OECD Guidance among smelters/refiners willing to source in conflict-affected areas: the financial assistance to the existing OECD activities in particular supports to EU and global smelters/refiners sourcing responsibly in conflict areas contribute to this objective. 

The other operational objectives (1, 3 and 8) are not addressed by this option.

Overall the effectiveness of this option achieving the specific objectives is assessed as follows:

SO1: it might be expected that over time the proportion of EU and global smelters/refiners performing due diligence will gradually increase but subject to the participation of smelter/refiner countries in the agreement.

SO5: this option improves awareness of due diligence, of the importance of due diligence compliance, and of ethical dimensions throughout the supply chain, both inside and outside EU.

SO6: this option increases the uptake (performance) of due diligence practices by downstream companies as the international agreement in combination with the public procurement measures are expected to act as strong incentives for downstream companies to take up due diligence.

SO7: this option may provide a certain incentive to offset/reduce the adverse commercial incentive created or exacerbated by US DFA when there is a critical mass of Great Lakes Region countries participating in the agreement.

As a result this option highly depends on whether an agreement is achievable in the foreseeable future, and subsequently on the number of participating countries to the international agreement with minerals from conflict zones in scope. If broad participation can be attained the effectiveness to reduce the financing of armed groups by mineral proceeds in conflict zones is expected to be high. Implementation challenges by EU downstream operators are addressed to a certain extent, however certification by producer countries could further mitigate the market distortion. It is not the most timely option given that the problem as described above needs to be handled now.

- Economic impacts, including on SMEs

The cost for EU imports is expected to be comparable to the cost outlined under Option 3. However, failure to comply will the certification requirements as set out in the international agreement would result in an outright ban on the imports concerned.

Moreover, by limiting the availability of imported non-certified products, Option 6 could potentially lead to an increase in price for certified minerals. Such potential price increase could create market incentives that are very different from those described under Options 3 and 4 – where consumers can place a price premium on certified products which subsequently creates dynamic incentives for downstream and upstream producers to supply certified products.

As to the compliance challenge faced by EU downstream companies under the US Dodd-Frank Act, an international agreement to which both the EU and US would be signatories would certainly facilitate their reporting obligations and support their market position in the US.

Delocalisation of smelters/refiners may potentially be an issue if important mineral consuming countries were not to participate or only to a limited extent in the international agreement.

Finally, the security of supply of the minerals within the scope of this Option might be affected to the extent that the exclusion of important producing countries could affect the EU market relative to some critical raw materials.  

- Social and environmental impact

The impact on the employment situation in the EU may potentially be an issue if important mineral consuming countries were not to participate or only to a limited extent in the international agreement as EU smelters/refiners might potentially delocalise production to such regions.

An international agreement, should have a positive impact on addressing the identified problems (i.e. reducing the financing of armed conflicts through mineral proceeds in conflict areas) because it would promote greater reliance on intervention by governments to ensure that due diligence is exercised in the upstream part of the supply chain, where the problems exist. 

- Administrative impact for European Commission and Member State authorities

The additional cost compared to option 1 incurred by the different EU and Member States’ administrations are estimated as follows:

The scheme would require three FTEs at the Commission to deal with the negotiation of an international agreement, as well as with the implementing guidance; and one FTE to deal with outreach towards third countries. Additional financial resources required are estimated at €300,000 for one external study on the implementing guidance; and at €120,000 for the cost of management committee meetings four times a year with Member States. In addition, the cost of handling stockpiled shipped goods that had been refused entry should also be included, though the amount involved is difficult to estimate at this point.

In each of the EU Member States, the scheme would require 1.5 FTEs in designated control bodies to deal with the coordination of ex-ante compliance controls, inspections, and handling of stockpiled shipped goods that had been refused entry.

- Stakeholders' views of the option

Similarly to the views of stakeholders presented under Option 4, business respondents advocate that any EU initiative should focus on the upstream of the supply chain. Like outlined in Option 4, a majority of 49% of the respondents to the public consultation disagree that an EU initiative should include a degree of obligation on business operators. For the business sector, almost 80% of trade organisations and almost 62% of companies are against a mandatory initiative. Specifically large companies lead this trend with 60% of them willing to avoid any mandatory provision. SMEs are open to a certain degree of obligation with 48% of medium-sized companies and 52% small companies in favour. As to the civil society, over 90% of NGOs and citizens are in favour of an obligation for business actors.

6. Comparing the options

In light of the findings of the impact assessment process, certain conclusions can be drawn in relation to the effectiveness of each of the identified options in achieving the general, specific and operational objectives. Additionally, we need to compare the economic, social and environmental impacts of the most effective options identified. Tables 3 to 6 present an overview.

- Effectiveness

Policy option 1 which is a collection of measures outlined in an EU Communication is among the least effective options in achieving the objectives set.

Policy option 2 which is an extension of Option 1 reinforced by a Council Recommendation is on the same level in terms of effectiveness relative to Option 1.

Policy option 3 consisting of a voluntary self-certification combined with a list of smelters/refiners, in addition to the set of measures of Option 1 is one of the most effective means of achieving the set objectives.

Policy option 4 establishing a mandatory self-certification scheme for EU importers including a list of smelters/refiners in addition to the set of measures of Option 1 would be equally effective relative to Option 3 but would also generate negative impacts and not address one of the key problems – the market distortion in the Great Lakes Region.

Policy option 5, establishing obligations for EU-listed companies, in addition to the set of measures of Option 1 is equivalent to Options 1 and 2 in terms of effectiveness. 

Policy option 6 applying an import ban through an international agreement including export and import requirements of minerals is mid-way in terms of effectiveness between the least effective Options 1, 2 and 5, and most effective 3 and 4. It should however be noted that setting up an international agreement requires a lengthy process with an uncertain outcome. There is presently no certainty that such an agreement can be achieved in the foreseeable future and the described problems, in particular the current difficulties faced by EU supply chain operators, need to be addressed now. As a result Options 3 and 4 should be compared in terms of their broader impact.   

- Broader impacts (economic, social and environmental)

Comparing policy options 3 and 4 in terms of their administrative burden for the targeted importers, most of them SMEs, Option 3 is assessed to be the less burdensome as it affects those companies that decide to opt for self-certification based on their own cost-benefit analysis. Contrary to this, Option 4 imposes requirements on importers (Table 4).

In terms of EU downstream users' ability to respond to clients' due diligence request including US clients, Option 4 is expected to serve better those requests since the mandatory character of the scheme by nature involves a higher number of EU upstream operators relative to the voluntary option 3. Nevertheless, there is a risk that without addressing the market distortion, most of the extra due diligence thus generated could amount to "green washing", with operators meeting corporate social responsibility goals without sourcing in conflict-affected areas.

As far as the potential for delocalisation of EU importers is concerned, we need to refer again to the voluntary nature of Option 3 where this risk has been assessed inferior relative to Option 4.

When comparing Options 3 and 4 in terms of potential impact on EU employment, the assessment points to some possible higher undesired impact of Options 4.

Concerning the expected social impacts on the livelihood of people and the environment in conflict zones, it might be expected that Option 3 delivers the better results relative to Option 4.

      Effectiveness in meeting OO and SO objectives || Base line || Option 1 || Option 2 || Option 3 || Option 4 || Option 5 || Option 6

OO1 – enhance visibility/transparency of smelters/refiners' due diligence practices || 0 || 0 || 0 || + || ++ || 0 || 0

OO2 – raise awareness of due diligence with governments in non-EU States || 0 || + || + || + || + || + || ++

OO3 – empower downstream operators to facilitate switching of suppliers || 0 || 0 || 0 || + || ++ || 0 || 0

OO4 – introduce certainty/transparency in the supply chain nearer to downstream || 0 || 0 || 0 || + || ++ || 0 || ++

OO5 – promote increased awareness of due diligence among EU operators || 0 || + || + || ++ || ++ || + || ++

OO6 – financial incentives to promote due diligence for downstream operators || 0 || + || + || + || + || + || +

OO7 – support the uptake due diligence among smelters/refiners willing to source from conflict zones || 0 || + || + || ++ || + || + || +

OO8 – support demand from conflict zones: facilitating EU operators switching || 0 || 0 || 0 || + || _ _ || _ || 0

SO1 – increase the proportion of smelters /refiners conducting due diligence || 0 || 0 || 0 || + || ++ || 0 || +

S02 – raise the level of public accountability by smelters/refiners || 0 || 0 || 0 || + || ++ || 0 || 0

SO3 – increase the ability of downstream users to identify smelters/refiners || 0 || 0 || 0 || + || ++ || 0 || 0

SO4 – improve the bargaining position of downstream users vis-à-vis upstream S04 || 0 || 0 || 0 || + || ++ || 0 || 0

SO5 - improve awareness of due diligence || 0 || + || + || ++ || ++ || + || ++

SO6 – increase the uptake of due diligence by downstream users || 0 || + || + || ++ || ++ || + || ++

SO7 – offset/reduce adverse commercial incentives for Great Lakes Region || 0 || + || + || ++ || _ _ || _ || +

Overall effectiveness in meeting OOs and SOs || 0 || + || + || +++ || +++ || + || ++

Table 3

Broader Impacts || Base line || Option 1 || Option 2 || Option 3 || Option 4 || Option 5 || Option 6

Economic · Administrative burden · Burdens on SMEs · Responding to clients' due diligence needs · Security of supply · Delocalisation impacts || 0 0 0 0 0 || 0 0 _ 0 0 || 0 0 _ 0 0 || _ _ + + 0 || _ _ _ _ ++ _ _ || _ _ _ _ _ _ _ 0 _ || _ _ ++ _ _

Social · EU employment · Livelihood in conflict zones || 0 0 || 0 0 || 0 0 || 0 + || _ _ _ || 0 _ || 0 0

Environmental || 0 || 0 || 0 || + || _ || _ || 0

Consistency with overarching EU objectives || 0 || + || + || +++ || ++ || 0 || +

Overall broader impact || 0 || + || + || ++ || _ || _ || +

Table 4

|| Base line || Option 1 || Option 2 || Option 3 || Option 4 || Option 5 || Option 6

Overall assessment || 0 ||      + || + ||   +++ || + || 0 || ++

 Table 5

Finally, in terms of administrative impact, Table 6 compares the levels of administrative cost imposed by each of the options to the European Commission, EU Member States and in relation to the NCPs and the Enterprise Europe Network. The costs of public authorities differ for each of the options as a result of the different compliance control mechanisms of the different regulatory schemes.

  Options || EC || Per Member State || NCPs & EEN || EU financial assistance to the OECD ||  European Commission procurement || MS procurement

1 || 1 FTE || 0.2 FTE || 0.05 FTE || €200,000 || € 7,000 || 0.014% of total budget

2 || 1 FTE || 0.2 FTE || 0.05 FTE || €200,000 || € 7,000 || 0.014% of total budget

3 || 2.5 FTE + €260,000 || 1.2 FTE || 0.05 FTE || €200,000 || € 7,000 || 0.014% of total budget

4 || 3 FTE + €320,000 || 1.7 FTE || 0.05 FTE || €200,000 || € 7,000 || 0.014% of total budget

5 || 3 FTE + €300,000 || 2.2 FTE || 0.05 FTE || €200,000 || € 7,000 || 0.014% of total budget

6 || 4 FTE + €420,000 || 1.7 FTE || 0.05 FTE || €200,000 || € 7,000 || 0.014% of total budget

Table 6

6.1           Preferred option

In summary, Option 3, which includes the set of measures of Option 1, is the most favourable option to reach the objectives taking the impact on EU operators, third-countries and the authorities at Member States and EU-level into account. It bests responds to the operational imperative to develop an EU framework for responsible sourcing that is both effective and reasonable.

As far as consistency with other EU policies is concerned, Option 3 appears to be the best.  Notably, it improves the ability of EU downstream operators to comply with existing due diligence frameworks, including US DFA, and is expected to contribute to the corporate social responsibility objectives of the EU enterprise policy. By contrast, Options 1, 2, 5 and 6 contribute to a lesser extent.

As Option 3 is expected to contribute to the reduction of financing of armed groups from proceeds of minerals' extraction and trade in conflict affected areas, and to reduce the market distortion for minerals from the Great Lakes Region it supports likewise the EU foreign policy and development objectives that contribute to reconstruction, improved governance and social cohesion based on the countries resource wealth. This is attained to a lesser extent by the other options.

7. Monitoring and evaluation

In light of the policy objectives set out in section 3, the following arrangements are proposed in order to set up an appropriate monitoring and evaluation framework.

7.1           Monitoring

The Commission will ensure that Member States implement efficiently the requirements of the proposed regulation. Monitoring of implementation will be carried out in cooperation with Member States. In compliance with the principle of subsidiarity, the relevant information should be gathered primarily by Member States. Periodic reporting will be required in order allow for appropriate evaluation of the implementation. The Commission will inform the European Parliament and the Council regularly on the implementation of the new initiative.

Benchmarks/indicators for assessing the effectiveness of the proposed Regulation:

· Evolution of the number of smelters/refiners on the EU list relative to the total number of smelters/refiners, including the proportion of smelters/refiners sourcing in conflict-affected and high-risk areas

· Evolution of the number of operators exercising due diligence on the basis of the OECD Guidance, identifying in particular:

a. EU downstream companies, including smelters/refiners

b. Global smelters/refiners  

c.  (non-) certified EU importers

· Evolution of European Commissions' and Member States' public procurement contracts that include performance clauses on due diligence

· Evolution of the level of financial commitment provided to the OECD for project funding

· Evolution of the level of relevant mineral exported (quantities and value) from conflict zones, including from the Great Lakes Region

· Evolution of the level of relevant minerals and metals imported (quantity and value) into the EU originating from conflict zones, including the Great Lakes Region

7.2           Evaluation

The Commission should undertake an intermediate evaluation of its new initiative within three years of its adoption assessing the extent to which its results are consistent with the objectives set. The evaluation results will be used for decision-making needs on the future of the policy, and for amendments to the regulatory framework notably by making it mandatory, if appropriate. The Commission will communicate the evaluation results to the European Parliament and the Council.  

[1]     OECD Guidelines for Multinational Enterprises, OECD 2011 edition.

[2]     Guiding Principles on Business and Human Rights, UN Human Rights Office of the High Commissioner, New York and Geneva 2011.

[3]     The term "conflict mineral" is defined in the US Dodd-Frank Act as columbite-tantalite also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted) or their derivatives to be financing conflict in the DRC or an adjoining country listed in the Act as Angola, Burundi, the Central African Republic, the Republic of Congo, Rwanda, Sudan, Tanzania, Uganda and Zambia.

[4]        European Parliament resolution of 7 October 2010 on failures in protection of human rights and justice in the Democratic Republic of Congo, http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2010-0350+0+DOC+XML+V0//EN&language=EN.

[5]     Commodity markets and raw materials, COM(2011) 25 FINAL.

[6]     Trade, growth and development, COM(2012) 22 FINAL.

[7]     Public consultation on a possible EU initiative on responsible sourcing of minerals originating from conflict-affected and high-risk areas conducted between 27 March and 26 June 2013.

[8]     The group met five times on 20/03/2013, 19/04/2013, 21/06/2013, 02/09/2013 and 09/09/2013.

[9]     Paris, 2-3 May 2013.

[10]    Hong Kong, 8-9 May 2013.

[11]    Brussels, 3 September 2013.

[12]    According to US industry estimates, it amounts roughly to USD 5-16 billion per year for almost 6,000 companies including companies in their supply chain.

[13]    The term "conflict mineral" is defined in the Dodd-Frank Act as columbite-tantalite also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted) or their derivatives to be financing conflict in the DRC or an adjoining country listed in the Act as Angola, Burundi, the Central African Republic, the Republic of Congo, Rwanda, Sudan, Tanzania, Uganda and Zambia.

[14]    This number is based on i) an identified number of 880,000 EU companies operating in manufacturing sectors and potentially working with tin, tantalum, tungsten and gold: it can be reasonably expected that a high number of those companies is involved in processing of the mentioned minerals, but this number represents a ceiling; ii) information resulting from the public consultation where 20-30% of companies indicated that they are subject to the US DFA. The latter companies could have been overrepresented in the public consultation. As a result of both i) and ii) it could be expected that the total number of 150,000-200,000 EU companies might be an over-estimation.

[15]    OECD (2013), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-affected and High-risk Areas: Second Edition, OECD Publishing. http://dx.doi.org,10.1787/9789264185050-en.

[16]    Conflict Barometer, Heidelberg Institute for International Conflict Research, 2012.

[17]    http://ec.europa.eu/enterprise/policies/raw-materials/critical/

[18]    UN Group of Experts Report of 12 November 2012 to the UN Security Council, S/2012/843.

[19]    International Peace Information Service.

[20]  Sources include the public consultation for this initiative, a presentation on Colombia given at a seminar entitled Towards an EU Initiative on conflict minerals?, hosted by the Belgian Senate in Brussels on 13 March 2013, as well as a Bloomberg report of 8 August 2013: http://www.bloomberg.com/news/2013-08-08/terrorist-tungsten-in-colombia-taints-global-phone-to-car-sales.html.

[21]    http://www.un.org/sc/committees/1533/pdf/1533_list.pdf

[22]    International Trade Centre, Trade Map.

[23]    UN Group of Experts Report of 12 November 2012 to the UN Security Council, S/2012/843, documents smuggling chains out of the eastern DRC. See pp. 41-46.

[24]    Final products including minerals from conflict regions are included in every day goods such as light bulbs, ballpoint pens, cans, as well as PVC windows, cars, jewellery and aerospace components. Tantalum is present in automotive electronics, mobile phones, computers, super alloys for jets and power plant turbines, cutting tools, as well as surgical implants and prosthetic devices; tungsten in applications such as tools, aerospace components, electric lighting, and electronics as well as window heating systems, automobile horns, X-ray machines, dental drills, golf clubs, darts, and remote-controlled cars; tin is used in solders, coatings for food cans, and chemical applications such as catalysts and stabilizers; and finally gold in jewellery, electronics, medical equipment and aerospace, as well as anti-lock brakes, airbag-inflating sensors, and dental fillings.

[25]    Regarding gold, data are based on information from the London Bullion Market Association of which most of the members conduct due diligence but which excludes an estimated number of 50 refineries in the world.

[26]    Conflict due diligence by European Companies, Stichting Onderzoek Multinationale Ondernemingen October 2013.

[27]      The first conflict minerals reports are due by spring 2014.

[28]    In October 2012, the US Chamber of Commerce, the National Associations of Manufacturers and the Business Roundtable brought a suit against the SEC to challenge the implementing rule of Dodd-Frank Act section 1502. The industry challenged the rule arguing that the SEC failed to estimate the costs and benefits of the rule, failed to use its discretion to design a proper rule in light of alternatives, failed to design an adequate rule in conformity with Congressional intent, and designed a rule that violates the companies’ First Amendment right. In July 2013, the US District Court for the District of Columbia rejected the industry's challenge.

[29]   See also Conflict minerals – An evaluation of the Dodd-Frank Act and other resource-related measures, Öko Institut, Germany, September 2013, p. 26.

[30]    This number is based on i) an identified number of 880,000 EU companies operating in manufacturing sectors and potentially working with tin, tantalum, tungsten and gold: it can be reasonably expected that a high number of those companies is involved in processing of the mentioned minerals, but this number represents a ceiling; ii) information resulting from the public consultation where 20-30%  of companies indicated that they are subject to the US DFA. The latter companies could have been overrepresented in the public consultation. As a result of both i) and ii) it could be expected that the total number of 150,000-200,000 EU companies might be an over-estimation.

[31]    The UN group of Expert report on the DRC of 2011 reported that the US DFA resulted in an increase in unrecorded trade and fraud for 3Ts ores and gold based on the purchasing decisions of smelters and refiners seeking conflict free smelter status http://www.un.org/ga/search/view_doc.asp?symbol=S/2011/738.

[32]    Conflict minerals – An evaluation of the Dodd-Frank Act and other resource-related measures, Öko Institut, Germany, September 2013, p. 35-49.

[33]    See quoted report S/2012/843, p. 40.

[34]    IPIS upstream implementation of the OECD Due Diligence Guidance report, January 2013

[35]    The following EU export values to the US in 2012 for relevant sectors illustrate the importance of the US market for EU companies: office and telecommunication equipment (€10 billion), chemicals (€66 billion), transport equipment (€52 billion) and other machinery (€ 60 billion). An estimation of the associated cost for EU companies to comply with US DFA requirements is presented in the sections 5.4 and 5.6.

[36]    A full-time equivalent (FTE) is a unit to measure employed persons in a way that makes them comparable although they may work a different number of hours per week. The unit is obtained by comparing an employee's average number of hours worked to the average number of hours of a full-time worker. Eurostat.

[37]    Jensen, Kimberly L., Jakus, Paul M., English, Burton C. and Menard, R. Jamey, (2004), Consumers' Willingness to Pay for Eco-Certified Wood Products, Journal of Agricultural and Applied Economics, 36, issue 03; and Janssen, M. and Hamm, U., (2011), Consumer Willingness to Pay for Organic Certification Logos, Certcost Project Working Paper, European Commission 7th Framework Programme.

[38]    http://trade.ec.europa.eu/doclib/docs/2010/november/tradoc_146945.pdf.

[39]    http://ec.europa.eu/enterprise/policies/raw-materials/critical/

[40]    It should be noted that the US DFA Section 1502 creates obligations for US-listed companies whereas the proposed EU Regulation targets importers of the same minerals and metals which should facilitate US DFA compliance. The scope of the latter is limited to the DRC and its neighbouring countries whereas the EU Regulation is global in scope and targets the armed groups and security forces in line with Annex II of the OECD Guidance.

[41]    As the proposed EU Regulation targets the minerals in scope regardless of origin.

[42]    Estimates are based on information derived from experience under the EU Timber Regulation.

Annex I

1. EU initiatives on transparency and natural resources. 3

2. Overview of support to due diligence initiatives, including by EU Member States. 4

3. OECD Due Diligence Guidance for responsible supply chains of minerals from conflict-affected and high-risk areas. 10

4. Other jurisdictions – ICGLR Regional Certification Mechanism.. 10

5. Other jurisdictions – US Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1502  11

6. European Commission desk analysis: supply chain due diligence practices by EU companies in targeted industry sector 11

7. Detailed information on the options. 12

8. EC Public Consultation Report 17

9. Report of the accompanying study commissioned by DG Trade. 19

10. Report of the Öko-Institute on conflict minerals. 20

1. EU initiatives on transparency and natural resources

The EU pursues the following initiatives in relation to natural resources, financial transparency and conflict-sensitive management of international diamond trade and forestry as indicated in this section.

- EU Kimberley

The Kimberley process (KP) is based on an international agreement that brings together 75 diamond producing, trading and manufacturing countries, including the 28 EU Member States that are represented by the European Commission. The KP Certification Scheme (KPCS) was set up to stem the flow of conflict diamonds used by rebel movements to finance wars against legitimate governments and regulates international diamond trade through a set of minimum requirements to enable its members to certify shipments of rough diamonds as conflict free. In the EU the KPCS is implemented through Regulation 2368/2002 which sets out the rules applicable for imports and exports of rough diamonds.

- Existing due diligence requirements in the EU

The EU FLEGT (Forest Law Enforcement, Governance and Trade) Action Plan sets out a voluntary licensing system to ensure that only legally harvested timber is imported into the EU from countries agreeing to take part in this scheme. This system involves bilateral Voluntary Partnership Agreements (VPAs) between the EU and timber exporting countries.

Because VPAs are bilateral and voluntary, the Commission proposed in 2008 legislation that would require all operators placing timber products on the EU market to put into place systems to ensure that their timber is of legal origin. The EU Timber Regulation is enforced by all EU Member States as of 3 March 2013. The law aims at breaking the supply chain of illegal wood from the world’s forest-rich countries. It requires all operators who place timber products on the EU market to exercise due diligence.

The EU is a party to the UN Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) only permitting export in compliance with national legislation.

- EU financial transparency action for extractive industries

On 26 June 2013, in order to sustain a more transparent environment by promoting government accountability and reducing the risk of corruption, the EU adopted requirements under the Directive 2013/34/EU for large undertakings and all public-interest entities active in the extractive industry or the logging of primary forests to prepare and make public a report on payments made to governments on an annual basis under the EU Accounting Directives.

- EU commitment to promote responsible sourcing from conflict-affected and high-risk areas

On the 25 of May 2011, the EU made a commitment at the OECD Ministerial Council to actively promote the observance of the OECD Guidance by EU companies sourcing from conflict-affected and high-risk areas and to take measures to actively support the integration of this Guidance into corporate management systems and to ensure its widest possible dissemination and active use by other stakeholders.

To this end, the Commission provides - in the context of the Instrument for Stability - support for a previously committed amount of up to €1 million and during maximum two years, for the implementation programme of the OECD Guidance by providing capacity-building in conflict-affected and high-risk areas in particular, by targeting the authorities, the private sector and civil society organisations.

- Strategic Framework for the Great Lakes Region

The joint EEAS/Commission communication of 19 June 2013 on a Strategic Framework for the Great Lakes Region[1] seeks to remedy the drivers of instability, since lack of governance and the failure to assure security and the rule of law in this area are among the underlying causes which produce instability, aggravate suffering, and contribute to a deepening of local cleavages.

To remedy the situation in the Great Lakes Region the Communication identifies actions in five areas:

a) to support states in the region to become more efficient, accountable and capable of delivering basic services and reliable physical, judicial and administrative security throughout the country, if desired, through a devolved political structure;

b) to ensure security in Eastern DRC and rebuild trust among the communities there;

c) to rebuild the economy of the region to enable the people to benefit from their mineral riches, from the opportunities of a more integrated regional market, and from better access to global markets;

d) to build cooperation and trust between the countries of the region and establish mechanisms to enable that cooperation to be effective;

e) to ensure the international community’s engagement in encouraging countries and other actors in the region to fulfil their undertakings and act responsibly both internally and towards their neighbours.

2. Overview of support to due diligence initiatives, including by EU Member States

With increased international awareness various actors started initiatives to cope with the risk of conflict financing within supply chains. While some of the systems focus on managements systems on company and supply chain level, others aim at implementing minimum standards regarding conflict involvement and transparency. Furthermore some efforts aim at improving artisanal mining schemes on the ground. This section provides an overview on some of the most important of these initiatives starting with initiatives by EU Member States.

a. BGR Certified Trading Chains (CTC)

A scheme of the German Federal Institute for Geosciences and Natural Resources (BGR)[2] was developed in close cooperation with national authorities of Rwanda and the DRC. The Certified Trading Chains (CTC) system contains twenty minimum certification standards targeting artisanal and small-scale mining including on mineral origin and traceability, working conditions, security and human rights, supply chain due diligence elements based on the OECD Guidance and other integrity instrument. The CTC standards include existence of documentary on environmental impact assessment; properly treat hazardous material and waste, provisions of mine closure and site rehabilitation. BGR has also worked closely with ICGLR to incorporate CTC into their Regional Certification Mechanism. CTC has been developed in 2008 and is covering Rwanda, Katanga and North Kivu (DRC).

For information, the cost of due diligence systems in conflict-affected and high-risk areas: BGR  presented the following cost calculation of tin ore certification in Rwanda including the following elements: ITRI (International Tin Research Institute) fee (USD/ton 160-260) to provide assistance to upstream companies on traceability and risk management; governmental fee (USD/ton 200-300) covering the cost of mine-side inspection, traceability cost (tagging staff and data management) and audit and certification transport cost; costs for a regional (ICGLR) oversight are not included.

Based on an average export price of USD/ton 16,000 for tin ore the certification costs would represent about 3-4% of the export price. For tungsten ore, based on an average export price USD/ton 15,000 the certification costs would represent about 1-2% of the export price of tin ore. For tantalum ore based on an average export price USD/ton 50,000 the certification costs would represent about 1% of the export price. Certification costs for gold are currently the subject of a pilot project for gold. The penalty for non-certified material is reported to be about 30-40%.

b. Analytical Fingerprint (AFP)

Analytical Fingerprint is an instrument developed by the German Federal Institute for Geosciences and Natural Resources (BGR) and allows for the identification of the origin of 3T mineral concentrate. AFP makes use of specific unique features of these minerals much like DNA can be used in forensics to single out a particular person. BGR research has shown that tin, tantalum and tungsten ores form in association with mineral deposits which are characterised by source-specific mineralogical, geochemical, and geochronologic features related to the unique geological context of each deposit, in the Great Lakes region and beyond. The composition of minerals in ore concentrates originating from a given deposit reflects these source-specific features. Identifying these special features for each deposit and storing them in a reference database subsequently allows their comparison to the composition of minerals contained in a given mineral shipment – the origin of the mineral shipment may thus be tracked all the way up the supply chain (i.e. from the smelter, via local exporters and processors back to the original mine site). BGR researchers have identified these special features and determined a combination of scientific techniques to allow their efficient detection – this combination of techniques is referred to as the AFP method. It may be used to trace the origin of minerals along the supply chain at a high spatial resolution, provided certain input parameters are met. Applying AFP generates mineral traceability information which is completely independent of any shipping documentation and tagging procedures thus allowing the robust verification of the integrity of these standard traceability measures. AFP may be applied proactively by a mining company or their customers wishing to demonstrate a conflict-free origin of their minerals, or as a forensic tool in the frame of chain of custody risk assessments and supply chain due diligence audits (e.g. as part of a mineral certification scheme). In the latter case, it may be applied as a regular or optional (i.e. reserved for special investigations) spot check procedure to verify supply chain integrity and standard mineral traceability measures.

c. Conflict-Free Tin Initiative (CFTI)

The Dutch government played an important role in initiating the CFTI which is a coalition of governments, private sector, and civil society stakeholders promoting due diligence system for the tin sector in South Kivu (DRC). Participants: Dutch Ministry of Foreign Affairs, USAID, IOM, Philips, Motorola, Fair phone, ITRI, NGO PACT, Enough Project and MSC (Malaysian Smelter), ICGLR and NGO Media. The project has developed a tightly controlled conflict-free supply chain outside the control of armed groups. The CFTI uses the iTSCi traceability and due diligence mechanism which contains an integrated design and the implementing partners account for multidisciplinary expertise. The project involves various consultation mechanisms to secure local ownership and trigger activities that bring economic development.  

d. IPIS mapping exercise

Belgium supports a mapping exercise of the independent Belgian Research Initiative ‘International Peace Information Service’ (IPIS) which together with the Congolese Mining Cadastre (CAMI) organised a permanent system to monitor artisanal mining activities and the involvement of armed groups, the Congolese army (FARDC) and criminal networks, especially in conflict and high risk areas in Eastern DRC.

e. ITRI Tin Supply Chain Initiative (iTSCi)

An initiative developed in 2009 by the International Tin Research Institute (ITRI) and Tantalum-Niobium International Study Centre (TIC) which assists upstream companies or individuals, of all scales and at all supply chain tiers, from mine to smelter, to comply with the OECD Guidance. It involves: i) chain of custody (bag tagging, documentation and monitoring of mineral origin); ii) third party assessment (of mine sites, transportation routes); iii) independent third party audit of all operators. The focus is on upstream companies from mine to smelter. The implementation phase has been completed in Rwanda and Katanga (DRC) which is overseen by international actors and government officials participating in tagging and logging of the data.

f. Solutions for Hope

In July of 2011 the 'Solutions for Hope Project' was announced by Motorola Solutions Inc., a leading manufacturer of mission critical public safety and enterprise wide communications equipment and AVX Corporation, a leading tantalum capacitor manufacture. The ‘Solutions for Hope Project’ was launched as a pilot initiative to source conflict-free tantalum from the DRC. Tantalum is a metal used in capacitors for electronic products and is derived from the mineral coltan, which is in rich supply in the DRC. The Solutions for Hope Project’s unique approach to mineral sourcing in the region utilises a closed-pipe supply line and a defined set of key suppliers – mines (including artisanal cooperatives), smelter/processor, component manufacturer and end user – identified in advance of initiating the project. The project is open for all companies including mining, smelters, component manufactures and product manufacturers (end-users) to join, and its success will be largely measured by the industry participation in the closed-pipe supply system. Currently, such leading technology companies as Foxconn, HP, Intel, Motorola Solutions, Nokia, and Research In Motion participate in the Solutions for Hope Project.

g. Conflict-Free Smelter (CFS) Programme

The CFS Programme is an industry-led initiative launched by a working group of companies, mostly members of the Electronic Industry Citizenship Coalition (EICC) and the Global e-Sustainability Initiative (GeSI) in early 2011. It aims at providing assurance on the sources of strategic resources used in electronics and is one of the industry responses to concerns on conflict minerals from the Great Lakes Region. An independent third-party audit programme intends to evaluate a smelter’s procurement activities in order to determine if the smelter can demonstrate that all the materials processed originate from DRC conflict-free sources and conform to the OECD Guidance. The audit includes: a mass balance calculation to ensure inputs, outputs and stocks balance and business process review (demonstration of management systems, e.g. conflict minerals policy, 100% documentation of chain of custody; and reasonable identification of origin). Main implementers: primary and secondary smelters and refiners. Issue covered: conflict financing only. The CFS is complemented by the multi-sector Conflict Minerals Reporting Template (CMRT) which downstream companies use to comply with Step 2 of the OECD Guidance (assessing risks relating to conflict minerals in their supply chains).

There are currently 45 smelters/refiners out of a 440 global smelters/refiners certified under the CFS programme. 

h. The Responsible Jewellery Council’s (RJC) Code of Practice and Chain of Custody standards

The RJC is a non-profit organisation with 440 members, mostly companies active in the supply chain of jewellery from to retail (RJC 2013). All members commit to Council's Code of Practice and are periodically audited by accredited independent auditors. The Code of Practice is applicable to gold and diamond producers and traders, as well as manufacturers, wholesalers, retailers and assayers and laboratories (RJC 2009). In addition, the RJC developed a Chain of Custody (CoC) Standard for Precious Metals which was published in March 2012 and applies to Gold and Platinum Metals only. A requirement that mined materials cannot benefit armed groups to ensure implementing the CoC can be in line with the US DFA. Chain-of-custody certification is a complementary element to the RJC certification process.

i. World Gold Council’s (WGC) Conflict-free Gold (CFG) standard

The World Gold Council and its members have developed a framework of standards to track gold from the mine to the end of the refining process. These consist of a “conflict-free gold” standard (on whether the mine has responsible policies, systems and skills) and a “chain of custody” standard (on providing an infrastructure for identifying that a consignment of gold mined according to a conflict-free standard has not been tampered with during its transport between the mine and refinery “. The standards are subject to an independent audit.

Gold produced in conformance with the Conflict-Free Gold Standard will provide confidence that it has been extracted in a manner that does not cause, support or benefit unlawful armed conflict or contribute to serious human rights abuses or breaches of international humanitarian law. The Standard is based upon internationally recognised benchmarks and conformance will be subject to external assurance. It has been widely recognised as credible and workable.

j. London Bullion Market Association (LBMA) responsible gold guidance

LBMA has set up a Responsible Gold Guidance for Good Delivery Refiners in order to combat systematic or widespread abuses of human rights, to avoid contributing to conflict, to comply with high standards of anti-money laundering and combating terrorist financing practice. This Guidance formalises and consolidates existing high standards of due diligence amongst all LBMA Good Delivery Refiners. This Guidance follows the five steps framework for risk-based due diligence of the OECD Guidance adopted on 15 December 2010 and follows the requirements detailed in the OECD Gold Supplement adopted on 17 July 2012.

All Refiners producing LBMA good delivery gold bars (“Refiners”) must comply with this LBMA Responsible Gold Guidance in order to remain on the LBMA Good Delivery List. Any Refiner applying to be a LBMA Good Delivery accredited Gold Refiner after 1 January 2012, must implement the LBMA Responsible Gold Guidance and pass an audit prior to becoming a member of the Good Delivery List.

OECD Guidance: see Annex I/3

k. Audit focus of the above mentioned initiatives

3. OECD Due Diligence Guidance for responsible supply chains of minerals from conflict-affected and high-risk areas

The OECD Guidance provides a framework for detailed due diligence as a basis for responsible global supply chain management notably for tin, tantalum, tungsten, their ores and minerals derivatives, and gold.

The purpose of this guidance is to help companies source responsibly by respecting human rights and to avoid contributing to conflict through their sourcing decisions, including the choice of their suppliers. By doing so, the guidance helps companies contribute to sustainable development and source responsibly from conflict-affected and high-risk areas, while creating the enabling conditions for constructive engagement with suppliers. The Guidance is the result of a collaborative initiative among governments, international organisations, industry and civil society to promote accountability and transparency in the supply chain of minerals from conflict-affected and high-risk areas.

Moreover, non-OECD members such as Brazil have also supported the OECD Guidance as a result of the efforts to associate other large consumer countries of conflict minerals in the promotion of responsible sourcing. Though inspired by the situation in the Great Lakes Region, the Guidance is not geographically specific.

The OECD Guidance identifies the following 5-steps for companies to:

1. Establish strong management systems with the objective to ensure that due diligence and management systems address risks associated with minerals from conflict-affected and high-risk areas: companies need to collect and disclose information to immediate downstream purchasers, who will then pass them down the supply chain and to any institutionalised mechanism. Information inter alia includes the mine of mineral origin; quantities, dates and method of extraction, location where minerals are consolidated, traded, processed or upgraded; identification of upstream intermediaries, transportation routes; taxes, fees or royalties paid to governments, any other payment made to officials, security forces or armed groups. Downstream producers are recommended to identify the smelters/refiners in their supply chain.   

2. Identify and assess risks on the circumstances of extraction, trading, handling and export of minerals from conflict-affected and high-risk areas.

3. Design and implement a strategy to respond to identified risks in order to prevent or mitigate their adverse impacts.

4. Carry out an independent third party audit of the smelters/refiners' due diligence for responsible supply chain of minerals from conflict-affected and high-risk areas and contribute to the improvement of smelters/refiners and upstream due diligence practices.

5. Publicly report annually on due diligence for responsible supply chain of minerals from conflict-affected and high-risk areas in order to generate public confidence in the measures companies are taken. 

4. Other jurisdictions – ICGLR Regional Certification Mechanism

Further to their political objectives Heads of States and Governments of the Great Lakes Region (ICGLR) on 15 December 2010 committed in Lusaka to fight the illegal exploitation of natural resources in the region and approved inter alia six tools developed to curb illegal exploitation of natural resources, namely: (1) regional certification mechanism; (2) harmonisation of national legislation; (3) regional database on mineral flows, (4) formalisation of the artisanal mining sector; and (5) promotion of the Extractive Industry Transparency Initiative (EITI) and (6) whistle blowing mechanism. There was an understanding that some of these tools are still work in progress and need further reflection and refinement.

To this end, on 29 February 2012 the Democratic Republic of Congo enacted legislation to set up a certification scheme imposing due diligence requirements for economic operators based on the OECD Guidance. In 2012, Rwanda also incorporated the OECD Guidance into its national legislation.

5. Other jurisdictions – US Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1502

The United States has adopted provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1502 addressing the supply chain transparency by requiring all US listed companies to disclose annually whether they and their suppliers use "conflict minerals" (specifically defined as the minerals tin, tantalum and tungsten or gold if originating in the DRC or a neighbouring country). When the latter is the case, companies must report on the measures taken to exercise due diligence and are liable for the accuracy of the information provided and accountable to the general public for their corporate behaviour.

The Securities and Exchange Commission estimates that some 6,000 US-listed companies are concerned by implementation. A further 16,000 companies, many of which are registered outside the US, are also affected through supply chain relations with those companies directly affected. Implementation is underway as companies prepare to file conflict minerals reports by the end of May 2014. Since the law was adopted in 2010, company responses can be broadly categorised as follows: development of information management systems to obtain better information about the origin of minerals used in the supply chain; adherence to due diligence processes or schemes such as the OECD Guidance, conflict-free smelter programme, etc.; termination of sourcing relations with Central Africa. It would also be fair to point out that in the specific case of DRC, the government imposed a mining ban between September 2010 and March 2011 in order to get the sector reorganised on the basis of legislation that was later adopted to enforce due diligence in the country. This had the effect of dampening the prices of minerals and restricting employment and trading opportunities.

80 EU-listed companies are also listed in the US, according to Commission estimations almost 40 of these companies are subject to the US DFA requirements. In addition, a large number of EU companies are involved in the supply chains US listed companies, and therefore indirectly affected by the US DFA.

6. European Commission desk analysis: supply chain due diligence practices by EU companies in targeted industry sector

A small industry analysis was carried out by DG Trade to identify the status of supply chain due diligence practices by the EU companies in 24 EU Member States. To meet this end, a random selection of 153 enterprises was made on the basis of three criteria: the size of the enterprise (only large ones with more than 250 employees); listed in the EU countries and performing their economic activities in relevant sectors most likely to use 3Ts and Gold in their supply chains.

The sample included the following number of enterprises in each of the target sectors: 21 firms in Computers and office equipment sector, 21 in Transport equipment (except railways), 20 on Industrial processing machinery, 14 in Construction, 14 in Other Machinery and equipment (domestic appliances, agricultural machinery), 13 in Electrical machinery and equipment, 9 in Metals and metal products, 7 in Instrument engineering (medical equipment, optical equipment), 5 in Chemicals, rubber and plastics (includes pharmaceuticals), 5 in Energy, mining and quarrying and 24 in other sectors.

On the basis of information found in the annual reports or on the corporate websites we found, that 47% of enterprises do have some supply chain due diligence schemes in place. Most of them are concentrating on sustainable business activities, Corporate Social Responsibility on environmental and social issues, Human Rights, security and health issues reporting. In the same time we found that only 7% of the surveyed enterprises had conflict minerals supply chain due diligence schemes.   

The highest number of enterprises already having conflict minerals supply chain due diligence scheme was noted in Computers and office equipment industry (Figure 1, 19% of firms). A marginal number of firms with a conflict minerals reporting policy was also found in Transport equipment (except railways) and in Other Machinery and equipment.

The country breakdown of the sample shows that the highest number of firms with conflict minerals reporting is registered in France (30%) and in Ireland (20%). At least one firm with such policy in place was found in Belgium, the United Kingdom, Italy and the Netherlands.

7. Detailed information on the options

OPTION 3 and 4: "EU Responsable Importer" self-certification

|| || Global production[3] (000 kg) || EU import volumes[4] (000 kg) || Estimated number of EU importers[5] (types/number)

CN code || Product description || 2011 || 2010 || 2011 || 2012 || Smelters/refiners || Traders || Manufacturing

 2609 00 || Tin ores and concentrates || 333,211 || 307 || 457 || 254 || 1-3 (secondary) || NA || NA

2611 00 || Tungsten ores and concentrates || 82,278 || 1,039 || 733 || 14,977 || 2 || 5-10 || NA

2615 90 || Tantalum (niobium, vanadium) ores and concentrates || 176,648 || 98,755 || 112,106 || 76,316 || 2 || 10 || 1

261690 00 || Gold ores and concentrates || || 433 || 11,244 || 8,855 || 5 || 10 || NA

2825 90 40 || Tungsten oxide hydroxide || || 3,688 || 5,389 || 3,509 || 6 || 10-5 || NA

2849 90 30 || Tungsten carbides || || 1,491 || 1,632 || 1,417 || NA || 10-15 || 10-15

7108 11 00 || Gold (non-monetary) powder || || 8 || 5 || 6 || NA || 150 || 10

7108 12 00 || Gold, unwrought forms || 277 || 196 || 147

7108 13 || Gold bars, rods and wire + other || || 807 || 839 || 1,069 || NA

8001 10 00 || Tin, not alloyed || || 48,152 || 46,859 || 40,664 || NA || 100 || 50

8001 20 00 || Tin alloys || 2,975 || 2,841 || 3,561

8003 00 00 || Tin bars, rods, profiles and wires || || 2,354 || 1,473 || 1,067 || NA || 25

8101 10 00 || Tungsten, powder || || 955 || 1,070 || 666 || 4-5 || 10-15 || NA

8101 94 00 || Tungsten, unwrought, including bars and rods || 242 || 201 || 124

8101 96 00 || Tungsten wire || || 154 || 159 || 172 || || ||

8101 99 xx || Tungsten bars and rods || || 378 || 369 || 282 || NA || 10-15 || 10-15

8103 20 00 || Tantalum, unwrought including bars and rods, and powders || || 374 || 289 || 217 || 11 || 7 || 8

8103 90 00 || Tantalum bars and rods + others || || 98 || 178 || 129 || 1 || 3 || 5

Table 1

Table 2 provides the EU import 2011 figures of tin, tantalum, tungsten, their ores and gold relative to the global trade figures. The EU is an important importer of both the minerals and metals.

CN code || Product description || Global trade (million USD) || EU imports (million USD) || EU share of global trade (%)

2609 00 || Tin ores and concentrates || 589 || 7 || 1

2611 00 || Tungsten ores and concentrates || 469 || 91 || 19

2615 90 || Tantalum (niobium, vanadium) ores and concentrates || 463 || 107 || 23

2616 90 || Precious metals ores and concentrates || 2,606 || 1,203 || 46

Sub-total || Ores and concentrates || 4.127 || 1.408 || 34

8001, 8003, 8004 and 8005 || Unwrought tin, and tin bars, rods, profiles and wires || 9,379 || 2,056 || 22

8101, excluding 8101 97 || Tungsten and articles thereof, excluding waste and scrap || 1,048 || 355 || 33

8103, excluding 8103 30 || Tantalum and articles thereof, excluding waste and scrap || 1,049 || 269 || 26

Sub-total || Tin, tantalum and tungsten || 11,476 || 2,680 || 23

7108 || Gold, unwrought or in semi-manufactured forms, or in powder form || 187,925 || 22,477 || 13

   

The tin, tantalum, tungsten and gold minerals and metals are imported into the EU at volumes as shown in the Table 1. The indicated products are suggested as an annex of products in scope of the Regulation.

As per the outcome of the study commissioned by DG Trade (Annex III "External Study") EU importers exercising due diligence would be typically faced with the following cost:

i. internal and external cost of strengthening their internal management system;

ii. instituting the necessary IT software and systems to collect information;

iii. using consultancy and training services;

iv. training and cost for gathering information;

audit cost in case of smelters/refiners.

The study estimates the first years' cost for large companies[6] performing due diligence at €13,500 (reported by 66% of the large companies surveyed) €27,000 (reported by 10% of the large companies surveyed); and the recurrent cost for following years at €2,700 (reported by 56% of the large companies surveyed) and €13,500 (reported by 17% of the large companies surveyed).

The study also estimates the first years' cost for SMEs at €13,500 (reported by 85% of the SMEs surveyed) and €27,000 (reported by 6% of the SMEs surveyed); and the recurrent cost for following years at €2,700 (reported by 74% of the SMEs surveyed) and €13,500 (reported by 14% of the SMEs surveyed).

In the case of EU smelters/refiners importing and carrying out due diligence, an additional cost of €4,000-8,000 per smelter/importer should be taken into account for an annual third-part audit.

OPTION 5: Directive establishing obligations for EU-listed companies based on the OECD Guidance

The option to requiring EU-listed companies to integrate the "five-step" OECD Guidance framework in their management system would potentially apply to an estimated number of almost 1,000 EU-listed companies out of a total of 7,959 EU-listed companies in the relevant industry sectors i.e. companies in those sectors that are expected to use tin, tantalum, tungsten and gold in their supply chain. These companies would be subject to exercising due diligence and reporting publicly on supply chain due diligence in their annual statements.

Moreover, it would indirectly affect up to 871,384 EU companies in the same industry sectors i.e. those using tin, tantalum, tungsten and gold that potentially are in the supply chains of the almost 1,000 EU-listed companies that would be directly affected. About 99% of those companies are SMEs. The identified companies represent the maximum number of companies as there are no statistics available on the actual number of companies using specifically the 3Ts and gold in the selected industry sectors as per table 2 below.

The initial and recurrent costs are considered on the basis of the tasks to be carried out under the 5-step framework of the OECD Guidance at the different levels in the supply chain for companies in the EU.

Based on the due diligence costs summarised under option 3 and 4, the total cost incurred by 800,000 EU companies potentially concerned, excluding the estimated 20 to 30% of EU companies that already prepare mandatory due diligence reports, is estimated at €8.4 billion initially, and between €1.7 billion on a recurrent annual basis thereafter. It should be stressed that these costs are mainly attributable to carrying out the tasks concerning due diligence and not to reporting obligations. 

NACE codes[7] || EU industrial sectors || Number of total companies in the EU || Number of SME[8]s in the EU

0729 || Mining and other non-ferrous metals ores || 203 || 88%

099 || Support activities for other mining and quarrying || 478 || 99%

2059 || Manufacture of other chemical products || 4 376 || 98%

23 || Manufacture of other non-metal mineral product || 102 346 || 99%

24 || Manufacture of basic metals || 17 953 || 96%

25 || Manufacture of fabricated metal products except machinery and equipment || 388 192 || 99.7%

26 || Manufacture of computer, electronic and optical products || 44 100 || 98%

27 || Manufacture of electrical equipment || 52 000 || 98%

28 || Manufacture of machinery and equipment || 98 059 || 98%

29 || Manufacture of motor vehicles, trailers and semi-trailers || 20 525 || 94%

30 || Manufacture of other transport equipment) || 14 300 || 97%

321 || Manufacture of jewellery, bijouterie and related articles || 37 909 || 100%

324 || Manufacture of games and toys || 7 846 || 99.6%

325 || Manufacture of medical and dental instruments and supplies || 62 353 || 99.6%

329 || Manufacture of n.e.c. || 30 744 || 99.8 %

Total || || 871 384 || 99%

Table 2

ICT impact

The proposed options allow the identification of ICT implications in a modest way, given that it asks for compliance with the well-known existing OECD Guidance that define with precision the business processes and serve as a solid basis for the specifications that need to be implemented.

In the Guidance, it is mentioned that the information should be kept “preferably in computerised databases” – in certain cases web access is recommended. Therefore, it is reasonably expected that the vast majority of the supply chain companies will use electronic means to exercise the due diligence procedure.

Special attention should be given to the semantic aspects, notably the formulation of the templates that will be used to collect and retrieve data. Various standards are already available for the semantic description of parts of the datasets, i.e. the W3C Organization Ontology and more specifically the “Registered Organisation Vocabulary” which is a specialization for private organisations (companies), whereas on the technical side, XML would be an ideal solution to transport and store data. Possible interconnection with base registers i.e. the Business Registers could also be considered, on request of the Member States’ authorities.

In DG TRADE’s external study it has been revealed that complete technical solutions implementing due diligence for minerals originating from high-risk areas have been made commercially available and can be used following subscription and a licensing schema.

In terms of cost and in the same study, ICT has been considered as a separate cost item on the list of the overall effort that has to be made by the companies to ensure compliance with OECD Guidance. ICT has been seen from two possible angles, namely internal (in-house implementation) and external (purchase of ICT systems and/or services by external providers) related to the set up and maintenance of the required infrastructure and the collection, processing, storing, reporting and exchange of information with the supply chain stakeholders and the regulating authorities.

From the above it can be concluded that the ICT implications of the proposed regulation on the concerned companies and the Members States’ responsible authorities present low implementation complexity at low budget. As regard the EU Institutions, no budgetary impact is foreseen to operationally support the regulation; should the ICT providers of the EU Institutions decide to shift all or some of the cost to their customers, a slight increase in the prices could be expected. The white list of smelters/refiners will most probably be hosted and operated by the EU Institutions by the means of a, most preferably web-based, Information System that should collect, retrieve, update, publish data and produce statistics reports. However, these are all generic functionalities supported already by existing solutions within the Commission and their re-use should result in negligible fees. It should be highlighted that whatever decision to proceed with a new IT development (which would practically mean additional cost and longer implementation time) should first receive the approval of the EU Institutions’ governance bodies which will examine why the business needs cannot be fulfilled by re-using existing solutions.

Finally, it has to be noted that the ICT implications as presented are generally applicable to options 3, 4, 5 and 6.

8. EC Public Consultation Report

The overall message from the public consultation requires the European Commission on the issue of responsible sourcing of minerals from conflict-affected and high-risk areas to take a consistent approach that recognises the global nature of today’s complex minerals supply chains and relies on an international framework as set out in the OECD Guidance.

According to 82% of companies' respondents the private sector is interested in responsible sourcing. To this end, more than 36% of all responding EU companies indicate that they exercise due diligence on a voluntary basis while over 22% of them are preparing mandatory due diligence reports. The most compelling motivations for companies to source in a responsible way include (in ranked order): Corporate Social Responsibility (CSR) agenda, regulatory obligation, image, and consumer satisfaction.

The existing frameworks, although generally considered sufficient, are not always adequately or effectively implemented.  The main apprehensions stem from the reported impossibility of tracking back the origin of the minerals, due to the complexity, length and breadth of the supply chain. There is a substantial lack of cooperation in receiving information from suppliers, especially where supply chains contain more than 5-6 tiers. Moreover, small companies in third countries are not necessarily familiar with requirements of the schemes inter alia due to capacity and other limitations. This results in the fact that smelters/refiners as the choke-point of the supply chains are not fully engaging in due diligence strategies.

Moreover, stakeholders agreed that the approach taken under the US Dodd-Frank Act Section 1502 has not necessarily resulted in short-term tangible results for the Great Lakes Region. Business considered the Act burdensome, impairing competitiveness and leading to higher costs for consumers. Companies claimed a competitive disadvantage as compared to operators in countries such as China, Malaysia, Indonesia, and Brazil where most of the economic actors are reported to continue to source from conflict areas without exercising due diligence.

Regarding the certification of mineral mining and trade such as those initiated by some of the producing countries of the Great Lakes Region, stakeholders reported that more capacity building is required to address the deficiencies of local enforcement resulting from instable political and social frameworks.

Generally, to advance responsible sourcing practices, the business sector counts on EU assistance for clear direction on where to source or not, however not on the basis of additional rules. Flexibility represents a key aspect of due diligence management systems where the OECD Guidance represents the best reference as the only international standard available: companies require a proactive and reactive due diligence risk-based approach to progressively meet their objectives whilst having differences in their internal processes. This would allow companies to easily identify tailor-made solutions respecting the need of different sectors. Hence, the voluntary nature needs to be maintained.

NGOs and other organisations state that an EU initiative should maximise the existing tools (OECD) by however complementing them within an obligatory framework to ensure that the financing of armed group in conflict-affected and high-risk areas is reduced while at the same time a multi-stakeholder approach should be encouraged to foster responsible sourcing.

Furthermore, respondents encourage the EU to:

- Provide political and financial support to currently operating programmes and to allow for the gradual and on-going improvement of minerals certification;

- Avoid onerous tracking or reporting obligations;

- Limit cost and burdens of audits;

- Support the concept of identification and mitigation of risk and focus on the process of due diligence instead of taking an outcome-based approach focussed on whether the material is conflict free or not;

- Exercise the proper leverage on other key economies (China, Malaysia, Indonesia, etc.);

- Against this background the possible impacts on mining communities should be taken into account and efforts should be focused on locally reinforcing capacity-building so that the review, update, structuring and enforcement of the relevant local certification schemes can be achieved.

Finally, due to the international nature of the supply chain, 70% of respondents favour an EU initiative with a global scope covering mainly the upstream section of the supply chain (i.e. mines, traders, smelters and refiners). Moreover, the focus should be either on all minerals or on the 3Ts (tin, tantalum, tungsten) and gold. Respondents clarified that an effective EU initiative at the same time should address a range of issues on the ground including good governance, rule of law and mining and trade certification. The initiative should furthermore consider a phase-in period of implementation to allow companies, especially SMEs, to adjust to it.

The full report is available in a separate document (Annex II).

9. Report of the accompanying study commissioned by DG Trade

DG Trade commissioned an external study to assess due diligence compliance cost, benefits and related effects on the competitiveness of selected operators in relation to responsible sourcing of minerals from conflict-affected and high-risk areas. The tender was awarded to iPoint-systems GmbH.

As per the Terms of Reference, the attached final report of the study provides a description of the global supply chains for the 3T’s and gold, outlining the type of economic operators involved in the supply chains (such as miners, traders, smelters, component producers, OEMs), the industry sectors involved (such as automotive, electronics, industrial tools, aerospace and provides  a quantification of the supply chains in terms of (i) indicative percentage of the total volume of the 3T’s and gold used in the supply chains for products from the sectors involved; (ii) their total production volumes and turnover; and (iii) related trade flows. The description distinguishes between activities taking place in the EU, and those taking place predominantly outside the EU market.

Furthermore, the study includes a survey of 330 large and SME companies around the world using the iPoint Conflict Minerals Platform (iPCMP) which is an on-demand software solution which enables companies to collect, manage, aggregate and report conflict minerals information, in line with the requirements of their customers and regulatory authorities.

The main conclusions are the following:

The main finding of the survey was that the majority of the participants reported relatively low cost efforts for conflict minerals due diligence and reporting, with expenditures predominantly estimated €13,500 for initial efforts (74%) and at €2,700 for ongoing efforts (63.8%), despite the fact that only 17% of the respondents were small companies with less than 50 employees. The lower and upper limit of the selectable range of costs was based on economic impact models related to the US Conflict Minerals Reporting legislation (Tulane University 2011).

Other important findings of the survey include:

- Company size and conflict minerals due diligence and reporting expenditures: there was a relatively balanced ratio between survey respondents representing small and medium-sized enterprises (SMEs), i.e. companies with less than 250 employees, and large enterprises with 250 employees and more (45% vs. 55%). Not surprisingly, a higher percentage of SMEs as opposed to large companies reported an overall initial cost estimated at €13,500 (85.1% vs. 66.2%) and overall ongoing costs estimated at €2,700 (73.9% vs. 55.5%).

- Main economic activities: more than two thirds of the respondents (67%) had their main economic activities in the manufacturing industry (ISIC C), with over a quarter (27.4%) of these respondents economically active in the manufacture of fabricated metal products, except machinery and equipment (ISIC C-25), and another quarter (23.6%) active in Other manufacturing (ISIC C-32).

- Position in the supply chain, number of suppliers: with nearly half (44%) being a Tier-1 / semi-finished manufacturer, followed by an almost an equally large group (43%) that was either an OEM / end-product manufacturer (22%) or Tier-2 (21%), the majority of the respondents had further downstream position in the supply chain. Thereby, not surprisingly the further downstream a company was and the larger the company, the more active suppliers it had.

- Department responsible for conflict minerals reporting: no single department is solely in charge of this new compliance area, i.e. conflict minerals due diligence and reporting lies in the responsibility of many departments, with the purchasing (35%) and the QM department (24%) represented more frequently in these cross-functional teams.

- Main products: within the framework of the harmonised commodity description and coding system (HS) of tariff nomenclature, nearly a third of the respondents, products can be allocated to machinery/electrical (30.4%; HS 84-85), followed by transportation (25.3%; HS 72-83) on a two digit level. On a four digit level, products of the area – parts and access for motor vehicles – dominated (18.1%; HS 8708), followed by "transmission shafts, bearings, gears, etc., parts" (5.5%; HS 8483).

The final report of the study is available in a separate document (Annex III).

10. Report of the Öko-Institute on conflict minerals  

The following recommendations were voiced in the Öko-Institute study commissioned by the BDI aiming at contributing to the discussion for a European approach on conflict minerals. While they do not constitute a ready-to-implement strategy, they mark important aspects and suggestions for consideration in the current policy development process:

- A policy on conflict minerals alone is insufficient to stabilise the DRC. In turn, strategies for stabilising the Great Lakes Region that do not address conflict minerals are also prone to failure. Thus, measures on conflict minerals need to be embedded into a comprehensive strategy on the DRC.

- The concept of due diligence is useful and should be supported as it helps to mitigate the risks of directly or indirectly contributing to conflict and human rights abuses. Nevertheless, extensive mandatory verification and reporting requirements can cause embargo reactions and unintended socio-economic side-effects. It is therefore recommended to rethink strategies aiming at extensive and mandatory due diligence, particularly in downstream (manufacturing) segments. Rather than investing into costly downstream chain-of-custody systems, these resources should better be used to directly support responsible mining within the DRC.

- The existing pilot projects on responsible minerals sourcing in the DRC have various positive impacts on the ground. If up-scaled and flanked by other policy and security measures, such responsible sourcing projects can help to establish “islands of stability”. Therefore, the European Union should support responsible sourcing projects with co-operation programmes as well as with its political framework on conflict minerals.

- Investments in responsible sourcing from the DRC are particularly risky. While some of these risks result from the local situation, potential reputation risks also play a role. It is therefore required to develop a mechanism that systematically benefits companies who actively engage in responsible sourcing from the DRC. This could include preferential conditions in public procurement and a visible positive attribute for companies fulfilling certain requirements.

- A potential European contribution has to be adjusted to the needs of affected people in the region. The European Union should enter into a process of dialogue with Congolese and European stakeholders as well as with the International Conference on the Great Lakes Region (ICGLR). The dialogue should aim to generate a common understanding of needs, challenges and opportunities of a formalised and conflict-free mineral extraction, and should lead to clear commitments from all stakeholders.

- European industry and businesses should take a proactive role by supporting, developing and expanding responsible sourcing projects in the eastern DRC. Apart from direct support for on-the-ground projects, commitments to purchase a defined quantity of conflict-free material from the DRC should also be explored. These activities should be bundled into a Congo stewardship initiative, which – presupposing an ambitious character and measurable targets – should be substantially supported by the European Union.

- Many concepts and strategies on conflict minerals aim to ensure that products are to 100% conflict-free in a physical manner. While this concept makes sense in the upstream parts of supply chains, the efforts to achieve such a status significantly increase for manufacturers of complex products. As these efforts do not directly benefit people in the conflict-affected regions, it might be worth to explore alternative models for downstream industries. It is particularly recommended to explore the feasibility of concepts used for ‘green electricity’, which make sure that money paid by users of certified green electricity directly benefits producers of green electricity.

ANNEX II

European Commission

Directorate-General for trade

Report on the public consultation

on

a possible EU initiative on responsible sourcing of minerals originating from conflict-affected and high-risk areas

CONTRIBUTIONS FROM STAKEHOLDERS

July 2013

contact: trade-market-access@ec.europa.eu

Summary of contributions to the European Commission's public consultation on a possible EU initiative on responsible sourcing of minerals originating from conflict-affected and high-risk areas

Introduction

As part of the impact assessment process, the European Commission launched a public consultation to get interested parties' views on a possible EU initiative for responsible sourcing of minerals coming from conflict-affected and high-risk areas. The Commission wanted to deepen its understanding of issues such as the sourcing and security of supply of minerals, supply chain transparency and good governance.

The Commission used the results to help it decide whether and how - in a reasonable and effective manner – to contribute to on-going due diligence initiatives and support good governance of mineral mining and trading activities especially in mineral-rich developing countries affected by conflict.

- The questionnaire

The public consultation ran from 27 March 2013 to 26 June 2013. An on-line questionnaire was open to all stakeholders interested. It had 44 questions divided into eleven sections: 1) Information on respondents, 2) Rationale and existing frameworks, 3) Need and scope of a possible EU initiative, 4) Continuation of activity, security of supply and other international actors, 5) Nature of the EU initiative, 6) Lessons learned from the EU Timber Regulation, 7) Positive incentives to international corporations and businesses, 8) Economic and Competitiveness impacts, 9) Environmental impacts, 10) Social impacts, 11) Other issues.

- Stakeholder responses

There were 280 replies (18 more were received after the deadline at the following email address: TRADE-INDUSTRY@ec.europa.eu) from a wide range of respondents: this report includes an executive summary and a detailed overview of responses as provided by the various stakeholders including the statistical outcome of the replies. 65% of respondents agreed to make their contributions public which are annexed to this report.

Note that the report does not reflect the opinion of the European Commission but rather aims at providing a factual account of stakeholder contributions.

Executive Summary

The overall message from the public consultation requires the European Commission on the issue of responsible sourcing of minerals from conflict-affected and high-risk areas to take a consistent approach that recognises the global nature of today's complex minerals supply chains and relies on an international framework as set out in the OECD Guidance[9].

According to over 83% of the respondents the private sector is interested in responsible sourcing. To this end, more than 36% of all responding EU companies indicate that they exercise due diligence on a voluntary basis while over 22% of them are preparing mandatory due diligence reports. The most compelling motivations for companies to source in a responsible way include (in ranked order): Corporate Social Responsibility (CSR) agenda, regulatory obligation, image, and consumer satisfaction.

The existing frameworks, although generally considered sufficient, are not always adequately or effectively implemented.  The main apprehensions stem from the reported impossibility of tracking back the origin of the minerals, due to the complexity, length and breadth of the supply chain. There is a substantial lack of cooperation in receiving information from suppliers, especially where supply chains contain more than 5-6 tiers. Moreover, small companies in third countries are not necessarily familiar with requirements of the schemes inter alia due to capacity and other limitations. This results in the fact that smelters/refiners as the choke-point of the supply chains are not fully engaging in due diligence strategies.

Moreover, stakeholders agreed that the approach taken under the US Dodd-Frank Act Section 1502[10] has not necessarily resulted in short-term tangible results for the Great Lakes Region (GLR). Business considered the Act burdensome, impairing competitiveness and leading to higher costs for consumers. Companies claimed a competitive disadvantage as compared to operators in countries such as China, Malaysia, Indonesia, and Brazil where most of the economic actors are reported to continue to source from conflict areas without exercising due diligence.

Regarding the certification of mineral mining and trade such as those initiated by some of the producing countries of the GLR, stakeholders reported that more capacity building is required to address the deficiencies of local enforcement resulting from instable political and social frameworks.

Generally, to advance responsible sourcing practices, the business sector counts on EU assistance for clear direction on where to source or not, however not on the basis of additional rules. Flexibility represents a key aspect of due diligence management systems where the OECD Guidance represents the best reference as the only international standard available: companies require a proactive and reactive due diligence risk-based approach to progressively meet their objectives whilst having differences in their internal processes. This would allow companies to easily identify tailor-made solutions respecting the need of different sectors. Hence, the voluntary nature needs to be maintained.

NGOs and other organisations state that an EU initiative should maximise the existing tools (OECD) by however complementing them within an obligatory framework to ensure that the financing of armed group in conflict-affected and high-risk areas is reduced while at the same time a multi-stakeholder approach should be encouraged to foster responsible sourcing.

Furthermore, respondents encourage the EU to:

- Provide political and financial support to currently operating programmes and to allow for the gradual and on-going improvement of mineral certification;

- Avoid onerous tracking or reporting obligations;

- Limit cost and burdens of audits;

- Support the concept of identification and mitigation of risk and focus on the process of due diligence instead of taking an outcome-based approach focussed on whether the material is conflict free or not;

- Exercise the proper leverage on other key economies (China, Malaysia, Indonesia, etc.).

Against this background, the possible impacts on mining communities should be taken into account and efforts should be focused on locally reinforcing capacity-building so that the review, update, structuring and enforcement of the relevant local certification schemes can be achieved.

Finally, due to the international nature of the supply chain, 70% of respondents favor an EU initiative with a global scope covering mainly the upstream section of the supply chain (i.e. mines, traders, smelters and refiners). Moreover, the focus should be either on all minerals or on the 3Ts (tin, tantalum, tungsten) and gold. Respondents clarified that an effective EU initiative at the same time should address a range of issues on the ground including good governance, rule of law and mining and trade certification. The initiative should furthermore consider a phase-in period of implementation to allow companies, especially SMEs, to adjust to it.

Overview of responses to the questionnaire

The summary of the responses covers the eleven sections of the public consultation and, for ease of reference, follows the numbering used in the questionnaire.

1) Information on respondents

Q. 1.3 What is your profile?

73.2 % of total records (205 out of 280 replies) come from the business sector: 146 companies and 59 trade organisations representing business.

Specifically, companies' contributions were distributed among:

· Large companies (> 250 employees) with 98 replies (47.2% of total number records);

· Medium companies (≥50 and ≤250 employees) with 23 replies (11.2% of total number records);

· Small companies (<50 employees) with 25 replies (12.2 % of total number records).

The NGOs sector participated with 31 stakeholders (11.1% of total number records). Citizens, academic/research institutions and government authorities contributed respectively with 9 replies (3.2% of total number records), 6 replies (2.1% of total number records) and 3 replies (1.1% of total number records).  There were two consumer protection agencies (0.7% of total number records) and one trade union (0.4% of the total number records). The "other" category represented the 8.2% of total number records (23 contributions) and included consulting firms, think tanks, associations promoting responsible sourcing, and sustainability initiatives.

Q. 1.4 What is your main area/sector of activities/interest?

The principal sectors involved are metals and metal products (26.1% of total number records); energy, mining and quarrying (16.1% of total number records); electrical machinery and equipment (13.2% of total number records); instrument engineering (medical equipment, optical equipment) computers and office equipment (8.2% of total number records); chemicals, rubber and plastics (includes pharmaceuticals) (8.6% of total number records); radio, television and communication equipment (7.9% of total number records); other non-metallic minerals products (7.1% of total number records). However, the highest percentage is represented by the "other" category (36.8% of total number records), that embraces a wide range of sectors from international affairs (including human rights, environmental/natural resources policies, peace-building and sustainable development) to jewellery manufacturing; cosmetics and personal care industry; automotive component parts, systems and modules manufacturing.

Q. 1.5 In which country are your headquarters located?

Stakeholders' headquarters are mainly in the European Union: Germany, the UK and Belgium are the most representative countries sharing respectively the 26.7 %, the 19.6%, and the 10.6% of total number records. Among the third countries, the United States and the Democratic Republic of Congo stand out covering the 15% and the 4.2% (of the total number records).

Q. 1.6 In which regions do you operate?

82.1% of respondents operate in Europe. Asia follows with 54.3%, then North America with 49%. Africa and South America, where most conflict and high-risk areas are located, cover 25.7% and 13.9%.

Q. 1.7 Are you listed on a regulated market?

22.5 % of respondents are listed on a regulated market: 36 stakeholders in the EU and 26 stakeholders in the US.

Q. 1.8 Do you prepare due diligence reports on a mandatory basis?

75.7% of total number records do not prepare due diligence report on a mandatory basis. Specifically, 63.7% of companies and 84.7% of trade organisations do not. As regards EU-listed companies, 50% report they are preparing a mandatory due diligence report. As to all companies (including EU-listed companies) 22.4% are preparing a mandatory report.

It is interesting to note that among the 23 respondents who are listed in the US (therefore likely to be subject to US Dodd-Frank Act Section 1502 reporting by 31 May 2014), 19 companies and 2 trade organisations reported they are preparing reports on a mandatory basis.

Looking at the relevant sectors, 15% of the Metals and metal products sector (more than 91% of the respondents are from the business sector) prepares due diligence on a mandatory basis. The same holds for the 21% of the Electrical machinery and equipment sector (more than 91% is from the business sector); 22% of the Energy and mining quarrying sector (55% of which is from the business sector); 36% of the sector of Instrument engineering, computers and office equipment (the 96% is from the business sector), 33% of the Chemicals and rubber and plastics sector (almost the 100% is from the business sector); 27% of the Radio, television and communication equipment sector (more than 80% from business sector).  The Other machinery and equipment sector (93% from business sector) has the highest rate with 50% of respondents preparing due diligence reports on mandatory basis.

Q. 1.9 Do you prepare due diligence reports on a voluntary basis?

38.6% of the total number of records prepare a due diligence report on voluntary basis. A slight majority of them are companies (53.4%). As regards EU-listed companies, 66.7% report they are preparing a voluntary due diligence report. As to all companies (including EU listed companies), 36.4% are preparing a voluntary report.  Looking at the relevant sectors, 45% of the Metals and metal products sector; 55.6% of Energy and mining quarrying, 52% of Instrument engineering, computers and office equipment; 62% of Other machinery and equipment are preparing due diligence on a voluntary basis. Conversely, more than 67% of the Electrical machinery and equipment sector, 58.3% same for Chemicals, rubber and plastics sector; 54.5% of Radio, television and communication equipment are not preparing due diligence on a voluntary basis.

2) Rationale and existing frameworks

Q. 2.1 Is the private sector interested in sourcing minerals in a socially responsible manner?

83.2% of respondents state that the private sector is interested in responsible sourcing. As the figures show, the business sector seems to be favourably disposed towards sourcing in a responsible way (84.2% of companies and 98.3% of trade organisations representing business). This is confirmed also by NGOs (71%) and citizens, academic/research institutions, government authorities, consumer protection agencies, trade unions (57%).

Q. 2.2 What would you consider the single most compelling motivation for the private sector to source minerals in a socially responsible way?

The main motivation for responsible sourcing is the CSR agenda: 71.1% of respondents recognise the importance of corporate self-regulation, also for the issue of "conflict minerals". The second major motivation derives from regulatory obligations (51%) followed by image with 50%, and consumer satisfaction (39%).

For 78.8% of companies, the CSR agenda is the most influential factor, then image with 52.1% of the preferences, followed by the regulatory obligation option with 48.6%.  Similarly, trade organisations representing business see in the CSR agenda the most important motivation (96.6%), followed by image (47%) and regulatory obligation (40.7%). For 71% of NGOs, regulatory obligations are the key driver for the private sector to source in responsible way. Image comes right after, for 51.6% of the organisations. Citizens, academic/research institutions, consumer protection agencies, trade unions and government authorities follow the same trend (regulatory obligation 66.7%, image 57.1%).

Q. 2.3 Are you already undertaking efforts to ensure responsible sourcing of minerals?

73.9% of stakeholders already undertake efforts to ensure responsible sourcing: almost 80% of both the business sector (companies and trade organisations representing business) and NGOs state that they are engaged to some extent in public/private initiatives and are compliant with regulations and schemes concerning responsible sourcing. Looking at the relevant sectors, 85% of the Metals and metals products sector is already involved in responsible sourcing activities; the same is true of the Electrical machinery and equipment sector where about the 70% of respondents are undertaking efforts; Energy and mining quarrying (86.7%); Instrument engineering, computers and office equipment (92%), Chemicals and rubber and plastics sector (83%); Radio, television and communication equipment (90%), Other machinery and equipment  sector (75%) also are committed.

Businesses in particular seem committed in ensuring the responsible sourcing of minerals by tracking back the origin of the minerals. In order to do so, they are implementing codes of conduct or specific sustainability standards and principles to which suppliers are contractually committed to adhere. Some large companies request also written assurances from all suppliers that minerals do not originate from illegal mines.

A large number of companies responding to the consultation act according to the OECD Guidance and some of them are members of the UN Global Compact. Together with US-listed companies, other respondents state that they are compliant with the reporting obligations of the US Dodd-Frank Act as suppliers.

In addition, companies have participated in or are aligned with initiatives such as the Global e-Sustainability Initiative (GeSI) and the Electronic Industry Citizenship Coalition (EICC), the Conflict-Free Smelters (CFS) programme, the Responsible Jewellery Council (RJC), the Public-Private Alliance (PPA), ITRI Tin Supply Chain Initiative (iTSCi), and the World Gold Council's Conflict-Free Gold Standard.

NGOs, together with citizens, academic/research institutions, consumer protection agencies and trade unions, are engaged in collecting information on conflict mineral policy trends, and advising the actors involved on how to effectively engage suppliers with a view to obtain information relevant for due diligence purposes. They support and monitor the implementation of the above-mentioned initiatives and in particular the OECD Guidance.

Q. 2.4 Do you consider it unachievable for the private sector to source minerals in a socially responsible way?

For 57.9% of the respondents, the private sector can source or, at least, would like to source in a socially responsible way. With respect to relevant sectors, for 52% of Metals and metal products sector, responsible sourcing is achievable. Electrical machinery and equipment sectors agree with almost 60%; so does Energy and mining, quarrying (82%); Radio, television and communication equipment (54.5%), and Other machinery and equipment sector (43%). For the Instrument engineering, computers and office equipment 44% of respondents consider responsible sourcing achievable (32% don't know). For the relative majority (37.5%) of the Chemicals and rubber and plastics sector, it is unachievable.

In this regard, NGOs and citizens, academic/research institutions, Government Authorities, consumer protection agencies, trade unions have a much stronger position with respectively 87.1% and 76.2%. No differences appear among large, medium and small companies: 56% think responsible sourcing is achievable. This slight majority is explained by concerns raised as to the effectiveness of the initiatives in place.

The main problems lie in the reported impossibility of tracking back the origin of the minerals. Due to the complexity, length and breadth of the supply chain, complemented by undisclosed/illegal exports to neighbour countries or other trading countries, it is very difficult to have full assurances on sourcing responsibly. There is a substantial lack of cooperation in receiving information from suppliers (some of the companies claim less than 10% response rate), especially where supply chains contain more than 5-6 tiers. Stakeholders claim that companies or even groups of companies (in particular downstream) do not have sufficient leverage to influence their suppliers and to get feedback from them. The possible point at which this info can be obtained reliably is in the initial stage of processing of the minerals. Smelters/refiners are mostly considered the pinch point of the supply chain. They are perceived by business respondents to be taking on less of the burden of due diligence than companies further down the supply chain and hence more distant from the mining source.

Secondly, the cumbersome and difficult process turns into higher costs (in terms of strengthening internal management, instituting the necessary IT systems, auditing, and implementation of risk-based programmes) and administrative burdens (filing reports) for companies. This is what happened specifically in the case of the US Dodd-Frank Act. It is reported that companies decided to move away, causing a de facto embargo of the targeted regions and, contributing to a deterioration of livelihoods there.

The prevalent view of businesses responding to the consultation is that where institutions are weak, where conflict is raging, the private sector cannot solve problems, which are mainly political in nature.  Therefore, while of course desirable, it is clearly challenging for the private sector alone to source minerals in a socially responsible way and a comprehensive approach is required.

Q. 2.5 Would you consider existing international instruments under the corporate social responsibility and supply chain due diligence agenda such as the UN Guiding Principles on Business and Human Rights, OECD Guidelines for Multinational Enterprises and OECD Due Diligence Guidance for responsible supply chains of minerals from conflict-affected and high–risk areas sufficient as they stand?

Generally, respondents reckon the UN Guiding Principles on Business and Human Rights[11], the OECD Guidelines for Multinational Enterprises[12] and the OECD Due Diligence Guidance sufficient as they stand. There are 65.8% of total number records that to some extent express a positive opinion on these instruments.

The business sector is the main proponent of this view: trade organisations representing business and companies (both large and SMEs) agree on the sufficient degree of the existing frameworks, respectively with 83.1% and 69.4%. Also Government Authorities converge towards the business position. On the other hand, the 61.3% of NGOs and the 47.6% (relative majority) of citizens, academic/research institutions and consumer protection agencies are aligned in considering such instruments insufficient.

Q. 2.5.1 Companies have already fully integrated those international instruments into corporate risk management systems.

The statistics show a substantial equilibrium between the "agree" and "disagree" positions, with respectively 42.4% and 42.9%. No absolute majority has been reached (12.1% don't know and 6.8% N/A) and the more frequent recourse to the "somewhat" option (in both cases) instead of the "strongly" option confirm a certain degree of uncertainty. However some trends can be underlined: 1) The ambiguity of the results is the consequence of the business sector's more uncertain replies (more than 20% replies are "don't know" or N/A); 2) NGOs and citizens, academic/research institutions, consumer protection agencies clearly consider the instrument not fully incorporated (71%). 3) The position of small companies does not line up with the rest of the business sector but joins NGOs position to a lesser extent (a relative majority of 44% disagrees).

Q. 2.5.2 Those instruments appropriately address the issue of responsible sourcing in resource-rich, high-risk developing countries affected by conflicts.

Business sector and NGOs positions come together by recognising the adequacy of the existing instruments in addressing the issue of responsible sourcing (55.3% of the total number records). Small companies and the category of citizens, academic/research institutions, consumer protection agencies seem to have some reservations as they moderately tend towards a "disagree position" with respectively 44% and the 47.6%.

Q. 2.5.3 If in questions 2.5 / 2.5.1 / 2.5.2 you disagree and think there is scope for improving or complementing the existing instruments, how could this be achieved?

Existing instruments could be improved predominantly in scope: an important step forward would be to ensure the participation of less engaged industries and third countries that play a key role in the supply chain (e.g. China, Malaysia). Their coverage could be improved by aiming for more buy-in from local actors and attempting to address not only traceability, but also the root causes of the problem.

The business sector largely believes that although the aforementioned instruments are appropriate to promote responsible sourcing, however they do not address the issues that drive societies' need for this due diligence. Such issues include conflict, political instability, corruption, weak governance and legal enforcement, environmental degradation. Regardless of the private sector's engagement to ensure certain standards for responsible entrepreneurship, there is also a political side to these issues that needs to be addressed at political level. Business can only support this process but not replace it. Business claims that they cannot be made responsible for the conflicts in the regions in which they conduct trade. Business believes that the support of democratic development and good governance is primarily the task of foreign, security and development policies. Furthermore, business notes that administrative, political and security requirements are generally missing in the affected areas, therefore more action must be taken by governments and the EU to support the creation of and to bolster economic and political stability, and good governance in these countries. This requires a focus on capacity-building in the countries concerned and strong engagement with local actors and civil society. In addition, these instruments need to be complemented by initiatives that can raise the engagement and awareness of the upstream segments (miners, traders, smelters/refiners) and help the companies achieve a reliable and well-functioning due diligence system, avoiding high costs and burdensome procedures. Business claims that the players in the supply chain do not have, nor can be expected to have, the same degree of influence/leverage and control over the other players in the supply chain, and clear allocation of duties among the players would be beneficial.

Within such a complex and weak political environment of those regions, NGOs draw the attention to the necessity of making due diligence standards in existing international instruments mandatory and to the active and long-term participation of local society and public authorities. NGOs note that it is fundamental to raise awareness of those companies not yet involved and create incentives for companies that implement them fully.

Q. 2.6 What practical lessons can we draw from existing supply chain due diligence schemes such as the OECD Due Diligence? What are the advantages and downsides for industry and producing countries?

There is a general positive consideration of the OECD Guidance; it is often referred as the only instrument able to address the problem on an international level, and potentially exercise the proper leverage on other key economic actors (China, Malaysia, etc.). The OECD Guidance represents an overarching international framework for the implementation of due diligence systems, recognised by the UN and already endorsed by the International Conference on the Great Lakes Region (ICGLR) and several countries. It highlights a process/risk-based approach which companies can voluntarily refer to and use to identify and manage risks adequately.

According to the business sector, the most positive aspect of the OECD Guidance is its flexible approach: by not being so exhaustively defined, companies have indeed the necessary space to do due diligence and meet requirements whilst having differences in their internal processes. They can easily find solutions tailor-made to the need of different sectors. Consequently, the voluntary nature needs to be maintained. Still, some important negative aspects have been underlined.

First of all, the OECD Guidance is not sufficiently implemented and a substantial lack of awareness has been recognised by several stakeholders. The majority of the large companies' suppliers are small companies in third countries that have no information/do not value enough such due diligence schemes or have capacity limitations.

Secondly, as generic guidelines applicable indistinctly to all the different industrial sectors focussing only on four minerals, they lack practical guidance at some points as also reported in the OECD pilot project reports. Respondents are of the opinion that the OECD Guidance ought to be more tailored to different industries and better reflect product complexity. In addition, the OECD Guidance focuses on large scale mining when most of challenges lie with artisanal mining. As a result, the OECD Guidance cannot be implemented as it stands but usually requires multi-stakeholder cooperation, outside assistance or human/financial resources in order to work up a company-specific management strategy.

Compliance costs are reported to be high, and can also be reflected in higher costs for consumers and reduced competitiveness for businesses that comply. Companies face competitive disadvantages as they lose their global market share to other countries (e.g. China, Malaysia, Indonesia, Brazil, etc.) and economic actors that continue to source from conflict areas without engaging in due diligence.

Similarly, small companies (that had raised some concerns about the adequacy of existing frameworks, Q.2.5.2.) acknowledge the OECD Guidance as a transparent, flexible, and comprehensible guide, based on a multi-stakeholder and internationally harmonised approach which involves companies, governments and NGOs. Through it, companies learn to build strong management systems, help improve working conditions in producer countries and allow for better control of the kind of minerals entering the supply chain. The Guidance is a worldwide regulatory reference, influential on companies and countries. However, implementing the OECD Guidance requires additional manpower and external help. Provided that the situation on a mine site can change daily, one of the downsides frequently mentioned is the lack of an objective and measurable definition of high-risk and conflict-affected areas.

NGOs also believe that the OECD Guidance should be taken into account as the basic document for any future initiative. It gives a clear set of positive guides rather than negative rules. The system is not aimed at reaching 100% conflict-free sourcing, but is based on best efforts. Despite some difficulties recognised in implementation (especially in the upstream part of the supply chain), the OECD Guidance provides transparency and control of the supply chain, and is a useful instrument for better CSR. It is flexible and process-driven rather than compliance-driven: it promotes responsible sourcing from conflict areas rather than avoidance. It should be implemented on a global level: as long as some countries do not play by the same rules, competitive disadvantages may occur. The OECD Guidance is increasingly accepted as the international standard for responsible sourcing and should be directly incorporated into legislation and applied to other natural resources, levelling the playing field between the US and other regions. However, respondents recognise some difficulties in the implementation of such schemes, especially on the upstream part of the supply chain, where more targeted information and capacity building measures are needed.

Q. 2.7 What practical lessons can we draw from existing supply chain due diligence schemes adopted by third countries to promote mineral supply chain transparency (e.g. US Dodd-Frank Act section 1502)? What are the advantages and downsides for industry and producing countries?

The business sector claims that, despite the good intentions and the merit of having raised awareness on such issue, Section 1502 of the US Dodd-Frank Act has not sufficiently taken into account the complex environments in which businesses operate. The prevalent view of business respondents is that strict, inflexible and highly burdensome legislation creates adverse results and distorts markets. Many companies have stopped sourcing minerals in the Great Lakes Region (the area targeted by this legislation) to avoid additional administrative burdens, costly reporting/auditing and use of human resources. The US Dodd-Frank Act reaches beyond the United States as EU and other companies along the supply chain can be US-listed or – and in far larger numbers - are suppliers to US-listed companies.

Contrary to the OECD Guidance which is process-based, the US Dodd-Frank Act takes compliance-based approach requiring the determination of a product as conflict-free or not. Business respondents point out that the OECD Guidance allows companies to have flexibility to address the conflict mineral issue where the risk is highest, whereas the US Dodd-Frank Act drives high administrative costs and additional reporting and auditing burdens. The Act does not consider that companies do not always interact directly with their suppliers and does not sufficiently appreciate the difficulty of obtaining information on the origin of "conflict minerals" in the purchased products.

Business respondents report that as a result of the US Dodd-Frank Act, the minerals trade in the GLR has gone underground, making it even more difficult to improve living/labour standards in the region because of falling export levels. Foreign companies sourcing outside Central Africa become more dependent on supplies from China reducing their free choice of supply; distortions of competition arise without an international level playing field. Limiting requirements to being able to declare a product "conflict-free" is not addressing in full the problem of the intended or unintended contribution of trade in minerals to the continuation of conflict and is seen as dis-incentivising legitimate trade in responsibly sourced minerals.

While the business sector underlines the negative impact of the US regulation (49 respondents use the word trade embargo when describing the consequences of the US Dodd-Frank Act), NGOs stress the unprecedented momentum for responsible mineral sourcing that the Act has stimulated by obliging companies to conduct checks in their supply chains. Industry has engaged for the first time in responsible mineral sourcing and NGOs claim that reporting expenses are lower than was initially expected. Civil society respondents acknowledge that the Act obliges the industry to be aware of the sources of its minerals, avoiding opportunistic behaviour, and to provide information to guide consumer decisions. The Act introduced important transparency and disclosure provisions. However, transparency is only one step towards responsible conduct, and must be accompanied by strong and enforceable standards, especially in producing countries where civil society lacks the capacity or safety to challenge companies.

Q. 2.8 In some cases, mineral producing developing countries have introduced regulatory schemes to allow trade of minerals to be conducted in a socially responsible way. What is your assessment of such national or regional initiatives and regulatory schemes?

Responses tend to converge that local regulatory schemes are considered an important contribution to mineral supply chain transparency. In the context of "conflict minerals", the prevalent view is that approaches at the level of minerals-producing countries and regions could be more promising than approaches targeting downstream actors.

Business respondents welcome these local schemes for representing the most direct way to foster responsible sourcing of minerals and ensure compliance; however, when compared to other standards, they appear to have implementation gaps due to apparent limited local cross-country alignment and to their inability to function sustainably without external support. Respondents point out that in the producer countries concerned, a dedicated regulatory framework does not always exist; it is sometimes outdated or not enforced due to the absence of secure political conditions and endemic corruption. Decisions by foreign companies to source outside Central Africa have made it difficult to test and improve local certification schemes.

The certification initiative launched by the ICGLR and the iTSCi[13] initiative also in use in Central Africa have been mentioned as laudable initiatives dedicated to improving traceability and transparency in resource-holding countries. However, respondents point out that significant efforts remain to achieve effective implementation and enforcement in the countries concerned.

Respondents suggest that efforts should be focused on reinforcing capacity-building locally so that the update, structuring, enforcement, and harmonization (likely around international standards) of the relevant local schemes can be achieved. There is need of strong international political support to the region, a greater formalization of artisanal and small scale mining (ASM), and more engagement with NGOs working on the ground. Respondents see a role for (national/multilateral) foreign policy and development cooperation to contribute to build institutions and capacity in producing countries to monitor mining conditions carefully.

3) Need and scope of a possible EU initiative

Q. 3.1 Is there a need for the EU to promote responsible sourcing of minerals through actions focused on transparency of the supply chain, in addition to what already exists in the policy landscape?

From the overall picture of the replies, it is not possible to draw any straightforward conclusion since the data show a substantial equilibrium between the YES (43.2% of total records) and the NO (46.8% of total records), to which a 10% of replies "don't know" need to be added. However, trends become sharper when we look at the specific stakeholder profiles. Companies and trade organisations position themselves against a possible EU initiative with respectively 56% and 66.1%. Nevertheless, in the case of companies, the large ones lead a much stronger position as YES replies barely reach 27.6%, while medium and small companies stick on higher rates of YES with respectively 47.8% and 40%. NGOs are, on the other hand, strongly in favour of an EU initiative, providing 93.5% of YES answers. The same occurs with respect to the category of citizens, academic/research institutions, consumer protection agencies and also government authorities (95.2%).

With respect to the important sectors, Metals and metal products respondents (more than 83% are from the business sector) do not consider the need for an EU initiative with the 66%. The Electrical machinery and equipment sector thinks that an EU initiative is not necessary either (54%). The score for the Chemicals and rubber and plastics sector is 70%. Instrument engineering, computers and office equipment do not take a strong position as 48% answered "don't know". Radio, television and communication equipment and Other machinery and equipment sector also largely chose the "don't know" option (both with the 50% of records). The Energy and mining quarrying (though 55% of respondents are from the business sector, mainly large companies) is, instead, in favor with 71%.

68% of "YES" respondents would prefer an initiative with a broad scope, on a global basis: "region-specific" and "country-specific" options reached barely 28.1% and 18.2%. The initiative would cover either the "3T's and gold" or "all minerals" options (both reached exactly the same rate of 46.3%). NGOs seem support more the latter option (72%), as does the category of citizens, academic/research institutions, consumers protection agencies and also government authorities (55%), while 50% of the business sector prefers the former. Among the other options, "other minerals" reached 24%: respondents often mention diamonds, raw materials such as cocoa, wood, copper, cobalt, platinum and uranium as possible minerals to cover.

Q. 3.2 Should the scope of an EU initiative refer to specific end-products or downstream industry sectors?

A 73.9% majority of respondents indicates that an EU initiative should not refer to specific end-products or downstream industry sector. However, 15.8% was in favour and 9.3% replied "don't know".

Q. 3.3 Should an EU initiative target specific segments in the minerals' supply chain?

48.9% of respondents emphasize the importance for a possible EU initiative to focus on specific segments. Comprehensibly, the upstream part of the supply chain received the majority of the consensus: mines (66.4%), traders (49.6%), smelters (59.9%), and refiners (44.5%). There are no substantial differences among the different profiles of the respondents on the matter (mines and smelter are the most recurring answers). It is however interesting to notice that large companies put smelters as the primary segment to target (78.3%), reflecting their own difficulties to trace back the source through their supply chains. For the rest of respondents, mines are the principal segment.

Q. 3.4 Should an EU initiative include exemptions for Small and Medium-sized Enterprises (SMEs)?

For 51.9% of respondents, the EU initiative should not include exemptions for SMEs, 22.5% (mainly small and medium companies) agree, 17.9% don't know and 8.6% have selected N/A.

4) Continuation of activity, security of supply and other international actors

Q. 4.1 Should an EU initiative explore ways to support security of supply of the identified minerals for EU industry?

For the majority of the respondents (56.4%), the EU initiative should explore ways to support security of supply of the identified minerals for the EU industry. 20% disagree while 14.3% don't know and 9.3% have selected N/A. The business sector is clearly in favour with 61.5% ("no" answers reached 15.6%). The category of citizens, academic/research institutions, consumer protection agencies and Government Authorities also agrees with the 61.9% ("no" answers reached 14.3%). Conversely, the NGOs do not seem to have a clear position as "yes" and "no" are almost even (respectively 45.2% and 41.9%).

Q. 4.2 Would an EU initiative reach the necessary critical mass to motivate other major economies (e.g. China, Brazil, Indone sia, and Malaysia) to engage in similar initiatives?

The dominant view of respondents is that any EU initiative alone would not reach the necessary critical mass unless other major players are taking comparable measures as well. Respondents consider that the EU should engage more actively with China, Malaysia, Indonesia, Brazil and other important players in the global market in order to increase awareness on the complexities of the issue. Responsible sourcing is not only an issue of market access. It is a global problem that requires global solutions where trade, rule of law and humanitarian aspects are jointly taken into account. It also requires that governments, international organisations, the private sector and the civil society work closely together.

In this framework, the business sector takes the view that only a worldwide system will motivate major economies to step in. Multiple initiatives to compel supply-chain transparency would not contribute to the desired end result; rather, they would fragment and complicate the efforts currently underway. An EU initiative should recognise this and identify opportunities to engage with relevant economies.

Concerned about the unfair and undue competitive advantages these economies already enjoy, companies and trade organisations acknowledge that an initiative that only aims at the EU level (by simply setting reporting requirements for EU companies) is not likely to solve the issue on the ground and will only shift the supply of goods from the EU to the other markets. The EU could end up (eventually) with having no sustainable supply of critical minerals, thereby undermining its commercial power. Some respondents point to experience with the US Dodd-Frank Act to claim that an EU initiative alone would not motivate other major economies to engage in responsible sourcing but rather provide instead further opportunities to other major economies, with significant smelting and refining capacity, (especially China, Malaysia and Indonesia) to source minerals from any destination, while EU industry would have a more limited supply base.

These same categories of respondents are of the opinion that in order to ensure a level playing field, it is important that any initiative is agreed and implemented at an international level, via e.g. the OECD, involving as many important players as possible (including non-OECD members). The EU should focus on its support and promotion since the OECD Guidance is already a multinational approach and it is internationally harmonized that involves all stakeholders. Positively, within the framework of the OECD, together the EU and the US, would present a critical mass that would allow to significantly advance work towards the global application of transparency and responsible supply chains standards.

NGO respondents recognise that placing responsibilities only on the private sector as the main leverage to involve and motivate other governments is not an efficient way of tackling the problem of conflict minerals.  Civil society replies converge on the assessment that a robust EU regulation, based on the OECD Guidance, would instead leverage other economies to adopt due diligence requirements for companies in their jurisdictions. The governments of major economies outside the EU and US may be reluctant to comply, but once their business partners are less able to sell the end products in their home markets (EU and US), there will again be an economic incentive for Asian and other governments and companies to comply. With two large economies addressing the issue (US and EU), there would be pressure on other major economies to show they are also contributing to break the link between conflict and trade in minerals. These replies claim that if the entire supply chain bears responsibility to ensure compliance, EU-based end users and manufacturers will be required to impose the conditions on their non-EU based suppliers, spreading the effects and burdens.

Citizens, academic/research institutions, and consumer's protection agencies line up with the trend emphasizing the importance of an international framework (possibly the OECD), on which the EU would base its action. Government Authorities, consider that an EU initiative is unlikely to be able to co-opt a critical mass of other economies. The main conclusion is that the EU should work closely with third countries and EU Member States and try to advocate a global level playing field.

Q. 4.3 To the extent that the response strategies of some businesses to the US Dodd-Frank Act section 1502 provisions is to stop sourcing minerals in Central Africa, what could an EU initiative do to support both market access and due diligence concerns?

Market access is important – both for companies but also for the resource-rich producing countries as the presence of business is vital to bolster economic growth and contributing to the improvement of social and environmental standards. As it was reported with the introduction of the US Dodd Frank Act, onerous legislative requirements relating to corporate due diligence may create a "de facto embargo" which results in negative impacts for business, local governments and communities.

For the business sector, companies should be encouraged rather than penalised (voluntary schemes are preferred; see section 5) for sourcing responsibly from the region. Solutions must be pragmatic, adapted to the needs of the local community and result in a concerted effort between local governments, civil society and industry. Therefore, built-in market incentives for those market actors who are trading responsibly with the regions may help.

Respondents suggest that any EU initiative should focus on establishing public/private partnerships (e.g. the Public-Private Alliance for Responsible Mineral Trade) that aim to improve conditions of artisanal and small-scale miners, within mining regions of conflict-affected and high-risk areas.  Companies again stress the importance of reaching out to smelters, by putting in place certification and/or "white lists" of conflict-free smelters.

Within the framework of the OECD, an EU initiative should also provide financial, political and public support to capacity-building of existing systems and in-region sourcing projects (e.g. like the ICGLR, CFS, iTSCi and SfH[14]) to stimulate responsible trade and support local economic development and stability. The OECD Guidance again recurs as the most desirable instrument. Its flexibility does not discourage companies to source from critical regions, but on the contrary might encourage them to exercise due diligence as they conduct their day-to-day business. A mandatory regime with penalties, one the other hand, will likely disengage companies from the GLR in particular.

In this sense, business respondents suggest that the EU should also focus on encouraging good governance and the rule of law in host countries. They see a role for the EU to work closely with local governments and stakeholders to improve infrastructure and investigate the illicit trade of minerals. These efforts will support ethical business operating in the region and deliver more value to the local communities in question. Complementing the efforts of in-region governments and industry initiatives through technical and financial assistance would also seemingly enable the emergence of a responsible compliance framework for the whole supply chain. In doing so, the EU would signal political and economic support to countries or regions that may be affected by the introduction of new EU measures, and serve as an important message to the business community not to stigmatize minerals produced in these parts of the world.

For NGOs, an EU initiative (mainly a regulation, see section 5) could increase the recognition of existing initiatives inspired by the best practices of the private sector and the implementation of the OECD Guidance. The EU should also cooperate with local authorities in order to strengthen good governance, investment in supporting infrastructure and solving the problems of illegal trade immediately and in an integrated manner.

Civil society respondents would wish to see an EU regulation with global geographical scope requiring companies to undertake risk-based supply chain due diligence with an emphasis on supply chains rather than on specific regions or conflicts, preventing companies from developing sourcing strategies that contribute to de facto embargos. This approach would also reduce the higher administrative cost of sourcing minerals from specific regions, which in turn encourages market access for minerals from these regions, including those that could be responsibly sourced. The EU should consider accompanying measures to encourage sustainable sourcing models for conflict-free minerals, for example by publicly highlighting best practices or exploring possibilities to develop responsible sourcing criteria in public procurement contracts. The EU could develop further guidance to help companies understand how to identify and address supply chain risks and support work by the OECD to further define specific risk indicators for companies.

5) Nature of the initiative

Q. 5.1 To ensure sufficient private sector participation, the implementation of an EU initiative on supply chain, due diligence should not only be voluntary but should include a degree of obligation on business operators.

Again, from a general perspective, statistics do not show a clear position. Respondents' replies are almost equally distributed between the two main positions of "agree" and "disagree", with respectively the 41% and 49%. This time, however, the two options with a stronger connotation ("strongly agree" and "strongly disagree") prevail over the lighter ones ("somewhat agree" and "somewhat disagree") with 26% and 37% against 15% and 12%.  Trends become clear as we look specifically at the profile respondents.

For the business sector, an EU initiative should not entail any degree of obligation. 79.7% of trade organisations and 61.9% of companies are against a mandatory initiative. But, looking inside the companies' profiles, it becomes evident that large companies lead the trend. For 60.2% of them, any obligatory provision should be avoided (45% strongly disagree). Small- and medium-sized companies are open to a certain degree of obligation. Medium-sized companies demonstrate a 43.5% of disagreement and a higher 47.8% of agreement. The trend is even more evident with small companies where 52% agree (e.g. 66% of the small companies chose regulatory obligations as the most compelling motivation for sourcing responsibly) and 44% disagree. The sub-category of the US-listed companies (21 large companies and 2 SMEs) is in favour of a mandatory EU initiative (43.5%) while 34.8% disagree. This level of support can be attributed to a desire for mutual recognition of EU and US regulatory prescriptions on responsible mineral sourcing.

With respect to the relevant sectors, more than 61% of Metals and metal products respondents and 64% of Electrical machinery and equipment respondents disagree with the provision of a degree of obligation. So do 56% of respondents of the Instrument engineering, computers and office equipment sector; and 70% of respondents from the Chemicals and rubber and plastics sector. Radio, television and communication equipment sector disagrees with 63%. The Energy and mining quarrying sector is instead in favour with 63.2%. The Other machinery and equipment sector is also in favour with a relative majority of "agrees" (50%).

Given their statements in the previous questions, not surprisingly the 90.3% of NGOs are in favour of an obligation for business actors (more than 80.6% strongly agree). The same trend emerges for citizens, academic/research institutions, consumer's protection agencies and government authorities that agree up to a level of 94.5% (77.8% strongly agree).

Q. 5.2 How should a scheme be designed to make sure companies keep engaging and sourcing responsibly in conflict-affected and high-risk regions rather than simply move on to different regions to source their products?

Generally, in their responses, companies ask for straightforward direction about where to source and fewer rules. Flexibility is considered the key aspect of due diligence management systems as companies need room and time in order to comply. The business sector favours a holistic approach focused on existing instruments; building up alternative systems would create the risk of increasing uncertainties and administrative burdens. An EU initiative should preferably refer to/be based on the OECD Guidance. The Guidance represents the optimal solution as it is a voluntary, risk-based and systematic framework which enables companies to exercise due diligence with relevant suppliers in a cost-effective, practical and planned way. Complementary approaches by the EU should help the companies achieve a reliable and well-functioning due diligence system (with harmonized auditing standards on the international level).

Developed through an international multi-stakeholder consultation process, the OECD Guidance has also the necessary credibility and wide acceptance to ensure a consistent approach on a global basis and exercise the proper leverage on other economies. Due to the complexities of the supply chain, businesses state that implementation is naturally a gradual process that cannot be achieved overnight and ask for a phase-in provision to allow companies, especially SMEs, to adjust their systems.

An EU initiative should prioritize the upstream part of the supply chain where trade flows are more opaque and risky. Companies suggest that smelters/refiners need to be targeted, otherwise downstream efforts are ineffective. Establishing a control point through the certification of conflict free smelters and publishing a "white list" of compliant smelters enables companies to implement an effective due diligence management system and ensure that they can source minerals conflict-free.

In the light of what is said above, mandatory schemes with penalties will likely have a discouraging effect. Companies point out that a scheme that is too prescriptive would harm the business performance without necessarily achieving corporate stated aims of positively contributing to development. Robust schemes would only duplicate the amount of the work and be extremely time-consuming and costly. Therefore, the business sector stresses that, any EU legislative initiative needs to be recognised by third parties (e.g. US) to rationalise due diligence efforts deployed under different regulatory pressures.

Companies state that they cannot be responsible for the conflicts in the regions in which they conduct trade; their influence on these critical situations is limited. Therefore, it would be more appropriate and more effective for EU regulatory action to support the efforts of resource-rich countries to build a sustainable raw materials sector in the framework of development cooperation and foreign policy. The EU should assist locally the authorities, local communities and the NGOs, through financial and technical support. The impact of sourcing depends on the local government's conditions; improving these conditions is a foreign policy task and should not be shifted on companies.

For SMEs, an EU initiative could consider introducing a scheme with a certain degree of obligation without pushing companies to simply comply by disengaging from a conflict region but rather to identify and tackle risks. However, an EU initiative should encourage all companies to publicly disclose their sourcing practices to facilitate informed commercial partnerships. In doing so, the initiative should allow for enough flexibility and give adequate time for its proper implementation, involving the minimum possible costs for the industry, also by making sure that reporting/auditing obligations are equally required for companies sourcing from affected regions as well as for companies that do not.

SME respondents also argue that responsible sourcing should not be considered only as an issue of market access; it is a global issue that requires global solutions that take into account trade, humanitarian and security aspects at the same time. Any unilateral EU initiative that does not engage in diplomatic efforts (coordinated with the EU industry) to reach an international sourcing standard, may likely facilitate the competitive position of non-EU companies.

SMEs state that the EU should complement the effectiveness of the implementation of the OECD Guidance. The OECD is considered a transparent, flexible, and comprehensible guide based on a multi-stakeholder and internationally harmonized approach which involves companies, governments and NGOs. However, implementing the OECD Guidance requires additional manpower and external assistance. As the security situation at a mine site is fluid, one of the downsides frequently mentioned is the lack of an objective and measurable definition of risk and conflict.

NGOs observe that companies apply already good business practices, but these standards need to be enforced by national authorities (governments need to be brought on side as much as the private sector). It is fundamental to strengthen national control in the mineral sector as local authorities need to own these processes. For this reason, financing mechanisms for their implementation are required. NGO respondents observe that it would be essential to enhance at all levels the monitoring of compliance with existing national and international rules and regulations; enhance strong and independent body for compliance monitoring/law enforcement both at the national (producer) and international level; create independent observatories on mining governance and law and legal compliance.

For both NGOs and the category of citizens, academic/research institutions, consumer's protection agencies and also government authorities the OECD Guidance should be taken into account as basic document for reasons mentioned in this section and in the general replies to other questions in the public consultation. It gives a clear set of positive guides rather than negative rules. The system is not aimed at reaching 100% conflict free, but is based on best efforts. It provides with more transparency and control of the supply chain, and it is a useful instrument in the context of the CSR approach. It is flexible process-driven rather than compliance-driven on the basis of a conflict free or not determination: promotes responsible sourcing rather than avoiding to source in conflict areas. These categories consider an EU regulation based on the OECD Guidance as the best option because it would help companies understand faster how to identify and address risks in their supply chains. The EU could then develop further guidance to help define specific risk indicators and countries for companies. However, respondents recognise some difficulties in the implementation of such schemes, especially on the upstream part of the supply chain, where more targeted information and capacity-building measures are needed.

6) Lessons learned from the EU Timber Regulation

Q. 6.1 The EU has some experience in promoting due diligence along the supply chain of the timber sector. Should the EU consider an initiative for minerals modelled on the 2010 Timber Regulation?

The first information that comes up from analysing the contributions on this question is the general lack of awareness/knowledge of the EU Timber Regulation. Indeed, for all the profiles of respondents the rates of both "don't know" and "N/A" options rose drastically in this section, compared to the rest of consultation (for this question, companies: 42.5% of "don't know"-"N/A"; trade organisations: 32.2% "don't know"-"N/A"; NGOs: 25.8% "don't know"-"N/A"; Citizen, academic/research institutions, consumer's protection agencies and government authorities: 50% "don't know"-"N/A").

The data, however, confirm again the dual trend that places the business sector on one side and NGOs and Citizens, academic/research institutions, consumer's protection agencies on the other. Companies and trade organisations do not see the Timber Regulation as possible model of the EU initiative (they respectively disagree with a share of 43.8% and 59.3%).

Conversely, NGOs (54.8%) and citizens, academic/research institutions, consumer's protection agencies and government authorities (44.5%) consider such regulation a fair model to take into account.

Q. 6.2 As is the case in the EU Timber Regulation, should an EU initiative promote responsible sourcing of minerals by requiring that the entity first placing a selected mineral (processed or not) on the EU market must provide evidence of due diligence thereby giving reasonable assurance that its supply chain is conflict-free?

42.1% of respondents answered "no" and 27.5% welcome the suggestion that the entity first placing a selected mineral (processed or not) on the EU market must provide evidence of due diligence. Companies and Trade organisations representing business were against with respective shares of 40.4% and 62.7%. Conversely, NGOs and citizens, academic/research institutions, consumer's protection agencies and government authorities agree with a share of 51.6% and 47.6%. Furthermore, the rates of both "don't know" and "N/A" are relatively high for all the profiles of respondents.

Q. 6.3 Should the EU initiative consider preventing the placing on the market of specific minerals/end products extracted and exported against the laws of producing countries?

The same trend of the previous question is mirrored here. NGOs and Citizens, academic/research institutions, consumer's protection agencies and government authorities are in favor with a share of 67.7% and 61.9%; companies and trade organisations representing business are against with a share of 40.4% and 62.7%. Again, the rates of both "don't know" and "N/A" are relatively high for all the profiles of respondents.

Q. 6.3.1 If yes, which laws of the mineral producing countries should be taken into account? Please be Country - specific in your examples.

Respondents generally say that companies should respect human rights and due diligence laws and international standards, including the requirement that companies carry out human rights due diligence, in countries where they operate or source from. Countries such as the DRC and Rwanda under the impetus of the ICGLR have already introduced domestic due diligence legislation that can help companies source responsibly and applied legislations on the mining sector (the Congolese Code Minier (2002) and Règlement Minier (2003)). However, relying only on national legislation or regional initiatives is not enough. In many cases the legal framework or implementation of national laws, such as in the DRC, is weak. Furthermore in some cases minerals that have funded conflict are reported to be exported through legal channels, underlining the need for due diligence checks. Hence, respondents suggest that the EU should support and strengthen existing laws in mineral producing countries that aim to support good mineral governance. Some of the member states of the ICGLR have integrated the OECD compliant regional certification mechanism into their respective legislative frameworks (for example the DRC, Rwanda and, soon Uganda).

Other producing countries mentioned are Angola, Burundi, the Central African Republic, Kenya, Sudan, Tanzania, Zambia, and Chile where as an example labour laws need to be taken into account.

For NGOs, in particular, the international human rights treaties ratified by the mineral producing country should be taken into account and national laws addressing corruption, financial crimes (extortion, taxation), environmental pollution and extractives. Examples are: the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, the International Convention on Elimination of All Forms of Racial Discrimination, the Convention on the Elimination of All Forms of Discrimination against Women, the Convention on the Rights of the Child and Convention against Torture and other Cruel, the Inhuman or Degrading Treatment or Punishment. At the regional level, there are the African Charter on Human and Peoples' Rights and the African Charter on the Rights and Welfare of the Child.

Q. 6.4 Are the laws of the mineral producing countries sufficiently developed and implemented?

There is an overall negative consideration of the state-of-play of legislation in the producing countries. As the pie chart shows, 2% of the respondents think that laws are sufficiently developed and implemented. Lack of a secure and stable political framework, widespread corruption and weak infrastructure are the principal reasons attributed to the challenges producing countries face in enforcing their developing legal system.

Q. 6.4.1 If you have examples to back either opinion, please share.

For the business sector, it is too early to know the effectiveness of the 2010 Timber Regulation (the EUTR only entered into force in March 2013), and the effectiveness of such a law heavily depends on the legal enforcement capacity in each third country and region where primary products are collected and extracted. The complexity of the supply chain is not comparable between timber and minerals since minerals are less traceable and visible than wood products. Genetics can determine the source of wood and so can be directly determined by the person placing timber on the market without necessarily depending on information passed through the supply chain, which is not possible for minerals originating from conflict regions once processed.

Therefore, business respondents point out that companies cannot realistically evaluate whether a mineral is conflict-free or not using EUTR-type due diligence requirements without similar infrastructure in place: first, a mandatory scheme as such would overlap with the existing voluntary initiatives; second, by prohibiting the placement of illegally harvested timber and timber products on the EU market, the EUTR constitutes a demand-side approach, which aims to clean the EU market. If a similar approach is adopted in the case of "conflict minerals", it will only reassure that the EU internal market is kept clean of "conflict minerals" while not contributing towards improving the situation in the conflict-affected area. The problem of illegally harvested timber and deforestation is however a global one, which requires good governance (i.e. legislation and good practices in timber producing countries) and security elements (i.e. conflicts over land use) to be taken into account. EUTR is a thorough piece of legislation and expects companies to confirm "evidence of legality" and "negligible risk" in the countries of harvest for the timber products they source. This concept of "evidence of legality" is very broad and unclear. At present, even third-party certifications (such as FSC, PEFC, SFI[15]) are not perceived as enough to confirm "evidence of legality". By applying the EUTR requirements to "conflict minerals", business respondents are of the opinion that the EU would effectively mandate and accelerate the de facto embargo seen under US Dodd-Frank Act.

NGOs observe that in producing countries, mineral-related legislation is rarely implemented or enforced. Reasons include corruption, insufficient political will and a lack of capacity and infrastructure but also power imbalances, e.g. unequal negotiating capacities between communities, smaller producing nations and large foreign companies. Borders are non-existent, making illicit mineral flows easy.

Some countries have recently amended their mineral laws to bring them in line with international standards but enforcement remains an issue, whereas others have to implement the necessary laws. Respondents report that while the Rwandan scheme states that all minerals traded in Rwanda must be tagged and certified, the trade in "conflict minerals" is still possible because of corruption and smuggling. In addition, the scheme does not legally require conformance with the OECD Guidance in spite of the ICGLR scheme. The DRC "note circulaire" has resulted in two companies being suspended from trading but in order to be effective, monitoring and enforcement must continue.

7) Positive incentives to international corporations and businesses

Q. 7.1 Should an EU initiative provide positive incentives to businesses to foster clean trade from conflict-affected and high-risk areas (i.e. not contributing to adverse impacts and conflicts)?

67.5% of respondents think that positive incentives to businesses should be taken into account to foster clean trade. NGOs and citizens academic/research institutions, consumer's protection agencies and government authorities are in favor with respectively a share of 93.5% and 81%. Companies and trade organisations representing business agree with a share of 58.9% and 64.4%.

Q. 7.1.1 What kind of incentives could be considered?

Business sector respondents mention the following incentives to foster clean trade from conflict-affected and high-risk areas:

1. Political support to producing countries in order to enhance a more stable and secure environment for the business sector;

2. Technical and financial support to producing countries;

3. Diplomatic efforts in order to engage other economies (e.g. China, Malaysia, Indonesia);

4. Technical and financial support to existing initiatives;

5. Technical and financial support to NGOs and other organisations on the ground;

6. Investments on the ground;

7. Raise awareness on consumers;

Specific incentives for the business sector are:

1. List of certified conflict free smelters ("white list") and/or list of not conflict free smelters ("blacklist");

2. Incentives for smelters (not specified);

3. Tax breaks;

4. Public-private partnerships (e.g. PPA);

5. Public Procurement;

6. Certification of compliance (either on the EU level or locally) at a voluntary and cost-free basis;

7. Self-certification (e.g. US Safe Harbour for Privacy: companies self-certify to the government that they are compliant and the company's name is posted on the website);

8. Labels/stamp of excellence for companies' continued responsible participation (similar to the FSC stamp - Forest Stewardship Council) which would encourage the end consumers to buy the stamped products over the competition;

9. "Award" to companies that source minerals responsibly from the DRC and surrounding regions;

10. Harmonised auditing standards;

11. Price -related incentives;

12. Registry for "clean trade products";

13. Education programmes available to companies.

According to the NGOs and the category of citizens, academic/research institutions, consumer's protection agencies and government authorities, in order to incentivise the business sector, the EU should:

1. Support in-region sourcing projects to stimulate responsible trade and support local economic development;

2. Support local development and security sector reform, engaging in political dialogue, hence working to turn such "high-risk areas" into "moderate-" or "low-risk areas";

3. Develop on-the-ground solutions in cooperation with local government, national and international civil society and business communities;

4. Support governments in the region to investigate and combat the stream of illegitimate minerals starting from the mine;

5. Act as a neutral broker on "resource related conflicts", bringing together relevant parties, design resolution roadmap, and give each player their responsibilities.

In particular the EU should:

1. Avoid extra administrative burden and duplication of existing regulation if it does not have a direct positive effect on the population and livelihood in conflict areas;

2. Recognise good reporting practices or adopting a weighting scheme whereby responsible sourcing practices are recognised during public procurement;

3. Link company violations of the scheme to ineligibility for competing under public procurement;

4. Provide financial incentives but in individual cases (such as encouraging companies to co-finance pilot projects, for example);

5. Provide trade finance incentives, such as reinsurance and risk insurance and export credit;

6. Encourage stock markets to include such companies in sustainability indices, if appropriate;

7. Envisage the labelling of products that comply with standards to help consumers arrive at informed choices;

8. Facilitate the dissemination of reports from companies reporting on their due diligence obligations; achievements and results by, for instance, centralizing and hosting said reports on a web page accessible to the public. The EU could also specify which initiatives it endorses, and recognises as compliant with its requirements. However, a "name-and-shame" approach, or ranking of companies by level of reported compliance could unduly distort the competition between operators;

9. Provide industry and consumer education on the importance of not pulling out of conflict and high-risk areas.

Q. 7.2     Business would benefit in terms of brand image and consumer recognition by complying with an EU initiative on responsible sourcing.

54.3% of the respondents think that the business sector would benefit in terms of brand image and consumer recognition by complying with an EU initiative on responsible sourcing. Again, NGOs and citizens, academic/research institutions, consumer's protection agencies and government authorities have a much clearer position, with respectively 93.5% and 90.5% of replies agreeing on the statement. Companies and trade organisations representing business seem more doubtful with 47% and 30% of consensus.

Q. 7.3 Can existing frameworks such as OECD Due Diligence Guidance or certification initiative by the International Conference on the Great Lakes Region be used to facilitate incentives considered by the EU?

For 52.5% of respondents, the existing framework such as the OECD Guidance or the initiative by the ICGLR represent an important benchmark to be used to facilitate incentives within a possible EU initiative. Companies and trade organisations representing business are well disposed towards these instruments (46.6% and 66.1% answered "yes"). The same happens for NGOs (51%) and the category of citizens, academic/research institutions, consumer protection agencies and government authorities (52%). Still, a higher rate of "don't know" and "N/A" answers needs to be taken into account.

Q. 7.4 Numerous private sector initiatives currently carried out allow to promote responsible sourcing from conflict-affected and high-risk areas.

67.5% of respondents believe that the current initiatives put in place by the private sector allow the promotion of responsible sourcing from conflict-affected and high-risk areas. 12.5% disagree while those who replied "don't know" and "N/A", reach the 20.3% totally. Specifically, companies and trade organisations representing business agree with 63% and 81.3% (the latter with a higher rate of "strongly agree" - 52.5%). NGOs also positively acknowledge the existing private initiatives (77.4%). Citizens, academic/research institutions, consumer protection agencies and government authorities are more uncertain, as only 38.1% agree.

Q. 7.5 How can governments complement private sector led initiatives? Are there examples of positive incentives provided by governments in non-EU jurisdictions?

To summarise replies to this question, governments play more than a complementing role. Unless governments act on the need to build a strong basis by ensuring security on the ground and combatting bribery, private sector initiatives are not likely to be successful in mitigating conflicts. Nevertheless, governments can complement by improving and promoting regulations and regional initiatives such as different sourcing initiatives, hence creating a more level playground. Foreign governments ought to promote and reinforce (financially and technically) initiatives like the Conflict Free Smelter programme, by facilitating, via embassies, dialogue with local authorities. Governments can play a pivotal role in coordinating joint public and private sectors' initiatives for in-region due diligence programmes (e.g. the Public-Private Alliance for Responsible Minerals Trade - PPA). They can also complement private sector initiatives through diplomatic channels by engaging and encouraging other countries to adopt uniform legislations and ensure that they minimize the reporting burden on business actors. In addition to that, they should be engaged in providing courses and legal statures (e.g. Sierra Leone), in order to create a solid educational background in understanding due diligence responsibilities and raise awareness about responsible sourcing. Efforts to practically address long-lasting root problems (which cannot be addressed by the private sector) need to be put in place.

8) Economic and competitiveness impacts

Q. 8.1 Would you expect any competitiveness impact (positive or negative) should the EU undertake a supply chain due diligence initiative on minerals originating from conflict-affected and high-risk areas?

The majority of respondents (75%) envisage some impact on competitiveness, in case of an EU initiative on responsible sourcing. For 71.2% of companies and 88.1% of trade organisations representing business, an EU initiative would bring about either positive or negative effects on the market and competitiveness. As for NGOs, more than 80% share the same views as the business sector. The group of citizen, academic/research institutions, consumer protection agencies and government authorities seem to be less aware of the economic impact of a possible EU initiative (the 52% answered "yes", but more than 33% did not answer or chose the "don't know" option).

Q. 8.1.1 If yes, what impact do you expect for the upstream industries?

The business sector observes that the impact depends on the nature of the EU initiative, and could be positive or negative. If the EU put in place an initiative based on regulation, this would create more costs (not borne by competitors) and administrative burden for downstream industry to use minerals from conflict areas, causing distortion of mineral supply/access and a de facto embargo as the downstream industry would avoid sourcing in those regions. This could lead to a collapse of local economies and heavily affect competitiveness of the upstream industry in these regions. Miners, traders and exporters would not have market for their (clean or unclean) products. It is likely to expect the same unintended consequences of the US Dodd-Frank Act.

On the other hand, if the EU succeeded in stimulating and encouraging the demand for clean minerals from conflict regions on the basis of a global initiative, then the upstream industry in those regions would compete on the world market for metals, on a level playing field for conflict vs. non-conflict regions.

For NGOs, these effects can best be dealt with by means of a strong regulatory framework on an international level that allows for the creation of a level playing-field (NGOs acknowledge that if regulations are only applicable on regional basis, only for EU companies, this automatically will lead to a distortion of competition).

In the medium-/longer-term, NGOs state that after a scheme has been implemented properly, companies' costs are absorbed and conditions at the mines are likely to improve, thereby making them more attractive to investors and international sourcing. Increased monitoring on the ground will prevent illegal exploitation and help curtail corruption and improve local governance. Infrastructure is expected to improve which should result in even cheaper production costs.

Economic growth would bring benefits for upstream companies, and responsible trading would allow downstream companies to market themselves as "conflict-free", which could help them to gain a competitive edge on international markets.

Q. 8.1.2 If yes, what impact do you expect for the downstream industries?

For the business sector, binding legislation (without an internationally bound agreement) would impose significant administrative costs to EU companies (especially the ones with complex value chains). This will ultimately harm their competitiveness as discussed more than once in this report. Similar phenomena of trade embargos, as those following the US Dodd-Frank Act section 1502, may be also created, limiting access to third country markets and to security of supply of minerals for the EU industry. Furthermore, unless mutual recognition is achieved with the US regime, EU-US dual-listed companies will have to face more costs and bureaucracy.

However, if an EU initiative encourages upstream companies to participate in the due diligence efforts, this might make traceability efforts easier for the downstream industry. Additionally, there could be some benefits for the industry, in terms of better customer relationships (trust) along the supply chain, CSR performance, image and reputation reliability would be enhanced. Complying would represent a competitive differentiator towards consumers singling out companies that are committed to act responsibly.

On the other hand, NGOs remark that such initiatives can lead to better governance and market stability at local level. Hence, over a longer term, this could translate into benefits such as less corruption and reduced reputational damage due to a company's association with disreputable individuals or groups or presence in conflict-affected and high-risk areas. A more stable production area will also benefit shareholders as companies find themselves dedicating fewer resources to mitigate social, political and economic risks. This could lead to higher shareholder dividends as the company expends fewer resources and capital to resolve problems associated with high-risk areas. It could also be a potential marketing tool for companies.

Q. 8.2 What would be the possible impact of non–action?

The business sector believes that non-action from the part of the EU at the level of binding legislation should not be perceived as non-action at all. Strong political action should be taken towards the direction of further supporting existing workable initiatives in resource-holding countries, within a coordinated international framework. Inaction on the part of the EU at the level of binding legislation should not be perceived as inaction on the side of industry, either. The market has already reacted with respect to this issue. Suppliers and purchasers are already cooperating to implement risk-based frameworks for responsible sourcing. Various sustainability initiatives have been/are being deployed. Non-action would give the existing due diligence schemes more time to work. It would also allow to better assess the effects of Section 1502 of the US Dodd-Frank Act, and to draw useful lessons on the advantages and shortcomings of those different schemes.

A "non-action" option is, on the contrary, not considered acceptable by the NGOs. It would contribute to widespread insecurity and violence in areas where conflicts are linked to trade in minerals, the effects of which would be felt first and foremost by local communities. Moreover, it would hamper the development of stable, sustainable economies and a transparent mining sector, which in turn impacts on the prospects of international corporations investing in those areas. Again, seen from the eyes of NGO respondents, "non-action" would entail continued reputational risks for EU companies operating in high-risk areas; loss of momentum for global efforts to strengthen political and resource governance in affected areas; the perception that EU does not take the issue seriously. EU action to break the links between minerals and conflict through responsible sourcing would help to reduce the negative political, developmental and humanitarian impacts of resource-fuelled wars.

Q. 8.3 In case a due diligence system will be proposed, what would be the expected impacts both in terms of administrative burdens and compliance cost (e.g. cost of collecting relevant information and cost of auditing). If you already apply due diligence please provide exact information on your costs.

Business states that an EU initiative or the addition of any legal requirements on companies to report on their due diligence would lead to companies incurring significant costs and administrative burdens. For companies with long and complex supply chain the burden of having to manage requests, providing relevant information and being audited would be extremely high, especially for those located at the end of the supply chain. Note however, that the responses received were not specific as to how high these costs could be.

The majority of business respondents state that it is unrealistic to provide expected impact in terms of administrative burdens and compliance costs to a new due diligence system without any information being provided on what this new due diligence system would include or how it would operate. Moreover, any estimation would further depend on other aspects such as size of the company, scope, other initiatives already implemented.

Business reported that moderate estimates of the costs implied by the US Dodd-Frank Act though, show that they will reach 7 to 9 billion USD in 2014 for about 6000 US-listed companies and companies in their supply chains. Costs will also significantly impact the less well regulated artisanal production sector which may also be the least able to afford such burdens. Administrative and compliance costs, while significant, are more impactful to small companies who do not have the internal resources available for a due diligence programme.

In one case a small company respondent claimed that the current cost of industry and government initiatives is around $200,000 per month. Plus, at least 50 hours per month in man power will be needed.

A large company estimated that it will incur more than $10 million per year to implement an EU "conflict minerals" law based on the following facts: they have over 2,000 direct material suppliers and more than 10,000 indirect suppliers. They sell more than 40,000 distinct parts/products.

Conversely, NGOs emphasize that properly implemented due diligence schemes could break the link between mining and conflict and help stimulate local economic development.

If a new but different reporting tool is devised, it would require companies to re-organise internally at EU and global level, which would be very expensive. The EU should be able to build on or incorporate the existing schemes and regulations that companies are already applying which would prevent unnecessary additional costs. Mechanisms will certainly raise costs but such costs, if within an international standard practice, would be shared between all companies in the supply chain and be limited. The 2011 "Claigan Environmental" study sent in as a submission to the US Security Exchange Commission prior to the adoption of the final rules for Section 1502 of the US Dodd-Frank Act shows that administrative burden and cost of due diligence compliance are not as high as suggested by some. As mentioned by NGO respondents, the study estimates compliance cost 22% lower than their initial estimate of 0.03% of revenue for the first year, reducing by 50% in the two subsequent years. "Green Research" concludes that compliance costs tend to decline over time as companies become familiar with requirements, are manageable for companies of all sizes, and are best addressed by joining industry-wide initiatives.

9) Environmental impacts

Q. 9.1 Would you expect any environmental impact (positive or negative) should the EU undertake a supply chain due diligence initiative on minerals originating from conflict-affected and high-risk areas?

As for the environment, business sector respondents seem to be more uncertain about any positive or negative impacts. Indeed, 28.1% of companies and 32.2% of trade organisations representing business acknowledge the possibility of some kind of consequences, respectively 30.8% and 11.9% select no; while "don't know" and "N/A" reach more than 40% for both the profiles. Conversely, NGOs are firm on this issue as 83.9% of the respondents answered "yes". Similarly, the group of citizens, academic/research institutions, consumer protection agencies and government authorities estimate a certain impact on the environment (61.9% of "yes").

Q. 9.1.1 If yes, what impact do you expect?

For the business sector, positive impacts will be limited to the extent to which the regulation covers environmental sustainability issues. Negative impacts are related to the possible withdrawal of regulated companies from conflict-affected and high-risk areas in response to the EU regulation, which would not only reduce country revenue and employment but could also result in replacement by less environmentally responsible companies from other regions, with a resulting shift towards illegality. Assuming the EU initiative is not accompanied by the active involvement of other third-country economic actors' such as from China, mineral flows would likely to be diverted towards non-EU/US countries with less rigorous or no environmental standards and norms, and thus result in negative impacts on the environment (water, air and soil pollution, energy efficiency, carbon leakage, etc.).

Business respondents consider that an initiative that contains measures to encourage the formalisation of artisanal and small scale mining, within an appropriate legal framework, and measures against illegal mining might be expected to have significant environmental benefits (including, in the case of artisanal gold mining, a reduction in mercury usage).

Conversely, NGOs, together with citizens, academic/research institutions, consumer protection agencies and government authorities, strongly believe that an EU initiative would encourage more formalisation and legalisation of the mining sector. This has been shown to be one of the most important factors leading to better practices, including environmental practices, in the long term.

These respondents report that the mineral mining industry in developing countries is associated with significant environmental damage. Requiring EU companies to undertake comprehensive supply chain due diligence would significantly reduce the risk of EU companies being involved in causing significant environmental damage. Due diligence would help companies better understand their supply chains and manage risk. Improvements in the monitoring and control of mine sites can result in closer attention to environmental controls. While an EU initiative should focus on acute conflict financing and human rights, companies looking along their supply chains may find other risks, including those related to environmental damage, which can then be addressed at the same time. In addition, a better knowledge of their supply chains will enable those companies that have made environmental commitments regarding their activities to positively influence and or demand that their suppliers also adhere to these environmental standards.

Q. 9.2 What would be the possible impact of non-action?

Companies and trade organisations representing business are certain that non-action by the EU would not prevent the industry from working on schemes to ensure ethical sourcing (including environmental impacts). Responsible mining, mineral and metal producing companies are aware of the need to maintain their operating licences and sustainable supply chains and are therefore committed to apply the necessary due diligence to reduce business risks (including environmental liabilities) independent of government intervention. Voluntary CSR initiatives are increasingly being undertaken, and will have a positive impact. Industry and private-sector initiatives have begun and need time to take effect. The best actions of the EU would be to support and encourage those initiatives already underway. Non-action would be preferable to a supply chain solution since it would also avoid perverse effects in Central Africa and non-value added transaction costs for industry.

For NGOs, a "non-action strategy" would enable EU companies to be complicit in causing significant environmental damage in countries with weak regulatory systems. In such countries, national and local authorities are often weakly equipped to hold companies accountable: their legal system is not adequate so that communities are unable to seek compensations for harm they suffer. Non-action would be detrimental and could lead to irreversible environmental damage that could impact communities, countries and eco-systems. The mining industry is a high-risk industry in terms of its environmental impact. Extractive operations have caused severe environmental damage, including the destruction of large areas of intact old-growth forest, coupled with the heightened risk of dangerous flooding; serious air, water, and soil pollution; soil erosion, along with the loss of agricultural productivity and the increased risk of landslides; and sedimentation, which increases flood risk and renders waterways unusable for transport, fishing, and drinking. Numerous communities have suffered because of their proximity to mining operations, and have reported higher rates of disease and mortality. Non-action would worsen these impacts. Without regulation and permits, there are no site visits, no expectations in regards to conforming to environmental laws and it is likely that the environmental situation will only get worse.

10) Social impacts

Q. 10.1 Would you expect any social impact (positive or negative) should the EU undertake a supply chain due diligence initiative on minerals originating from conflict-affected and high-risk areas?

76.4% of respondents recognise the possibility of a positive/negative social impact. Indeed, the rates are very high for all the profiles (in the case of NGOs, almost the 100%).

Q. 10.1.1 If yes, what impact do you expect?

According to the business sector, a responsible sourcing initiative without local counterpart and global implementation is more likely to result in a negative social impact similar to the consequences of the "de facto embargo" resulting from disengagement of the region due to obligations under the US Dodd-Frank Act. Business perceptions on the social impact of a possible EU initiative are well documented elsewhere in the report.

Some respondents quoted from work published by the UN Group of Experts on the Democratic Republic of Congo, warning that the de-facto embargo of certain countries would lead to an increase in conflict mineral-smuggling and would encourage illegal trade of minerals to neighbouring regions. This can in turn destabilise entire regions and deprive the country of origin from badly needed tax returns. Companies acknowledge however some positive impacts that might include a higher consumer interest and a better company reputation.

According to NGOs, from a producing countries' perspective, an EU initiative, if implemented properly, (by taking into account also crime, poverty and other social issues) would promote conflict free-economies and reduce financial flows to warring parties, changing conflict dynamics and potentially reducing conflict. It would also increase government incomes through taxation and reduced corruption allowing governments to invest in improved public services. In the artisanal sector, it would contribute to improve labour and security conditions in the mining sites (higher wages and economic development in mineral producing areas, less social dislocation and humanitarian and infrastructure costs associated with conflict); to demilitarise mining areas; to improve population security; to allow for more time and resources to be invested in building up longer term, sustainable economic development activities; to decrease in unsustainable immigration flows from currently very unstable areas; to increase mineral value on local and international markets ("conflict-free" status), improving household revenue for artisanal miners and their families, allowing local communities to invest in development (infrastructure, literacy, health care, etc.). Within the European Union, it would increase consumer (and investor) awareness and protection.

Local involvement is crucial in order to produce a positive social impact. An EU initiative without local counterparts is more likely to result in a negative social impact similar to the consequences of an "embargo".

NGOs have witnessed substantial improvements in terms of miners' safety at work, thanks to existing due diligence initiatives (e.g. Motorola Solutions for Hope in Katanga, Conflict Free Tin Initiative in Kalimbi/Nyabibwe, etc.).They reported that local cooperatives start buying equipment such as helmets, boots and water pumps for the miners and stabilizing mineshafts with wooden piles in order to prevent accidents. Miners' income has increased to more than a double and because of increased cash flow in the region, women's networks have started saving to buy products which they sell to the miners in order to support their families. And while much is still to be done in terms of livelihoods diversification and investment into social projects, it is clear that exploitation of natural resources becomes humanized when regulated.

Q. 10.2 What would be the possible impact of non-action?

Again, the business sector highlights that a possible non-action on the side of the EU does not mean any progress on the sides of industry/business. Various sustainability initiatives and progress on sustainability by large companies show that companies do take this issue seriously and will continuously improve their activities and drive progress within their supply chain, including the sourcing of minerals and metals. Business respondents restate arguments used elsewhere in replies to the public consultation questionnaire that the main responsibility is on governments and donors and that political engagement needs to be stepped up.

Business sector notes that "action" should not only be seen in terms of a possible mandatory EU initiative on due diligence within corporate supply chains. Instead, the EU should take action to combat the absence of basic governance, security and accountability in conflict-regions. Instead of a regulation that burdens the sake of the region on industry's shoulders, the EU should increase their efforts to stabilize the region with goal-oriented development aid and diplomacy. While companies admittedly have an important role to play in responsible sourcing, it is only strong and coordinated action from governments and the international community which can succeed in addressing the primary causes of violence in the DRC and surrounding area.

For NGOs and citizens, academic/research institutions, consumer protection agencies and Government Authorities, non-action would be detrimental as it would allow the continuation of violence and human rights violations. It would also jeopardise any risk-mitigation and post-conflict reconstruction efforts giving armed groups economic reasons to continue fighting. These respondents also view "non-action" as entailing a lack of transparency and protection for consumers (and investors).

11) Other issues

Q. 11.1 If there are any other issues that are not mentioned in this questionnaire that you would like to address, please use the space below to set them out.

No significant inputs have been provided. Respondents generally resorted to this section either to give further details on specific questions or to communicate that additional information would be submitted via email.

[1]     JOIN(2013) 23 FINAL.

[2]     Bundesanstalt für Geowissenschaften und Rohstoffe (BGR).

[3]     Reichl, C., Schatz, M. and Zsak, G. (2013): World Mining Data. Weltbergbaudaten. Vol.28. Vienna: BMWFI

[4]     Eurostat Comext, last updated on 28 May 2013

[5]     Figures based on information received from industry sources; it has to be noted that there is some overlap between activities of the companies.

[6]  Over 250 employees and turnover over €50 million and/or balance sheet total €43 million.

[7]  Eurostat.

[8]  Below 250 employees.

[9]       OECD (2013), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Second Edition, OECD Publishing. http://dx.doi.org/10.1787/9789264185050-en

[10]     Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1502.

[11]     Guiding Principles on Business and Human Rights, UN Human Rights Office of the High Commissioner, New York and Geneva 2011.

[12]     OECD Guidelines for Multinational Enterprises, OECD 2011 edition.

[13]     ITRI Tin Supply Chain Initiative.

[14]    International Conference on the Great Lakes Region, Conflict-Free Smelters programme, ITRI Tin Supply Chain Initiative, Solutions for Hope.

[15]    Forest Stewardship Council, Programme for the Endorsement of Forest Certification, Sustainable Forestry Initiative programme.

ANNEX III

EUROPEAN COMMISSION

Directorate-General for Trade

Assessment of due diligence compliance cost, benefit and related effects on selected operators in relation to the responsible sourcing of selected minerals

FINAL REPORT

Reutlingen / Vienna

September 25, 2013

Authors:

Katie Böhme

Paulina Bugajski-Hochriegl

Maria Dos Santos

iNDEX

FIGURES. 4

List of Abbreviations. 6

Abstract / Résumé. 7

1       Introduction.. 8

1.1       Objectives 10

1.2       Methodology. 11

1.3       Structure. 12

2       Description of the global supply chains for the 3TG.. 13

2.1       Overview of affected industry sectors 13

2.2       Specific supply chain description for each of the 3T and gold. 17

2.2.1     Tantalum.. 17

2.2.1.1      Economic Operators 17

2.2.1.2      Involved Industry Sectors and Products 19

2.2.1.3      Tantalum Production, Supply and Demand. 22

2.2.2     Tin. 25

2.2.2.1      Economic Operators 25

2.2.2.2      Involved industry sectors and products 26

2.2.2.3      Tin Production, Supply and Demand. 29

2.2.2.3.1     Non-EU Tin Production, Supply and Demand. 29

2.2.2.3.2     Tin Production, Supply and Demand within the EU. 30

2.2.3     Tungsten. 31

2.2.3.1      Economic Operators 31

2.2.3.2      Involved industry sectors and products 33

2.2.3.3      Tungsten Production, Supply and Demand. 36

2.2.3.3.1     Non- EU Tungsten Production, Supply and Demand. 36

2.2.3.3.2     Tungsten production, supply and demand within the EU. 37

2.2.4     Gold. 39

2.2.4.1      Economic operators 39

2.2.4.2      Involved industry sectors and products 40

2.2.4.3      Gold Production, Supply and Demand. 43

2.2.4.3.1     Non-EU Gold Production, Supply and Demand. 43

2.2.4.3.2     Gold Production, Supply and Demand within the EU. 43

3       The Survey.. 44

3.1       The iPoint Conflict Minerals Platform (iPCMP) 44

3.2       The iPCMP user survey: Objective, sample, questionnaire construction. 46

3.3       Summary of results 54

3.3.1     Main findings 54

3.3.2     Detailed results 55

3.3.2.1      Location of headquarters 55

3.3.2.2      Operational regions 56

3.3.2.3      Company size. 57

3.3.2.4      Industry and main economic activities according to the ISIC code. 58

3.3.2.5      Reasons for exercising due diligence for the 3TG.. 60

3.3.2.5.1     Directly affected by US Conflict Minerals law.. 60

3.3.2.5.2     Indirectly affected by US Conflict Minerals law.. 61

3.3.2.6      Position in the supply chain. 63

3.3.2.7      Number of active suppliers 64

3.3.2.8      Metals used in the products or manufacturing processes of the companies 67

3.3.2.9      Department responsible for Conflict Minerals Reporting. 69

3.3.2.10    Main product category. 70

3.3.2.11    Estimated effort for Conflict Minerals Reporting. 71

3.3.2.11.1   Initial costs 71

3.3.2.11.2   Ongoing costs 73

3.3.2.11.3   SMEs vs. Large Companies 75

3.3.2.11.4   Issuers (SEC filers) 77

3.3.2.11.5   Non-Issuers (SEC non-filers) 79

3.3.2.11.5.1  SMEs 79

3.3.2.11.5.2  Large Companies 81

3.3.2.12    Expected social and economic impact of Conflict Minerals due diligence on conflict-affected and high-risk areas, for local operators and communities as well as for the underlying conflicts themselves 83

4       References. 89

5       ANNEXES. 93

5.1       Annex 1: World Production of Tantalum by Development Status, Income, Political Stability of the Producer Countries (according World Bank), Country Groups and Economic Blocks (Reichl et al. 2013) 93

5.2       Annex 2: Examples of industry uses of tantalum according to the ISIC Code. 94

5.3       Annex 3: Production of Tantalum of individual Countries (Reichl et al., 2013) 96

5.4       Annex 4: Share of World Tantalum Production 2011 by Countries (Reichl et al. 2013) 96

5.5       Annex 5: Tin: World Smelter Production, by Country (USGS 2013c) 97

5.6       Annex 6: World Production of Tin by Development Status, Income, Political Stability of the Producer Countries (according World Bank), Country Groups and Economic Blocks (Reichl et al. 2013) 98

5.7       Annex 7: Share of World Tin Production 2011 by Countries (Reichl et al. 2013) 99

5.8       Annex 8: World Production of Tungsten by Development Status, Income, Political Stability of the Producer Countries (according World Bank), Country Groups and Economic Blocks (Reichl et al. 2013) 100

5.9       Annex 9: Tungsten production of individual countries (Reichl et al. 2013) 101

5.10    Annex 10: Share of World Tungsten Production 2011 by Countries (Reichl et al. 2013) 102

5.11    Annex 11: World production of gold, by development status, income, political stability of the producer countries (according World Bank), country groups and economic blocks (Reichl et al. 2013) 103

5.12    Annex 12: Production of gold of individual countries (Reichl et al. 2013) 104

5.13    Annex 12: Production of gold of individual countries (Reichl et al. 2013) (cont.) 105

5.14    Annex 13: Share of world gold production 2011, by countries (Reichl et al. 2011) 106

5.15    Annex 13 (cont.): Share of world gold production 2011, by countries (Reichl et al. 2011) 106

5.16    Annex 14: Industry and main economic activities according to the ISIC code (iPCMP user survey, Q04) – Respondents’ specifications on the option “other”. 108

5.17    Annex 15: SEC issuers’ reporting on Conflict Minerals as a whole company or as a legal entity (iPCMP user survey, Q06) – Respondents’ Comments 110

5.18    Annex 16: Reasons of SEC non-filers for preparing a Conflict Minerals Report (iPCMP user survey, Q07) – Specifications on option “Other”. 110

5.19    Annex 17: Position in the supply chain (iPCMP user survey, Q08) – Specifications on option “Other”  111

5.20    Annex 18: Number of active suppliers (iPCMP user survey, Q09) – Respondents’ comments 112

5.21    Annex 19: Metals used in products and/or manufacturing processes (iPCMP user survey, Q10) – Respondents’ comments 112

5.22    Annex 20: Departments responsible for Conflict Minerals Reporting (iPCMP user survey, Q11) – Specifications on option “Other / Cross-functional team”. 115

5.23    Annex 21: Main products allocated to HS Codes on a 2-digit and 4-digit level (iPCMP user survey, Q12) 116

5.24    Annex 22: Estimated effort for Conflict Minerals Reporting (iPCMP user survey, Q13) – Respondents’ comments 124

5.25    Annex 23: Expected positive social impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q15) 126

5.26    Annex 24: Expected negative social impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q15) 128

5.27    Annex 25: Expected positive economic impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q17) 129

5.28    Annex 26: Expected negative economic impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q17) 131

TABLES

Table 1: Conflict Minerals. 8

Table 2: Industry Uses of Gold (Au), Tantalum (Ta), Tin (Sn) and Tungsten (W) 14

Table 3:Tantalum properties and related fields of applications (Espinoza, 2012) 17

Table 4: Applications for Tantalum (TIC, 2010) 21

Table 5: Tantalum products according to the Harmonized System (HS) codes. 22

Table 6: Relevant product examples for tin. 29

Table 7: Refined tin consumption (The Economist, 2010) 30

Table 8: Tungsten product examples. 35

Table 9: Relevant product examples for gold.. 41

Table 10: Cost efficiency of software solutions such as the iPCMP as opposed to Excel-based manual data management 44

Table 11: Employee headcount to annual turnover-relation. 48

FIGURES

Figure 1: Simplified upstream and downstream supply chain. 10

Figure 2: Example of supply chain-relevant industry sectors all using 3TG in their products. 16

Figure 3: Examples for economic operators in the tantalum (capacitors) supply chain from mines to capacitor manufacturers. 18

Figure 4: The tantalum supply chain matrix including the most important products (green), Tantalum compounds (blue) and relevant industry sectors (yellow) 20

Figure 5: Raw materials and outlets of the European tantalum industry (Espinoza, 2012) 23

Figure 6: Estimated world consumption of tantalum, 2005 to 2011 (t Ta) (mmta, 2013) 24

Figure 7: Examples for economic operators in the tin supply chain from mines to smelters and refiners  25

Figure 8: The tin supply chain matrix including the most important products (green), intermediate products (blue), and relevant industry sectors (yellow) 27

Figure 9: Refined Tin Consumption by Use, 2010 (Data Source: ITRI 2012a) 28

Figure 10: Examples for actors in the tungsten supply chain from mines to tungsten product/compound manufacturers. 32

Figure 11: Primary uses of tungsten (ITIA 2011) 33

Figure 12: The tungsten supply chain matrix including the most important products (green), tungsten intermediate products (blue) and relevant industry sectors (yellow) 34

Figure 13: Location and type of major tungsten deposits and districts in the world (British Geological Survey, 2011-b. CP13/093 British Geological Survey © NERC. All rights reserved) 37

Figure 14: Mine Production of tungsten 2011 (Brown et al., 2013) 38

Figure 15: Examples for actors in the gold supply chain from mines to refiners. 40

Figure 16: Gold demand breakdown 2012 and 5-year average (2008-2012) (World Gold Council 2013-c) 41

Figure 17: The gold supply chain matrix including the most important products (green), gold compounds (blue) and relevant industry sectors (yellow) 42

Figure 18: Year-on-year % change in total consumer demand in tons by region (World Gold Council 2013-a) 43

Figure 19: Representativity of the sample, 46

Figure 20: Location of headquarters (iPCMP user survey, Q01) 55

Figure 21: Operational regions (iPCMP user survey, Q02) 56

Figure 22: Company size (iPCMP user survey, Q03) 57

Figure 23: Overview of industries / main economic activities according to ISIC code (iPCMP user survey, Q04) 58

Figure 24: Industries / main economic activities – Details on manufacturing sector (iPCMP user survey, Q04) 59

Figure 25: SEC issuers and non-issuers (iPCMP user survey, Q05) 60

Figure 26: Impacted by Conflict Minerals reporting requirements as company or legal entity (iPCMP user survey, Q06) 61

Figure 27: Reasons of non-filers for preparing a Conflict Minerals report (iPCMP user survey, Q07) 62

Figure 28: Position in the supply chain (iPCMP user survey, Q08) 63

Figure 29: Number of active suppliers (iPCMP user survey, Q09) 64

Figure 30: Number of active suppliers in relation to supply chain position (iPCMP user survey, Q09) 65

Figure 31: Number of active suppliers in relation to company size (iPCMP user survey, Q09) 66

Figure 32: Metals used in products and/or manufacturing processes (iPCMP user survey, Q10) 67

Figure 33: World Production of the 3TG.. 68

Figure 34: Department(s) responsible for Conflict Minerals reporting (iPCMP user survey, Q11) 69

Figure 35: Overview of product categories (2-digit level) according to Harmonized Commodity Description and Coding System (iPCMP user survey, Q12) 70

Figure 36: Overall initial (one-time) cost (iPCMP user survey, Q13) 71

Figure 37: Initial (one-time) costs – Overview individual cost items (iPCMP user survey, Q13) 72

Figure 38: Overall ongoing (annually recurring) cost (iPCMP user survey, Q13) 73

Figure 39: Ongoing (annually recurring) costs – Overview individual cost items (iPCMP user survey, Q13) 74

Figure 40: SMEs vs. Large companies – Overall initial costs (iPCMP user survey, Q13) 75

Figure 41: SMEs vs. Large companies – Overall ongoing costs (iPCMP user survey, Q13) 76

Figure 42: Initial costs – Issuers (iPCMP user survey, Q13) 77

Figure 43: Ongoing costs – Issuers (iPCMP user survey, Q13) 78

Figure 44: Initial costs – Non-Issuers SMEs (iPCMP user survey, Q13) 79

Figure 45: Ongoing costs – Non-Issuers SMEs (iPCMP user survey, Q13) 80

Figure 46: Initial costs – Non-Issuers Large Companies (iPCMP user survey, Q13) 81

Figure 47: Ongoing costs – Non-Issuers Large Companies (iPCMP user survey, Q13) 82

Figure 48: Expected social impact (positive or negative) of Conflict Minerals due diligence on conflict-affected and high-risk areas (iPCMP user survey, Q14) 83

Figure 49: Expected positive social impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q15a) 84

Figure 50: Expected negative social impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q15b) 85

Figure 51: Expected economic impact (positive or negative) of Conflict Minerals due diligence on conflict-affected and high-risk areas (iPCMP user survey, Q16) 86

Figure 52: Expected positive economic impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q17a) 87

Figure 53: Expected negative economic impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q17b) 88

List of Abbreviations

3T || Tin, Tantalum and Tungsten

3TG || Tin, Tantalum, Tungsten (3T) and Gold (G)

AIAG || Automotive Industry Action Group

ASM || Artisanal and Small-scale Mining

CFS || Conflict Free Smelter program

DFA || Dodd-Frank Act

DRC || Democratic Republic of the Congo

EIA || Economic Impact Assessment

EICC || Electronic Industry Citizenship Coalition

GeSI || Global e-Sustainability Initiative

HS || Harmonized Commodity Description and Coding System (HS) of tariff nomenclature

IPC || Association Connecting Electronics Industries

iPCMP || iPoint Conflict Minerals Platform

ISIC || International Standard Industrial Classification

ITRI || International Tin Research Institute

LSM || Large-scale mining

OECD || Organisation for Economic Co-operation and Development

OEM || Original Equipment Manufacturer

REACH || Registration, Evaluation, Authorisation and Restriction of Chemicals

RoHS || Restriction of Hazardous Substances

SEC || U.S. Securities and Exchange Commission

SMEs || Small and medium-sized enterprises

UNGoE || UN Group of Experts on the Democratic Republic of Congo

WCO || World Customs Organization

WGC || World Gold Council

Abstract

The responsible sourcing of minerals from conflict-affected and high-risk areas has become a matter of interest for a wide range of stakeholders. This study aims at identifying and quantifying compliance costs and potential benefits for operators subject to a possible responsible sourcing initiative of the European Union. The focus lies on due diligence, as defined in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, performed along the supply chains for four minerals: tantalum, tin, tungsten, and gold. The first part of the study provides a description and visualization of the most important affected industry sectors, supply chain actors, applications, products, and economic data such as production, supply and demand per mineral. Part two presents the results of a targeted online survey, conducted with users of the iPoint Conflict Minerals Platform (iPCMP), to obtain information about due diligence compliance costs in relation to the responsible sourcing of the above-mentioned “conflict minerals”.

Résumé

La gestion responsable des chaînes d’approvisionnement en minerais en provenance de zones de conflit ou à haut risque est devenue un enjeu pour de nombreuses parties prenantes. Cette étude a pour but d'identifier et d'évaluer les coûts de mise en conformité et les avantages potentiels pour les opérateurs soumis à une éventuelle initiative de l'Union européenne en matière d'approvisionnement. Elle se concentre sur le devoir de due diligence tel que défini dans le Guide OCDE sur le devoir de diligence pour des chaînes d’approvisionnement responsables en minerais provenant de zones de conflit ou à haut risque et sur sa mise en œuvre le long de la chaîne d'approvisionnement de quatre minerais : le tantale, l'étain, le tungstène et l'or. La première partie de l'étude décrit et présente les principaux secteurs de l'industrie concernés, les acteurs de la chaîne d'approvisionnement, les applications, les produits et les données économiques, notamment relatives à la production, à l'approvisionnement et à la demande pour chacun des minerais. La seconde partie présente les résultats d'une enquête auprès des utilisateurs de iPoint Conflict Minerals Platform (iPCMP) en vue d’obtenir des informations concernant les coûts de mise en conformité du processus de diligence en matière d'approvisionnement responsable des « minerais qui alimentent les conflits » susmentionnés.

1  Introduction

The responsible sourcing of minerals from conflict-affected and high-risk areas has only recently become a matter of interest for a wide range of stakeholders, including governmental authorities, global companies, non-governmental organisations, and consumers. The link between the illegal exploitation of natural resources in conflict zones and the financing of bloody conflict has been known for some time. However, the numerous conflicts in the African Great Lakes Region, which started in the mid-1990s and were and are still financed to a certain extent by certain minerals known as “Conflict Minerals”, has only in recent years become a matter of public interest.

The term “Conflict Minerals” refers to four mineral ores, or their derivatives, originating in conflict-affected and high-risk areas, the exploitation and trade of which are helping to finance extremely violent conflicts.[1] They include: columbite-tantalite (the ore from which the metal tantalum is extracted), cassiterite (the chief ore needed to produce tin), wolframite (an important source of the element tungsten), and gold (hereafter referred to as 3TG).

Table 1: Conflict Minerals

Ore || Metal / Chemical Symbol

Columbite-Tantalite || Tantalum / Ta

Cassiterite || Tin / Sn

Wolframite || Tungsten / W

Gold || Gold / Au

All four Conflict Minerals have a high economic importance and play a critical role in the manufacturing of essential components in a wide range of industry sectors. If the 3TG are sourced in conflict-affected and high-risk areas, they are frequently mined under severe working conditions by artisanal and small-scale miners (ASMs). The work of the poverty-driven artisanal and small-scale miners is, on the one hand, characterised by manual and informal operations on a very small national economy scale, on the other hand it contributes to a high amount of mineral production. ASM is prone to environmental pollution, child labour, and worker health and safety. Mining sites in conflict areas are an important source for financing armed groups. Controlling these sites through informal taxation of minerals extraction and trade means gaining access to international demand over the production of the Conflict Minerals. This makes the mining sites strategically important, and exposes ASM workers and their families to recurrent violence and severe violations of human rights.   

In order to avoid that violent conflicts perpetuate and that minerals mined in conflict-affected and high-risk areas remain a cost-efficient source for downstream manufacturing global companies, the UN Group of Experts on the Democratic Republic of Congo (UNGoE) developed the concept of due diligence (UNGoE, 2010). This has been taken up by the Organization for Economic Cooperation and Development (OECD) and published on 25 May 2011 under “OECD Due Diligence Guidance for responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas” (hereafter referred to as “OECD Due Diligence Guidance”). In this publication, “due diligence” is understood as an on-going, proactive and reactive process in which companies take reasonable steps and make efforts in good faith to identify and respond to the risk of contributing to conflicts. The OECD Due Diligence Guidance, which is voluntary in nature and has a global scope,[2] provides a five-step due diligence framework that can be integrated into corporate management systems:

1. Establish strong company management systems.

2. Identify and assess risks in the supply chain.

3. Design and implement a strategy to respond to identified risks.

4. Carry out independent third-party audit of supply chain due diligence at identified points of the supply chain.

5. Report on supply chain due diligence.[3]

Several industry-driven and mineral-based initiatives, together with the U.S. Conflict Minerals legislation, have taken the OECD Due Diligence Guidance as a relevant base-line case. On August 22nd, 2012, the United States of America implemented the first Conflict Minerals law, Section 1502 of the U.S. Dodd-Frank Wall Street Reform Act (hereafter referred to as “DF 1502”). DF 1502 requires that affected companies listed on the U.S. stock exchange declare their use of the four Conflict Minerals tin, tungsten, tantalum and gold, and any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo (DRC) or an adjoining country.[4] The first Conflict Minerals disclosure reports have to be filed on May 31st, 2014. In order to prepare these, U.S. companies are passing the reporting requirements through their global supply chains, so that it is estimated that 278.000 companies worldwide are going to be affected by DF 1502.[5]

Tracking the flow and the trade of minerals through global markets presents many difficulties for global companies. All Conflict Minerals are listed commodities and are thus traded globally. As the majority of trades are executed through direct contracts between sellers and buyers, neither seller nor buyer may be interested in divulging details of commercial transactions. Furthermore, metals can come from mining sources, via recycled production or from inventories. All sources can be mixed together at various stages of production, obscuring the mineral´s origin and making its traceability complex if not impossible. As a result of globalization, supply chains consist of complex multi-tiers, with many outsourced processes and - both upstream and downstream in the supply chain - many actors are not known to the end-producing Original Equipment Manufacturers (OEMs). 

Figure 1: Simplified upstream and downstream supply chain

After the reoccurrence of the issue on the European Commission’s agenda over the past few years, the European Commission’s Directorate-General for Trade launched a “Public consultation on a possible EU initiative on responsible sourcing of minerals originating from conflict-affected and high-risk areas” on March 27th, 2013, in order to get stakeholders’ views on a potential EU initiative. The results of this Public Consultation, which ran until June 26th, 2013, are currently being used to help the European Commission in deciding whether and how to complement and/or continue on-going due diligence initiatives and support for good governance in mineral mining, particularly in developing countries affected by conflict. Another important measure to grasp fully the impact of a possible Conflict Minerals legislation in the EU is the careful consideration of the most important cost drivers which can be utilized to inform and influence the formulations of rules.

For this purpose, the European Commission’s Directorate-General for Trade charged iPoint-systems gmbh with the task of analysing the complex impacts of a potential European Conflict Minerals legislation as part of the impact assessment process. In particular, the following study assesses the due diligence compliance cost, benefit and related effects on selected operators in relation to the responsible sourcing of selected minerals. The focus lies on due diligence, as defined in the OECD Due Diligence Guidance, performed along the supply chains for the 3TG.

1.1 Objectives 

The following study aims at providing an identification and quantification of compliance costs for operators subject to an EU responsible sourcing initiative. The focus will lie on due diligence, as defined in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, performed along the supply chains for four minerals: tin, tungsten, tantalum, and gold. Therefore, the objectives of the study are both to provide a description of the global supply chains for the minerals in scope, while building upon the descriptive part, to carry out an economic impact assessment identifying and quantifying compliance costs for due diligence exercising operators.

Responsible global supply chain management implicates transparent and traceable supply chains. Starting with a supply chain analysis, for each of the four minerals the following characteristics shall be outlined:

· most important industries and industry subsectors depending on the 3TG

· type of economic operators involved in the supply chains

· main applications and type of products which contain conflict minerals

In order to provide a quantification of the supply chains, an overview of the production, supply and demand shall be provided, distinguishing between activities taking place in the EU, and those taking place predominantly outside the EU market.

Building upon the results of the supply chain analysis, an economic assessment of the expected impacts for requiring supply chain due diligence shall be carried out. The economic impact assessment will take into account already existing U.S. studies on the basis of experiences with Section 1502 of Dodd-Frank, specifications of the OECD due diligence principles, and a survey conducted with companies affected by the U.S. Conflict Minerals legislation. The main objective of the survey, conducted via online questionnaire, is to obtain statistically useful information concerning due diligence compliance costs of selected operators in relation to the responsible sourcing of selected minerals from conflict-affected and high-risk areas. Furthermore, the survey aims at obtaining data for a cost comparison concerning initial and ongoing costs between small and medium enterprises (SMEs) and large companies.

1.2 Methodology

Tracking complex global supply chains encompasses a mixture of qualitative methods coupled with quantitative approaches. Nevertheless, a limitation to such a supply chain study is that, besides information from already-existing studies, missing additional data are either not available or inconsistent. Confidential disclosure agreements between supply chain actors are not the exception, but rather the rule. 

The first, descriptive part of the study draws on an extensive literature research of already existing data. It was created on the basis of Conflict Minerals-related studies, news, surveys, as well as other relevant publications by international and supranational institutions and organisations, notably the European Commission, the OECD, and the UN. Industry associations and industry/mineral/supply chain-based initiatives like for example the AIAG (Automotive Industry Action Group), EICC-GeSI (Electronic Industry Citizenship Coalition – Global e-Sustainability Initiative), the International Tungsten Industry Association (ITIA) and many others provided us with specific study-relevant information. Research institutes and scientific authorities (USGS – U.S. Geological Survey, BGS - British Geological Survey, ITRI – International Tin Research Institute, and others) helped us to get targeted insights into supply chain trends and numbers.

In order to present solutions and receive further input for further EIA calculations, a targeted online survey with users of the iPoint Conflict Minerals Platform (iPCMP) was launched. The key objective of the iPCMP user survey was to obtain statistically useful information concerning due diligence costs of selected operators in relation to the responsible sourcing of selected minerals from conflict-affected and high-risk areas. The data were collected via an online questionnaire, which was accessible from July 4th to September 7th, 2013. The questionnaire consisted of 17 single choice, multiple choice, close-ended and open-ended questions. Furthermore, a comment box should allow additional remarks at the end of some of the 17 questions as well as at the end of the survey. The questionnaire was created on the basis of existing Conflict Minerals-related studies, surveys, as well as other relevant publications by inter- and supranational institutions and organizations, notably the European Commission, the OECD, and the UN. The questions focus on different aspects which may serve as variables for further EIA calculations.

1.3 Structure

The study consists of two main parts: description of the global supply chains for tantalum, tin, tungsten and gold (Chapter 2), and the presentation of the results of the iPCMP user survey (Chapter 3).

Chapter 2 starts with a general overview of industry sectors using one or several affected minerals (2.1 Overview of affected industry sectors), followed by a specific supply chain description for each of the 3Ts and gold (2.2). The supply chain description part is divided into four chapters, each dedicated to one of the affected minerals (2.2.1 Tantalum, 2.2.2 Tin, 2.2.3 Tungsten, and 2.2.4 Gold). In order to trace the trade flows of each mineral, the main functions of the most important economic operators are described shortly in each of the metal´s first sub-chapter (“Economic Operators”). Additionally, examples for companies in the mineral´s upstream supply chain are given. The second sub-chapter (“Involved industry sectors and products”) covers the main applications and uses for each mineral, and contains product examples listed by the HS Code. In order to fulfil one of the goals of the study, i.e. to make complex supply chains visible, a supply chain matrix showing the main involved industry sectors, their intermediate and final products, is presented. The third sub-chapter (“Production, supply and demand”) addresses global economic trends such as production, supply and demand. Here, the main producing and consuming countries, as well as risks of supply shortage are presented. Furthermore, a distinction between activities taking place in the EU, and those taking place predominantly outside the EU market, is made.

Chapter 3 provides general information about the iPoint Conflict Minerals Platform (iPCMP) as well as information about the survey’s objective, the sample, and the questionnaire construction. Chapter 3.3 (“Summary of results”) offers a comprehensive analysis of the survey results, including descriptive, numeric and graphic evaluations.

2 Description of the global supply chains for the 3TG

2.1 Overview of affected industry sectors

A wide range of industry sectors use tantalum, tin, tungsten, and gold (the so-called “3TG”) in their products. Generally spoken it can be said that small amounts of all conflict minerals can be found in almost every industry sector.

The electronics industry is one of the most, if not the most, exposed industry sector using metals deriving from minerals from conflict affected and high-risk areas. Tantalum, tin, tungsten, and gold can be found in solders, capacitors, wiring, semiconductors, contacts, lithium ion batteries and as nanoparticles in nearly all electronic and electrical appliances. Therefore cameras, tablet computers, notebooks, personal computers, mobile phones, mp3 players, electronic watches, electronic toys and a wide range of other consumer durables and technology industry appliances are dependent on conflict minerals to function. In terms of supply chain transparency and preparedness for responsible supply chain due diligence reporting the electronics industry can be seen as a forerunner, with multi-stakeholder initiatives like EICC-GeSi’s  Conflict Free Smelter (CFS) program, or IPC’s Conflict Minerals Due Diligence Guide.

The automotive industry is another important user of 3TG and furthermore one of the most economically relevant industry sectors in terms of revenue. The 3TG can not only be found in onboard automotive electronics like vehicle navigation and entertainment systems, but also in a variety of other automotive applications. Metal alloys, glass coatings, automobile headlights, engine batteries and engine components, sealants, seat cushions, brake pads, airbag systems, traction controls, self- dimming mirrors and a wide range of other automobile parts contain one or several 3TG. As with the electronics industry, the automotive industry is working on transparency in the supply chain. Industry-based automotive initiatives (the AIAG, Automotive Industry Action Group) are investigating ways to ensure that automobiles and automotive products do not contain minerals from conflict-affected areas.

As with the automotive and electronics sectors, aerospace and defence applications heavily depend on all 3TG. Jet engines, alloys in components subjected to high temperatures like jet coatings, satellites, electronic components and tools like guidance and navigation systems, missiles, munitions, wiring and fasteners all contain conflict minerals. Aerospace supply chains are complex, long (a single commercial airplane contains over 5 million parts) and, due to the both commercial and military character of almost all aerospace manufacturers, strongly lagging in terms of transparency and sector preparedness regarding due diligence origin of minerals reporting.

Other industry sectors which are dependent on one or several conflict minerals are industrial machinery and tooling equipment, medical devices, construction, consumer goods, lighting, jewellery, chemical industry, packaging, and many others. Unlike electronics and automotive, due diligence best practice is rare among these sectors. The only exemptions are coming from the jewellery industry:  The Responsible Gold Program of LBMA (London Bullion Market Association) takes the OECD “Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas” into account, while the Conflict-Free Gold Standard of the World Gold Council is aiming to offer a fully auditable approach to ensure supply chain integrity. Another conflict-free standard is coming from the Responsible Jewellery Council (RJC), which is auditing its members against its Chain-of-Custody Standard for the precious metals supply chain – a standard on responsible business practices for diamonds, gold and platinum group metals.

Table 2 gives an overview of industry uses of gold, tantalum, tin and tungsten by industry sector, while Figure 2 shows a simplified supply chain of the most relevant industry sectors using all 3TG in their products.

Table 2: Industry Uses of Gold (Au), Tantalum (Ta), Tin (Sn) and Tungsten (W)

Industry Sectors || Exemplary Subsectors/ Product Categories || Au || Ta || Sn || W

Electronics || Information Technology Communication Technology Consumer Electronics Electronic Household Appliances || X || X || X || X

Automotive || Automobiles Automobile Engine and Parts Automobile Lighting Equipment Automobile Electrical and Electronic Parts Other Automobile Parts and Accessories Power Train/Brake Systems Manufacturing || X || X || X || X

Aerospace & Defence || Aircraft Aircraft Engines Aircraft Parts Space vehicles and Equipment Communications Equipment Search, Detection, Navigation Systems and Equipment || X || X || X || X

Industrial Machinery and Tooling Equipment || Machinery and Equipment Manufacturing (various appliances) Iron and Steel Forging Powder Metallurgy Part Manufacturing Hand and Edge Tool Manufacturing Electroplating/Plating || || X || X || X

Medical Engineering/Applications || Medical, Surgical and Dental Equipment Diagnostic Kits and Equipment Prosthetic Devices Medical Appliances || X || X || || X

Construction || Industrial Construction Commercial and Institutional Building Construction Power and Communication Line Construction Cement Industry || X || || X || X

Consumer Goods || Food and Beverages Personal and Household Goods Sports Equipment Apparel and Footwear || X || || X || X

Lighting   || Lighting Equipment Manufacturing LED manufacturing || || X || || X

Jewellery || Jewellery Watches || X || || || X

Chemical Industry || Chemicals Coating Materials Mill Products || || X || || X

Packaging || Container Manufacturing Tin Can Manufacturing || || || X ||

Financial Industry || Bullion, Bars and Coins || X || || ||

 

Figure 2: Example of supply chain-relevant industry sectors all using 3TG in their products

2.2 Specific supply chain description for each of the 3T and gold 2.2.1 Tantalum

Tantalum mainly occurs in very heterogeneous ores and in the form of tantalite Fe (TaO3)2, among around 70 other variants of tantalum minerals. Different ores of tantalum, colloquially known as “coltan” (short for columbite–tantalite), contain niobium and tantalum. Table 3 shows the properties of tantalum itself (black) and those due to the thin, adhesive oxide layer that forms spontaneously on the surface of tantalum metal (blue).

Table 3: Tantalum properties and related fields of applications (Espinoza, 2012)

Properties of tantalum || Related fields of applications

Thermodynamic stability with respect to copper || Microelectronics

High and temperature insensitive volumetric capacitance* || Capacitors

Bioinert || Biomedical and surgical applications

Resistant to corrosion || Chemical industry, textile industry

Ductile || Chemical industry, aerospace industry

Resistant to high temperature || Aerospace industry, turbines for electricity generation

High strength || Aerospace industry, turbines for electricity generation

* due to oxide layer

2.2.1.1 Economic Operators

The types of tantalum mining includes (Cabot Supermetals, 2010): open pit (hard and soft rock und often high “stripping ratios”), underground and alluvial. The conventional/hard rock and artisanal mining make up the largest part of the supply. In 2011, these sources accounted for 67% of the 3.75Mlb Ta2O5 (1,393t contained Ta) supplied to the market. This has been the case since the start of the 2000s, with mining making up 55-75% of overall supply (Minor Metals Trade Association - mmta 2013). African countries are the third largest hard rock world supplier of tantalum pentoxide. The conflict region represents 23% of the primary supply (mmta, 2013).

Conventional mines, such as the ones in Australia, Brazil and Ethiopia, make up about half of the primary supply, while the other half comes from artisanal production, principally in Central Africa, Brazil and Nigeria. The latter form of mining is highly flexible and can quickly react to changing market conditions (Roskill, 2012).

The major reserves of tantalum are in Brazil and Australia. Although Africa also hosts considerable tantalum resources, these are probably nowhere close to the 80% of the global total often reported during the 2000s (Roskill, 2012). Annex 1 shows the world production of tantalum by development status, income, country groups, etc. among others.

Figure 3: Examples for economic operators in the tantalum (capacitors) supply chain from mines to capacitor manufacturers

Before the 1990s, tantalum was extracted mainly as a by-product of tin mining. After having completely ceased during the First Congo War, the mining in the DRC suddenly boomed in 2000. Prices rose rapidly and reached a peak in 2000 resulting in a massive expansion of artisanal and small-scale mining (ASM) in the Democratic Republic of the Congo (DRC). According to the Enough Project (2011), the tantalum (Coltan) journey to market from DRC can be described as follows: after mining and transportation inside Central African countries, the ore is shipped to Asia for smelting and conversion to metal. Then, the processed material is shipped to Europe and the USA to produce electrical components. These components are shipped to Asia to manufacture circuit boards and consumer electronics which will be sold principally in Europe and the USA.

The extraction and refining of tantalum, including the separation from niobium in these various tantalum-containing mineral concentrates, is generally accomplished by treating the ores with a mixture of acids at elevated temperatures. According to Cabot Supermetals (2010), the tantalum refining and processors can be defined as follows: Fully integrated processors (includes those from ore to high purity products), intermediate producers, powder producers (from intermediates), smelters (from tantalum powder and metal scrap to high purity products) and metallurgical processors (further processing – cutting, bending, shaping – to custom metal products).

The key tantalum refining and processing (primary and/or secondary concentration) countries are: China, Estonia, Germany, Russia, Thailand and the USA. According to EICC, there are currently 22 tantalum smelting companies (refining and processing) which are compliant according to the Conflict Free Smelter (CFS) program of EICC and GeSI.

Tantalum can also be extracted as a by-product of tin smelter waste. Tantalum produced this way accounts for 14% of total global tantalum production (British Geological Survey, 2011a).

2.2.1.2 Involved Industry Sectors and Products

Tantalum compounds have a broad range of uses in different industries, with the economically most relevant sectors being the refining and processing tantalum industry (tantalum powder, chemical processing, corrosion resistant applications), the electronic industry (used principally as capacitors and semiconductors), including medical devices and instruments as well as the aerospace industry. Following the ISIC classification (See Annex 2), the uses of tantalum include the mining and quarrying, and manufacturing sections. The manufacturing of the chemical industry and the electric and electronic equipment are the relevant divisions. Other products related to tantalum products are: rods, skull plates, wire meshes, cutting tools and drill bits.

The supply chain for tantalum can be relatively lengthy and complex depending on the industry and industry-specific applications as well as the origin of the mine. Figure 4 shows an example of the tantalum supply chain including the relevant sectors (yellow) and products. After mining, the refining and processing industry (from the primary concentration until tantalum products) plays an important role in the supply chain. The capacitors, sputtering targets and high temperature alloys were chosen as relevant products (green colour) due their relevance in the following sectors: electronics, automotive and aerospace industries.

Several reports such as Hayes/Burges (2003), RAID (2004), or the UN report (2001:4), include a compilation of sector leaders and affected suppliers (producers of raw materials, tantalite traders, tantalum processors and major capacitor manufacturers). Figure 3 shows examples of relevant industries related to the tantalum supply regarding capacitors.

The principal use of tantalum in the electronics industry is in capacitors, which are found in most of the electronic devices. Superalloys (used in aerospace and land-based gas turbines) as well as sputtering targets and tantalum chemicals constitute relevant applications for tantalum products and probably will have the highest growth potential due to demand increase in the coming years. Table 4 shows a summary of the applications for tantalum. Examples of tantalum products including their HS code are included in Table 5.

Figure 4: The tantalum supply chain matrix including the most important products (green), Tantalum compounds (blue) and relevant industry sectors (yellow)

Table 4: Applications for Tantalum (TIC, 2010)

Tantalum Product || Application || Technical Attributes/Benefits

Tantalum carbide || Cutting tools || Increased high temperature deformation, control of grain growth

Lithium tantalate || Surface acoustic wave (SAW) filters in mobile phones, hi-fi stereos and televisions. || Electronic signal wave dampening provides for clearer and crisper audio and video output.

Tantalum oxide || - Lenses for spectacles, digital cameras and mobile phones - X-ray film - Ink jet printers || - Ta2O5 provides a high index of refraction so lenses for a given focal strength can be thinner and smaller - Yttrium tantalate phosphor reduces X-ray exposure and enhances image quality - Wear resistance characteristics. Integrated capacitors in integrated circuits (ICs)

Tantalum powder || Tantalum capacitors for electronic circuits in: - medical appliances such as hearing aids and pacemakers; - automotive components such as ABS, airbag activation, engine management modules, GPS; - portable electronics e.g. laptop computers, cellular/mobile phones, video cameras, digital still cameras; - other equipment such as DVD players, flat screen TVs, games consoles, battery chargers, power rectifiers, cellular/mobile phone signal masts, oil well probes || High reliability characteristics and low failure rates, operation over a wide temperature range from -55 to +200°C, can withstand severe vibrational forces, small size per microfarad rating/electrical storage capability

Tantalum fabricated sheets and plates || - Chemical process equipment including lining, cladding, tanks, valves, heat exchangers - Cathodic protection systems for steel structures such as bridges, water tanks - Corrosion-resistant fasteners, screws, nuts, bolts - Spinnerettes in synthetic textile manufacture || Superior corrosion resistance - equivalent in performance to glass

Tantalum fabricated sheets, plates, rods, wires || - Prosthetic devices for humans - hip joints, skull plates, mesh to repair bone removed after damage by cancer, suture clips, stents for blood vessels || Attack by body fluids is non-existent; highly bio-compatible

Tantalum fabricated sheets, plates, rods, wires || - High temperature furnace parts || Melting point is 2996°C although protective atmosphere or high vacuum required

Tantalum ingot || - Sputtering targets || Applications of thin coatings of tantalum, tantalum oxide or nitride coatings to semi-conductors to prevent copper migration

Tantalum ingot || High temperature alloys for: - air and land based turbines (e.g. jet engine discs, blades and vanes) - rocket nozzles || Alloy compositions containing 3-11% tantalum offer resistance to corrosion by hot gases, allow higher operating temperatures and thus efficiency and fuel economy

Tantalum ingot || - Computer hard drive discs || An alloy containing 6% tantalum has shape memory properties

Tantalum ingot || - Explosively formed projectile for TOW-2 missile || Balance of density and formability allow for a lighter and more efficient system

Table 5: Tantalum products according to the Harmonized System (HS) codes

HS Code || Description

2615 || Niobium, tantalum, vanadium & zirconium ore & concentration

261590 || Niobium, tantalum, vanadium ores and concentrates

8103 || Tantalum & articles thereof, include waste & scrap

810310 || Unwrought tantalum, including bars and rods obtained simply by sintering; waste and scrap; powders

810390 || Other tantalum and articles thereof

853221 || Fixed capacitors, tantalum

The end-uses of tantalum application have slightly changed over time. For example, the capacitor grade tantalum power has considerably decreased; meanwhile the tantalum chemicals have increased from 14 to 36%. However, because of the strong competition from other materials for capacitors and microelectronic applications it is expected that the consumption of tantalum will not increase substantially in the future. This is supported by data from the Niobium-Tantalum International Study Center (TIC) on tantalum processors’ shipments, which were at the same level in early 2010 as they were in 2004 and by the global production data of the United States Geological Survey (USGS), which show that global production in 2010 was more than 50% less than in 2004.

Tantalum scrap comes mostly from tantalum-related electronic components, and scrap products of tantalum-containing cemented carbides and superalloys. At the moment, the recycling of tantalum products is very limited due to technical problems concerning the scrap recovery, among others. It is expected that the recycling rate (mainly from pre-consumer scrap) will increase in the coming years.

2.2.1.3 Tantalum Production, Supply and Demand

The tantalum raw materials are all sourced from outside the EU, with the exception of minor amounts of scrap from the EU, and the European Commission has identified this metal as one of 14 critical raw materials (EC 2010). A schematic of the inputs and outputs of the European tantalum industry are shown in Figure 5.

Brazil and Canada followed by Rwanda, Mozambique, Australia and the DRC are the relevant countries producing tantalum (See Annexes 3 and 4).

According to MBendi (2013), Angus & Ross PLC from the United Kingdom is trying to develop tantalum sites in the Irish counties Carlow and Wexford and the Motfeldt Center in Greenland. In Finland, new prospecting ventures for tantalum ore are underway. And in Spain, Solid Resources Limited has formed a subsidiary holding a 60% interest in a tantalum lithium mining venture.

Depending of the kind of processor a company can cover the process from the ore to the refining or only include the refining and processing of tantalum compounds. The European tantalum processing industry comprises of a limited number of companies producing diverse chemical and metallurgical products. Their combined output is between 250 and 300 tons of tantalum per year (Espinoza, 2012).

Figure 5: Raw materials and outlets of the European tantalum industry[6] (Espinoza, 2012)

According to the Tantalum-Niobium International Study Center (TIC, 2013), in the early days of the tantalum industry, almost all processors were located either in the U.S. or in Europe. With the increase of the market for tantalum, only two companies were effectively involved in integrated processing: Cabot Corporation in the U.S. and H.C. Starck in Germany. Today, besides these two companies, which got involved in off-shore processing in Japan and Thailand, there are several other significant integrated processors in China, Estonia and Kazakhstan. In addition to the limited number of integrated processors, there are many other companies (e.g. in China, Brazil, Russia or South Africa) that specialize in just one or two stages of tantalum processing.

Figure 6 shows the estimated world consumption of tantalum. The electronics industry is accountable for 50-60% of tantalum consumption, with superalloys the other major end-use at about 20%. In 2008, world consumption of tantalum reached an all-time high, but in 2009 the global economic downturn caused demand to fall by 40%. In 2010, there was a strong recovery, especially seen in the capacitor industry, and demand returned to a level approaching that of 2008 (Roskill, 2012).

The leading suppliers of tantalum imports for consumption (by weight from 2008 to 2011) were: Australia 54%; Mozambique 22%; Canada 19%: China 31%; Kazakhstan 27%; Germany 14%; Estonia 22%; Russia 14%; and Mexico 12% (Papp, 2013).

Figure 6: Estimated world consumption of tantalum, 2005 to 2011 (t Ta) (mmta, 2013)

2.2.2 Tin

2.2.2.1 Economic Operators

Tin is mainly produced from the mineral cassiterite (SnO2), an ore which contains impurities that have to be removed through concentration, smelting or refining.  The metal production of tin is divided into three stages: ore mining, smelting and refining.

Figure 7: Examples for economic operators in the tin supply chain from mines to smelters and refiners

Mining of cassiterite is carried out in large industrial mines as well as in ASMs. Unlike other minerals, approximately 50% of the world’s primary tin production is carried out in ASMs in Indonesia, China, Bolivia and Central Africa (GHGm, 2008). Four companies account for 50% of the world’s production, ten companies (Minsur, Yunnan Tin, PT Timah, Thaisarco, MSC Group, Guangxi China Tin, Yunnan Chengfeng, EM Vinto, Metallo Chimique, Gejiu Zi-Li) account for 75% of global tin production.

Mining can be either carried out as hard rock underground mining (China, South America and Australia) or as alluvial mining (South East Asian tin belt and Indonesia) (ITRI, 2012b). Depending on the country of origin and the method by which tin ores are mined, several intermediate tiers can be settled between tin mines and concentrators and/or smelters. These intermediate steps are often very unclear, obscuring the origin of the mineral.

The broken ore from the hard-rock mining is transformed into a concentrate ore. This is achieved by crushing it into grinds and turning it into concentrate through gravitational methods. Processing by-products can include copper, lead, zinc and other minerals. In some mines, tin itself can be a by-product of metal extraction, including for both tungsten and tantalum as an example.

The purpose of tin smelting is to produce tin out of its ores. Once crude tin is produced by smelting, further pyromechanical refining is required, which results in tin of around 99.85% - 99.9% purity suitable for general commercial use (ITRI, 2012b). Ten main smelting companies process over 80% of the world´s tin, almost all of which are based in East Asia (for example Liuzhou China Tin Co., Malaysia Smelting Corporation Bhd or Thailand Smelting & Refinery Company Ltd.), with China and Indonesia being the world´s leading tin producers from smelters (See Annex 4) (Tulane University, 2011). As of June 21, 2013, there are five tin smelters which are compliant according to the Conflict Free Smelter (CFS) program of EICC and GeSI: Malaysia Smelting Corporation, Minsur, OMSA, PT Koba Tin and Thaisarco (EICC-GeSi CFS-Tin, 2013).[7]

 

Component Producers buy tin from international traders and process it either to an end product or to a component dedicated for being passed on several tiers along the supply chain to an Original Equipment Manufacturer (OEM), which manufactures the end product (see Figure 7).

2.2.2.2 Involved industry sectors and products

With 36% of global tin production, the electronics industry is the major end user of tin (RESOLVE, 2010). The main tin applications in this industry sector are tin alloys, being used to produce tin-based lead free solders (share of market 2011: 52%) (ITRI, 2012b). Solder is necessary for conductive joints in almost every electronic product, from generic personal computers (which contain 8% tin), tablets and mobile phones (containing 1% tin) to watches, radios and cameras (GHGm, 2008). As the automotive industry (besides aerospace and defence) not only uses electronic devices, but also many other tin appliances, it can be regarded as one of the most economically-relevant sectors using tin (see Figure 8).

Figure 8: The tin supply chain matrix including the most important products (green), intermediate products (blue), and relevant industry sectors (yellow)

Tinplate (steel with a thin tin coating) provides an essential corrosion protection and is therefore used in various industry sectors, from packaging industries, which in 2010 were using 177,100 tons of refined tin, to the automotive and consumer goods industries (ITRI, 2012b).

According to ITRI (2012b), the biggest user of tin chemicals (the third largest industrial tin application) is the construction industry (49,400 tons of refined tin in 2010). Organic tin chemicals are added to PVC in order to prevent degradation in heat and sunshine. Inorganic tin chemicals are used as catalysts in glass coatings (e.g. for low emissivity glass used in modern ‘green buildings’), for the production of thermo-insulating polyurethane (PU) foam, in the ceramic and cement industries as well as in a wide range of other industrial processes (ITRI, 2012b).

Examples for principal tin products are shown in Table 6.

Figure 9: Refined Tin Consumption by Use, 2010 (Data Source: ITRI 2012a)

Table 6: Relevant product examples for tin

Industry || Tin product || HS Code || Example || Other applications/ products

Electronics || Tin-based solders/ lead free solder block || 800110 || laptop || lithium ion batteries, printed circuit boards with tin finishes, circuits, connectors, capacitors, tin in stainless steel, CRTs

Automotive || safety glass || 7007 || cars (conductive tin coatings) || car batteries (addition of tin alloys), lithium ion batteries, radiators (brass alloys solders), wiring (tinned copper), bearings (tin alloy addition coatings), brake pads (tin additives), fuel tank (tin-zinc coating), sealants and seat cushions (tin catalyst), plastics (PVC stabilizers), electronics (solder fuses contacts), fuel catalysts, fire retardants, automotive exhaust systems (stainless steel)

Packaging || Tin can || 9854 || || product containers, packaging for food and beverages

Construction   || PVC || 39042210 || || glass coatings in “green buildings”, PU foam

2.2.2.3    Tin Production, Supply and Demand 2.2.2.3.1 Non-EU Tin Production, Supply and Demand

Tin is predominantly produced outside Europe, with China and Indonesia being the leading tin producing countries, dominating two thirds of the tin mining (ITRI, 2012b). In 2011, China accounted for 46.82% of global tin production, Indonesia for 26.89% (see Annex 6 and 7). Furthermore, China is not only the world´s largest miner, but also the largest user of tin, having recently shifted from a net exporter to a net importer of the metal. 31% of Indonesia’s crude tin is traded in significant quantities to Malaysia, China and Thailand, where it supplements domestic production and established refineries (RESOLVE, 2010). China and Indonesia are followed by Peru, Bolivia and Brazil, together producing 18% of global tin (2011). With Rwanda (8th place), the Democratic Republic of the Congo (9th place) and Nigeria (11th place), three Central African Countries are among the 15 main tin-producing countries (see Annex 7).

Powered by the rapid industrialization of China, a global boom in consumer electronics, and a rapid transition to the use of lead-free solders, world tin consumption reached a peak of over 370.000 tons in 2007. Today, after the financial crisis in 2008-2009, Chinese consumption has risen to a new peak, while demand has not fully recovered in the rest of the world. Presently, Asia accounts for over two thirds of the world’s tin use, with China using over 40%. Overall, the development of new tin applications (lithium ion batteries, new stainless steel alloys and a wide range of energy-related products relying on tin chemicals) should lead to a demand of estimated 400.000 tons of tin in 2015 (ITRI, 2012b). In response to higher tin prices in 2010 and a simultaneous rising demand for tin applications, tin producers have opened and are still opening new tin mines and tin smelters as well as expanding existing operations (USGS, 2011).

2.2.2.3.2 Tin Production, Supply and Demand within the EU

Europe is strongly depending on tin imports, and the European Union was expected to be the second largest tin consumer in 2011 (The Economist, 2010). According to the World Mining Data (Reichl et al., 2013), the only European country among the 16 main tin-producing countries is Portugal (in 16th place) with a production of 39 metric tons in 2011 and a 0.01% share of global tin production. However, currently there are several projects in operation to revive mining in Europe: UK-based Treliver Minerals is exploring an area in South West England, while another UK-based company, Marine Minerals, is aiming to collect tin from waste material that has been dumped from onshore mines off the Cornwall coast. Another Canadian-owned mining firm, Solid Resources, is currently exploring the Doade-Presqueiras Mine in Northwest Spain for tin, tantalum and other rare metals (Tin Investing News, 2013). In addition, tin-research projects conducted by other companies which are encouraging tin mining in Europe are: Eurotin Inc. (Santa Maria and Oropesa/ Spain), Deutsche Rohstoff AG (Gottesberg and Geyer/ Germany) and European Metals (Cinovec/ Czech Republic).

Table 7 shows the refined tin consumption including EU and non-EU countries.

Table 7: Refined tin consumption (The Economist, 2010)[8]

(‘000 tons unless otherwise indicated)

|| 2007 || 2008 || 2009 || 2010 || 2011

China || 138.2 || 138.5 || 143.0 || 150.1 || 154.8

EU || 67.4 || 63.1 || 49.3 || 52.3 || 53.4

U.S. || 32.7 || 31.4 || 25.9 || 28.4 || 29.3

Japan || 34.2 || 32.2 || 23.0 || 29.8 || 33.4

South Korea || 16.1 || 16.3 || 15.2 || 18.4 || 18.1

Taiwan || 12.7 || 11.9 || 8.8 || 12.8 || 12.8

Brazil || 6.0 || 5.5 || 7.7 || 8.5 || 8.8

Russia || 2.3 || 2.8 || 2.3 || 3.0 || 3.2

Others || 53.8 || 51.5 || 44.1 || 47.5 || 47.8

World Total || 363.4 || 353.2 || 319.3 || 350.8 || 361.6

% change || -2.6 || -2.8 || -9.6 || 9.9 || 3.1

2.2.3 Tungsten

2.2.3.1 Economic Operators

Tungsten, also known as wolfram (W), does not occur naturally as a free metal and therefore must be extracted in several steps from tungsten mineral ores such as scheelite or wolframite (Figure 10 and Figure 12).

In the first steps primary tungsten producers (mines + primary tungsten processors) extract tungsten ores either by underground or by surface open-pit mining, and perform primary mineral processing to produce tungsten mineral concentrates. Due to the metal’s high melting point, tungsten cannot be processed in smelters.

Primary tungsten processors are plants which process tungsten ores chemically. These concentrates can be used directly in steel manufacture. Tungsten is often traded by undisclosed supply contracts which make traceability of the mineral difficult. This is why all intermediate supply chain tiers between primary tungsten producers, secondary processors and tertiary manufacturers are often very unclear and vary by country of ore origin.

Secondary tungsten processors are plants which use concentrates to produce a number of intermediate products (tungsten powders, tungsten carbide powders, ammonium paratungstate/ ATP, and/or tungsten chemicals). These companies are mainly based in Eastern Asia.

Tertiary tungsten product/ component manufacturers use intermediate products to produce finished tungsten metals and alloys or tungsten end products such as machine tools or wear-resistant components.

Due to the expansion of the (mainly Chinese) demand for tungsten, considerable strategical vertical supply chain integration (i.e. integration between processing and tertiary manufacturing facilities) through common ownership or contractual arrangements took place within Western tungsten industry (with a move away from exports of concentrates into downstream processing and manufacturing). Strategic mergers, acquisitions and investments were the reaction to the investment of large Chinese companies in Western tungsten projects (British Geological Survey, 2011b).

Figure 10: Examples for actors in the tungsten supply chain from mines to tungsten product/compound manufacturers

2.2.3.2 Involved industry sectors and products

Due to some unique properties like its extremely high melting point, very high density (similar to gold), and high thermal and electrical conductivity, tungsten is an essential component in a wide range of products. This fact makes it difficult to identify the main economically-relevant industry sectors, for most of the identified industries seem to be affected directly and/or indirectly by tungsten products. There are three main applications of tungsten: hard metals (cemented carbides), steel and other alloys and mill products.

Figure 11: Primary uses of tungsten (ITIA 2011)

Figure 12: The tungsten supply chain matrix including the most important products (green), tungsten intermediate products (blue) and relevant industry sectors (yellow)

Hard metals, with tungsten monocarbide and cemented carbides as the main constituents are the most important uses of tungsten today. Hard metal tools are the backbones for the shaping of metals, alloys, woods, composites, plastics and ceramics. Main applications are in high tech machine tools where they need to withstand higher temperatures and have a high hardness and wear-resistance to abrasion. Therefore, tungsten hard metals are not only found in the industrial machinery industry, but in widespread industry sectors, from electronics, to construction, metal industries, mining and petroleum industries. 

Tungsten is furthermore an important component of a large number of steels and alloys. Specialized steel alloys are utilized in specialist engineering application, where hardness and strength, particularly over a wide temperature range, are necessary (British Geological Survey, 2011b). Tungsten is a common heat-resisting alloying element in high speed steels, super high speed steels, heavy metal alloys, superalloys and other alloys, being used in applications in the defence and aerospace, industrial gas turbine, marine turbine, medical devices, construction, and electronics industries (British Geological Survey, 2011b).

Tungsten mill products are either tungsten metal products (lighting filaments, electrodes, electrical and electronic contacts, wires, rods and sheets) or tungsten alloys (ITIA, 2011a). The main characteristics of pure metallic tungsten – e.g. extremely high melting point, conductivity, and ductility – make it ideal for electrical and electronic applications. One of the most common uses of tungsten is the filament in incandescent light bulbs, followed by vacuum tubes, heating elements, medical X-ray tubes, electronic circuit interconnectors and distributor points in automotive ignition systems. The semiconductor industry consumes around 200 tons of tungsten hexafluoride (WF6) per year worldwide. WF6 is a gas, most commonly used in the production of semiconductor circuits and circuit boards (British Geological Survey, 2011b).

Table 8: Tungsten product examples

Industry || Key tungsten product || HS Code || Example || Other applications/ products

Industrial Machinery and Tooling Equipment || Cemented carbides in punches for steel rolling mills || 8101 || punches for steel rolling mills || various high tech machine tools

Electrical and Electronics Industry || Tungsten platings || 8101 || mobile phone surface acoustic wave filters || electric contacts, tungsten-copper heat sinks used to remove the heat of microelectronic devices, electron guns, plasma generators, voltage regulators, semiconductors (die wire bonding, in small quantities on a chip), processors and chip sets (sputtet targets), transistors, mobile device vibration motors (shaft counterweights)

Lighting Industry || Tungsten wire || 810193 || incandescent filaments || tungsten wires in lamp systems, coils, coiled coils in incandescent lamps, electrodes in low- and high-pressure discharge lamps

Automotive Industry || || || || window heating, valve seats, tungsten electrodes  for car horns, motors (about 10kg tungsten heavy metal parts, located around the crankshaft for vibration damping), self-darkening mirrors (tungsten-bronze), tire studs (tungsten carbide)

Aerospace/ Defence Industry || || || || jet engine turbine blades (tungsten- containing superalloys), weights of aeroplane’s balancing flaps and ailerons (tungsten  heavy metal alloys), tungsten composites as substitutes for lead in bullets (green ammunition)

Consumer Goods || || || || ballpoint pens, golf balls and clubs, darts,  trekking poles, skating blades

Medical Industry || || || || X-ray tubes with electron gun (electrode + rotating anode made of tungsten), shielding of whole machine is done by tungsten heavy metal

Jewellery || || || || wedding rings containing tungsten carbides, watchcases, tungsten heavy metal rotor in automatic watches

Engineering/ Construction || || || || cemented carbides used for tool-hardfacing (steel alloys with tungsten), road construction work (cold milling machines with tungsten carbide road chisels)

2.2.3.3 Tungsten Production, Supply and Demand 2.2.3.3.1 Non- EU Tungsten Production, Supply and Demand

Major non-European tungsten deposits are found in the Far East (southern China, North and South Korea, Japan, Thailand, and Burma), the Asiatic part of Southern Siberia, Kazakhstan, Uzbekistan, Kyrgyzstan, Caucasus and the eastern coastal fold belt of Australia (see Figure 13). In Africa, tungsten deposits, either with or without tin, can be found in Rwanda, Uganda, and the Democratic Republic of the Congo (British Geological Survey, 2011b) (see Annexes 8, 9 and 10).

China is by far the largest primary tungsten producer, with a production of 69.900 metric tons. However, according to the U.S. Geological Survey, mine production from outside China is expected to increase. In order to avert dependency from Chinese mine production, numerous companies are working towards developing tungsten deposits or restarting tungsten production from inactive mines in Asia, Australia, North America and Europe (USGS, 2013e).

The world tungsten supply is dominated by Chinese production and exports. China is also the world’s largest tungsten consumer. The country produces large quantities of mixed carbide powders, sintered tungsten and tungsten carbide products – most of them are for domestic consumption. In order to meet increasing domestic demand and conserve its tungsten resources, China started to regulate its domestic tungsten industry. The Chinese Government has imposed various limitations on foreign investment and export licenses as well as on exploration, mining and production of tungsten. Furthermore, China has been adjusting export quotas to favor value-added downstream materials and products, and has at the same time started to improve its tungsten-processing technology (USGS, 2013e).

Figure 13: Location and type of major tungsten deposits and districts in the world (British Geological Survey,

2011b. CP 13/093 British Geological Survey © NERC. All rights reserved)

2.2.3.3.2 Tungsten production, supply and demand within the EU

Major tungsten deposits are found in the Alpine fold belt that arcs from Germany and the Czech Republic through France and South-West England and into Spain and Portugal (British Geological Survey, 2011b). Three European countries (Austria, Portugal and Spain) have significant mining production of tantalum as well as several tungsten mining research projects currently running (e.g. Tumi Resources’ silver and tungsten research project in south-central Sweden).[9]

The EU is playing a leading role in the processing of tungsten and the development of many tungsten products for automotive, aerospace, medical and lighting applications (European Commission, 2010). Germany, Austria, the UK, Italy, France and Sweden are amongst the leading tungsten metals exporting countries, while Germany and the Netherlands are large ferro-tungsten and ferro-silico-tungsten exporters (British Geological Survey, 2011b). At the same time, Europe is heavily dependent (2010: 75%)(RPA, 2012) on external tungsten supply (EU demand 2011: 10.800 tons, global demand 2011: 79.600 tons)[10] (ITIA, 2012). China’s dominance has created increased concerns for the security of the tungsten concentrate supply for western processors and industry end users.

Therefore, the European Commission has identified tungsten as one of 14 critical raw materials, implementing duty-free quotas for tungsten trioxide and tungsten catalysts (EC 2010).

Figure 14: Mine Production of tungsten 2011 (Brown et al., 2013)

2.2.4 Gold

Gold (Au) is a precious dense and ductile metal, being produced from mines on every continent except Antarctica. Measured by value of production, the gold industry is the third largest non-ferrous metal industry, after aluminum and copper (GHGm, 2008).

The gold supply chain (which refers to the system of all the activities, organizations, actors, technology, information, resources and services involved in moving gold from the source to end consumers) can be divided into upstream supply chain/ upstream actors, and downstream supply chain/ downstream actors. “Upstream supply chain” refers to the gold supply chain from mine to the refiners. Upstream companies include miners, local gold traders or exporters from the country of origin, transporters, international gold traders and refiners. “Downstream gold supply chain” means the supply chain from refiners to retailers, including refined gold traders and gold markets, gold-vaulting entities such as bullion banks and exchanges, retailers and manufacturing companies (OECD 2013b).

2.2.4.1 Economic operators

Miners remove the gold-bearing ores from the ground. This operation is followed by complex extraction processes, either carried out by the mining companies (mine smelthouse) themselves or by processing plants (smelters).

There are several hundred gold mines operating worldwide, ranging from ASMs to large-scale gold mining companies (LSMs). Small-scale and artisanal miners (mainly working in African, Asian and Latin American developing countries) play a substantial role in the world’s gold production. The contribution of ASMs to global gold production was estimated to range from 20 to 30% annually (GHGm, 2008).

In 2010, the ten major gold companies with a production of over 0,5 million ounces gold per year were Barrick, Newmont, Anglogold Ashanti, Gold Fields, Goldcorp, Kinross, Buenaventura, Newcrest, Harmony and Yamana Gold. Intermediate companies (those producing less than 0.5 million ounces and more than 0,2 ounces gold per year) are Petropavlovsk, Agnico Eagle Mines, Rangold Resources, Hochschild, Golden Star, Eldorado Gold, Resolute, Northgate, Red Back Mining Inc. and New Gold. Small gold producers produce less than 200.000 ounces per year. The top ten among small gold producing companies are Gold Resource, Imperial, Indophil, Avoca, Guyana, Medusa, International Minerals, INT Tower Hill, Resolute and B2Gold (GoldVal.com, 2009). For the Top 20 listed companies, the Africa region is the largest producer (including South Africa), followed by the South American and North American regions. Together, the three regions account for approximately 76% of the total world production by the Top 20 Companies.

The specifics of direct trade are often concealed behind commercial confidentiality, making the whole process of (national and international) direct selling/buying non-transparent. Neither seller nor buyer may be prepared to divulge details of transactions (GHGm, 2008).

The refiners purify gold to a commercial market quality (bullion bars with a purity of 99,5% or higher). The world´s major gold refiners are based near major mining centers or precious metals processing centers worldwide. South African Rand Refinery is the largest refiner in terms of capacity. Bullion dealers buy refined bullion bars and trade them to jewellery or electronics manufacturers, directly to or investors.

Figure 15: Examples for actors in the gold supply chain from mines to refiners

Between 2008 and 2012, recycled gold contributed an average of 39% to the annual supply flows World Gold Council, 2013-b). This and the avoidance of large bilateral contracts between miner and fabricator is typical for the gold supply chain and makes it difficult to trace the origin of the mineral. Another characteristic of the gold supply chain is that large quantities of the metal are held in stock by fabricators, dealers, banks, investment funds and state depositors (GHGm, 2008).

2.2.4.2 Involved industry sectors and products

Compared to the trade of other metals, gold trade is unique as it is both a commodity and an important financial product. Since ancient times, gold has been used for jewellery, decoration and for monetary purposes. Today, besides these traditional uses, a wide range of industrial applications are using gold because of its unique physical qualities. As Figure 16 shows, jewellery has the biggest demand for gold, followed by bar and coin and technology (subdivided in electronics, dentistry/medical applications and others).

Figure 16: Gold demand breakdown 2012 and 5-year average (2008-2012) (World Gold Council 2013-c)

Jewellery is the largest component of annual gold demand. Carat jewellery and gold watches made of plain gold and gold combined with other materials are typical jewellery applications.

After jewellery and investment, the electronics industry is the most economically-relevant industry sector using gold, accounting for approximately 9% of annual gold demand (GHGm, 2008). Gold is the material of choice in many electronic applications, especially telecommunications, transportation, information technology and other high-performance and safety critical applications. Gold is an important semiconductor-component. Rapid expansion of the tablet, smartphone, MP3 player and flat display markets benefit in particular, while another electronic application using gold, micro electro-mechanical system (MEMS) pressure sensors, used for control and monitoring purposes in a wide range of applications, are becoming more and more important regarding their market share. Other important appliances are gold plating of connectors, switches and other parts (GHGm, 2008). Meanwhile, as the output of personal computers and the use of gold bonding wire continue to decline, these gold appliances begin to lose importance (World Gold Council (2013-a). Medical and dental applications can also be identified as an industry sector strongly dependent upon gold. The use of gold in medical applications reaches from various biomedical appliances to dental fillings made of gold and gold nanoparticles in cancer treatment.

Table 9: Relevant product examples for gold

Industry || Key gold product || HS Code || Example || Other applications/ products

Medical Industry || high purity gold || 7108 || used as an implant || Gold nanoparticles in cancer therapy

Jewellery || 18 carat gold || 711319 || Wedding ring || Watches, carat jewellery

Electronics Industry || semiconductor || 8541 || Tablet || Pressure sensors, gold plating of connectors, switches, bonding, wires

Figure 17: The gold supply chain matrix including the most important products (green), gold compounds (blue) and relevant industry sectors (yellow)

2.2.4.3 Gold Production, Supply and Demand 2.2.4.3.1 Non-EU Gold Production, Supply and Demand[11]

China, Australia, the United States, South Africa, Russia/Asia, and Peru are the six most important gold producers worldwide, with China ranking first (production 2011: 360.960 kg), followed by Australia (production 2011: 258.000 kg) and the United States (production 2011: 234.000 kg) (Reichl et al., 2013) (see Annex 12 and 13).

The main markets for gold jewellery demand are India, Greater China, the Middle East including Turkey, the Far East, and the United States (see Figure 18). Global jewellery demand in the first quarter of 2013 was at 551 tons. From 2012 to 2013, India, China and the United States experienced a strong growth in gold jewellery demand, while Russian jewellery demand was in line with its five-year quarterly average, the Middle Eastern markets experienced a post-Arab Spring-normalisation, and demand in Turkey experienced a slight growth (World Gold Council, 2013-a).

Figure 18: Year-on-year % change in total consumer demand in tons by region (World Gold Council 2013-a)

2.2.4.3.2 Gold Production, Supply and Demand within the EU

According to Reichl et al. (2013), the European Community (EC) had a total gold production of 21.359 kg

in 2011. Even though the main gold-producing countries can be found on the Asian, American, African and

Australian continent, Finland (Rank 37), Sweden (Rank 43), Bulgaria (Rank 45), Poland (Rank 71), Romania

(Rank 75), Slovakia (Rank 79) and the United Kingdom (84) are among the 93 main gold-producing countries (see Annexes 12 and 13).

As to the European 2012-2013 demand for gold, most Western markets did not replicate the positive conditions of Indian, Chinese and U.S. American markets. According to the World Gold Council (2013a), the European demand for gold jewellery experienced a decline of 26% between the first quarter of 2012 and the first quarter of 2013.

[1] DFA 2010, SEC. 1502 (a).

[2] According to the Conflict Barometer of the Heidelberg Institute, approximately 20% of 396 global conflicts counted in 2012 were linked to natural resources (HIIK, 2012). Therefore, the OECD Due Diligence Guidance does not focus on a solitary region, but rather leaves the geographical scope open to further interpretation.

[3] Cf. OECD 2013b, p. 17-19.

[4] With DF 1502 defining the term “adjoining country” with respect to the DRC as “a country that shares an internationally recognized border with the Democratic Republic of the Congo” (DF 2010, SEC. 1502 (e) (1), this includes Congo, Angola, Burundi, Central African Republic, Rwanda, Sudan, Tanzania, Uganda, Zambia.

[5] SEC 2012, p. 309.

[6] Note that some companies offer products in more than one of the categories listed above

[7] Annex 5 includes the tin World Smelter Production by Country.

[8] Sources: World Bureau of Metal Statistics (WBMS); © Reproduced by the permission of The Economist Intelligence Unit.

[9] For further statistics concerning EU35 exports/imports of tungsten, see e.g. Brown et al. (2013)

[10] For a comparison: Russia’s tungsten demand 2011: 2.306 tons (ITIA 2012)

[11] Further information concerning production, demand and supply can be found under http://www.goldfacts.org/en/economic_impact/interactive_map/

ANNEX III (cont.) 3 The Survey 3.1 The iPoint Conflict Minerals Platform (iPCMP)

Chapter 3.3 presents the results of the survey conducted with users registered for the iPoint Conflict Minerals Platform (iPCMP). The iPCMP, which was launched in September 2012, is an on-demand software solution which enables companies to collect, manage, aggregate and report Conflict Minerals information, and meet the requirements of their customers and the regulatory authorities. Table 10 illustrates the cost benefits of software solutions that facilitate automatized data collection, management, aggregation and reporting processes such as the iPCMP as opposed to manual, Excel-based data management. The table is based on a calculation conducted by one of our customers, a large, > €2 billion-revenue, globally operating automotive component supplier headquartered in Europe.

Table 10: Cost efficiency of software solutions such as the iPCMP as opposed to Excel-based manual data management

Activity || Excel || iPCMP

Number of customer requests || 5 || 5

Number of affected suppliers || 129 || 129

Estimated effort per supplier (in minutes) ||||

Write to supplier || 3 || 0,05

Control response || 30 || 0 (displayed automatically)

Review data || 60 || 20

Have data completed if required || 30 || 10

Review data again || 30 || 10

Aggregate data || 60 || 0,1

Include new suppliers in CM process || 60 || 50

Manage supplier requests || 10 || 1

Manage dates annual update || 5 || 1

Estimated effort customer report (in minutes) ||||

Compile supplier responses for customer || 60 || 20

Create customer report || 60 || 20

Send customer report to customer || 30 || 5

Manage customer reports || 10 || 1

Manage dates annual update and general customer communication || 60 || 30

Total supplier reports (in minutes) || 37.152 || 11.887

Total customer report (in minutes) || 1.100 || 380

Total minutes || 38.252 || 12.267

Total hours || 638 || 204

Total days (with 8h workday) || 80 || 26

The iPCMP, which is based on the EICC-GeSI data collection template, was developed in close cooperation with the AIAG (Automotive Industry Action Group) and a working group with representatives from AIAG member companies — including automotive industry OEMs and suppliers such as Bosch, Chrysler Group, and Ford. However, the iPCMP is specifically designed as a cross-industry solution, addressing and used by companies from a wide range of industry sectors from around the globe. Furthermore, a governance committee ensures that members have a strong say concerning the alignment of iPCMP with their business interests.[12]

Currently, the iPCMP is tailored for compliance with Section 1502 of the U.S. Dodd-Frank Act (DFA 2010) and the related final ruling by U.S. Securities and Exchange Commission (SEC 2012). However, iPoint’s software has been supporting customers for over a decade in complying with various national, international and supranational regulations and directives subject to constant change and country- or state-specific implementation provisions, such as the EU Directive on the Restriction of the Use of Certain Hazardous Substances, RoHS (with similar directives in China and California), or the EU Regulation on the Registration, Evaluation, Authorisation and Restriction of Chemicals REACH (in preparation in China and Korea). Due to its up-to-dateness and adaptivity, iPoint’s software can be tailored to support companies headquartered in other countries, regions, continents or economic and political unions such as the EU and directly affected by new or similar regulations or directives concerning the responsible sourcing of selected minerals from conflict-affected and high-risk areas.

3.2 The iPCMP user survey: Objective, sample, questionnaire construction

The key objective of the iPCMP user survey was to obtain statistically useful information concerning due diligence compliance costs of selected operators in relation to the responsible sourcing of selected minerals from conflict-affected and high-risk areas.

The data were collected via online questionnaire. The survey invitation was sent out between July 4th, and July 9th, 2013, to all of the users registered with the iPCMP at that point of time. As of September 7th, 2013, the survey’s closing date, 330 iPCMP users have participated in the survey, the results of which are listed below. iPoint does not request or systematically gather detailed, survey-relevant data of the registered iPCMP users (e.g. on company size, industry sector, main product categories etc.). Therefore, no information can be provided on statistical population and the degree of representation of the sample – with the exception of the iPCMP users’ location. Figure 19 illustrates that there are hardly any differences regarding the locations of the iPCMP users in total and of the survey respondents,[13] which may be taken as an indication that the sample is, in fact, representative.

Figure 19: Representativity of the sample,

using the example of iPCMP total users’ and survey participants’ locations

The questionnaire consists of 17 single choice, multiple choice, close-ended and open-ended questions. Furthermore, there is a comment box for additional remarks at the end of the survey and also at the end of some of the 17 questions. These comments, which can be found in the annex (cf. Annex 14ff.), were not corrected as regards spelling mistakes. However, entries which allow the identification of specific persons or companies have been anonymised for confidentiality reasons.

The survey questions focus on different aspects which may serve as variables for further EIA calculations. The questionnaire was created on the basis of existing Conflict Minerals-related studies, surveys, as well as other relevant publications by international and supranational institutions and organizations, notably the European Commission, the OECD, and the UN.[14]

Specifically, the survey questions address the following 12 areas:

a) Location of companies’ headquarters (question 1)

The survey participants had 7 options to choose from:

· Africa

· Asia

· Australia

· Canada

· Europe

· South America

· USA.[15]

b) Operational regions of the companies (question 2)

The respondents were able to make multiple choices from a given selection of 6 options:

· Africa

· Asia

· Australia

· Europe

· North America

· South America.

c) Company size (question 3)

The company size was measured in staff headcount. The respondents had 6 options to choose from:

· < 50 employees

· < 250 employees

· < 1.000 employees

· < 5.000 employees

· < 10.000 employees

· > 10.000 employees

These options, which were partially modelled around the official EC company size definition, not only allow a clustering of small companies, medium-sized companies, and large companies. They also enable the differentiation of companies according to their annual turnover.[16] Thereby, the following simplified employee headcount to annual turnover-relation could be used (Table 11):[17]

Table 11: Employee headcount to annual turnover-relation

|| Head-count || Annual Turnover US$ || Annual Turnover €

|| < 50 || ≤ || US$ || 13.000.000,00 || ≤ || € || 10.000.000,00

|| < 250 || ≤ || US$ || 65.000.000,00 || ≤ || € || 50.000.000,00

|| < 1000 || ≤ || US$ || 260.000.000,00 || ≤ || € || 200.000.000,00

|| < 5.000 || ≤ || US$ || 1.300.000.000,00 || ≤ || € || 1.000.000.000,00

|| < 10.000 || ≤ || US$ || 2.600.000.000,00 || ≤ || € || 2.000.000.000,00

|| > 10.000 || > || US$ || 2.600.000.000,00  || > || € || 2.000.000.000,00

d) Industry and main economic activities according to the ISIC code (question 4)

Here, the survey participants had to provide information on their industry sector, or more specifically, on their main economic activities according to ISIC (International Standard Industrial Classification of All Economic Activities) by choosing from a given list of economic activity areas:[18]

· Mining and quarrying (ISIC – B) with the area Mining of metal ores

· Manufacturing (ISIC – C) with the areas Manufacture of wearing apparel; Manufacture of basic pharmaceutical products & pharmaceutical preparations; Manufacture of rubber & plastics products; Manufacture of other non-metallic mineral products; Manufacture of basic metals; Manufacture of fabricated metal products, except machinery & equipment; Manufacture of computer, electronic and optical products; Manufacture of electrical equipment; Manufacture of machinery and equipment n.e.c.; Manufacture of motor vehicles, trailers and semi-trailers; Manufacture of other transport equipment; Manufacture of furniture; Other manufacturing; Repair and installation of machinery and equipment

· Construction (ISIC – F) with the areas Construction of buildings; Civil engineering; Specialized construction activities

· Wholesale and retail trade; repair of motor vehicles and motorcycles (ISIC – G) with the areas Wholesale & retail trade and repair of motor vehicles & motorcycles; Wholesale trade, except of motor vehicles & motorcycles; Retail trade, except of motor vehicles & motorcycles

· Other (comment field for free text entries).

e) Reasons for exercising due diligence for the 3TG (questions 5-7)

The questions belonging to this section focus on whether the respondents were affected by the U.S. Conflict Minerals law – i.e. Section 1502 of the Dodd-Frank Act and the related SEC ruling – directly, as an SEC issuer (filer), or indirectly, e.g. due to a customer request. Specifically, this section contained the following questions:

· Are you an SEC issuer (filer)? (question 5)

· If you are an SEC issuer (filer), are you preparing a Conflict Minerals report for your company as a whole or as a legal entity? (question 6)

· If you are not an SEC issuer (non-filer), why are you preparing a Conflict Minerals Report? (question 7)

o Customer request

o Expecting customer request

o Voluntary basis

o Other (please specify)

f) Companies’ position in the supply chain (question 8)

The survey participants could choose from 8 options: 

· OEM / End-product manufacturer

· Tier 1 / Semi-finished manufacturer

· Tier 2

· Tier 3

· Tier 4-n

· Trader[19]

· Smelter

· Other

g) Number of active suppliers (question 9)

The respondents had eight options to choose from:

· <500

· <1.000

· <2.500

· <5.000

· <7.500

· <10.000

· <20.000

· >20.000

This question aims at determining the economic impact in all the tiers of the supply chain. If one relates the number of suppliers to a company’s respective position in the supply chain (identified via question 8), one receives another important variable for an EIA.[20] However, one also needs to take into account three critical factors identified by Tulane University (2011): 1) supplier overlap/mutuality; 2) exclusion of suppliers that do not provide Conflict Minerals materials, parts or components, and 3) smaller companies have fewer suppliers.[21]

h) Metals used in the products or manufacturing processes of the companies (question 10)

The respondents could make multiple choices from a given selection of 4 options, which correspond to the current definition of “Conflict Minerals”, i.e. of minerals and their derivatives determined by the US Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country:[22]

· Tantalum

· Tin

· Tungsten

· Gold

i) Department responsible for Conflict Minerals Reporting (question 11)

The respondents could select one or more of the following 10 options:

· Compliance

· Corporate Responsibility

· EH&S

· Engineering

· Legal

· Procurement

· Purchasing

· QM (quality management)

· Supply Chain

· Other / Cross-functional team (please specify)

j) Main product category (question 12)

The survey participants entered their main product category as free text. iPoint subsequently allocated the answers to corresponding 4 digit HS codes, i.e. codes of the WCO’s Harmonized Commodity Description and Coding System (HS).[23]

k) Estimated effort for Conflict Minerals Reporting (question 13)

Here, the survey participants were requested to provide information on the estimated initial (one-time) as well as ongoing (annually recurring) internal and external expenditures for Conflict Minerals reporting at their company for seven areas:[24]

As regards the initial costs, the survey participants were presented 10 options, ranging from <5.000 US$ to >5.000.000 US$.[25] Concerning the ongoing costs, the respondents had 12 options to choose from, ranging from <1.000 US$ to >5.000.000 US$ p.a.[26]

The determination of these seven cost items described in detail below (see i. to vii.) was based on various guidelines and studies, notably OECD’s “Five-Step Framework for Risk-Based Due Diligence in the Mineral Supply Chain”[27] and related publications[28] as well as Tulane University’s “A Critical Analysis of the SEC and NAM Economic Impact Models and the Proposal of a 3rd Model” (Tulane University 2011).

i. Cost Item I. INTERNAL: Strengthening of internal management systems and processes in order to fulfil CM due diligence

The first cost item focuses on internal aspects, i.e. on efforts related to establishing (internal) company management systems and processes in view of performing Conflict Minerals (CM) supply chain due diligence, including

· reviewing and revising current policies/ procedures/ controls/ compliance manuals (locating where/ which policies, departments and functions will be impacted);

· adopting and implementing CM company policies/ procedures/ controls/ manuals for the supply chain of minerals originating from conflict-affected and high-risk areas and communicating them to suppliers and the public;

· assembling an internal Conflict Minerals rule compliance team to develop a programme that implements this policy and oversees due diligence processes;

· ensuring availability of resources necessary to support the operation and monitoring of these processes;

· setting up a system of controls and transparency over the mineral supply chain by creating a process to engage relevant first-tier suppliers and request information, incl. data gathered by first-tier suppliers about their own supply chains;

· strengthening company engagement with suppliers, such as incorporating expectations regarding disclosure into supplier contracts, specifications, or other documents;

· establishing a company or industry-wide grievance mechanism as an early warning risk-awareness system.

ii.     Cost Item 2. INTERNAL: IT systems and software (Validation, new or revised (industry participation) systems)

This cost item concerns all internal (in-house) efforts related to IT systems and software. This includes human resources for validating and testing new 3rd party or the revision of existing in-house IT systems and software necessary for tracking, exchanging, collecting, aggregating, storing, and reporting CM-related data from suppliers and maintaining auditable records for the regulatory authorities.

iii.    Cost Item 3. EXTERNAL: IT systems and software (Purchase, external maintenance)

This cost item concerns all external efforts connected with IT systems and software, that is IT-related resource outflows such as

· the purchase of IT systems and software necessary for tracking, exchanging, collecting, aggregating, storing, and reporting CM-related data from suppliers and maintaining auditable records for the controlling/regulatory authority, and

· the external maintenance of these IT systems and software by 3rd parties.

iv.   Cost Item 4. EXTERNAL: 3rd Party Consulting, 3rd Party Training

This cost item is related to all resource outflows connected with consulting and training by 3rd parties. Specialist outside consultants can, for example, assist companies in

· analysing the supply chain and supply chain risk,

· developing and assessing the effectiveness of the CM compliance programme and related due diligence procedures,

· advising on and implementing enhancements to IT systems

· preparing compliance policies, supplier communications, questionnaires, certifications and contract modifications

· reviewing and advising on incoming materials from suppliers and customers and

· preparing CM rule disclosure.

Specialist outside trainers or training institutes can, for example, be contracted to conduct training sessions on CM regulations and rules for relevant personnel.

v.    Cost Item 5: EXTERNAL: 3rd Party Audits

This cost item, which is also external, involves expenditures related to supporting the development and implementation of independent 3rd party audits of supply chain due diligence at identified points in the supply chain, e.g. of smelters’ / refiners’ sourcing and due diligence practices for responsible supply chains of minerals from conflict-affected and high-risk areas.

vi.   Cost Item 6: INTERNAL: Gathering information / Reporting (estimation)

This cost item concerns all internal efforts for gathering CM-related data across the supply chain as well as documenting and reporting the information to the regulatory authorities. The reporting process also involves the integration of the collected information into annual sustainability or corporate responsibility reports and the (proactive) communication with the public on the issue of minerals from conflict areas, e.g. via CSR reports or the company website.

vii.   Cost Item 7: EXTERNAL: Gathering information / Reporting (estimation)

This cost item concerns all external efforts for gathering CM-related data across the supply chain, documenting and reporting the information to the regulatory authorities, and communicating the CM-related due diligence practices and data to the public. This cost item also includes fees to industry associations for external analyses.

l) Expected social and economic impact of Conflict Minerals due diligence on conflict-affected and high-risk areas, for local operators and communities as well as for the underlying conflicts themselves (questions 14-17)

The survey participants were first asked whether they expected that Conflict Minerals due diligence would have a social or economic impact (positive or negative) on conflict-affected and high-risk areas (with Yes / No answer options, including a comment box, cf. questions 14 and 16). Following this, they were asked to note down their concrete expectations regarding the social or economic impact for local operators and communities as well as for the underlying conflicts themselves in a free text box (questions 15 and 17), whereby the answers to these questions were subsequently clustered by iPoint.

3.3 Summary of results 3.3.1 Main findings

The main, and at the same time, most striking finding of the survey was that the majority of the participants reported relatively low cost efforts for Conflict Minerals reporting, with expenditures predominantly estimated at € 13 500 for initial efforts (74%) and at € 2 700 for ongoing efforts (63,8%) – despite the fact that only 17% of the respondents worked at small companies with less than 50 employees. The lower and upper limit of the selectable range of costs was based on economic impact models related to the U.S. Conflict Minerals Reporting legislation (Tulane University 2011). In retrospect, the survey should have proceeded from a much lower minimal limit and from much smaller cost option intervals, since this would have provided far more differentiated and precise findings concerning the estimated efforts for Conflict Minerals reporting. Nevertheless, the cost-related results of the iPCMP user survey depicted in chapter 3.3.2.11 are, in fact, far more differentiated and precise than other existing Conflict Minerals reporting-related studies and estimates.

Other important findings of the survey include:

· Company size and Conflict Minerals reporting expenditures: There was a relatively balanced ratio between survey respondents representing small and medium-sized enterprises (SMEs), i.e. companies with less than 250 employees, and large enterprises with 250 employees and more (45% vs. 55%). Not surprisingly, a higher percentage of SMEs as opposed to large companies reported overall initial costs estimated at € 13 500 (85,1% vs. 66,2%) and overall ongoing costs estimated at € 2 700 (73,9% vs. 55,5%). 

· Main economic activities: More than two-thirds of the respondents (67%) had their main economic activities in the manufacturing industry (ISIC C), with over a quarter (27,4%) of these respondents economically active in the Manufacture of fabricated metal products, except machinery & equipment (ISIC C-25) and another quarter (23,6%) active in Other manufacturing (ISIC C-32).

· Position in the supply chain, number of suppliers: With nearly half (44%) being a Tier 1 / semi-finished manufacturer, followed by a almost equally large group (43%) that was either an OEM / End-product manufacturer (22%) or a Tier 2 (21%), the majority of the respondents had a further downstream position in the supply chain. Thereby, not surprisingly, the further downstream a company was and the larger the company, the more active suppliers it had.

· Department responsible for Conflict Minerals reporting: No single department is solely in charge of this new compliance area, i.e. Conflict Minerals reporting lies in the responsibility of many departments, with the purchasing (35%) and the QM departments (24%) represented most frequently in these cross-functional teams.

· Main products: Within the framework of the Harmonized Commodity Description and Coding System (HS) of tariff nomenclature, nearly a third of the respondents’ products can be allocated to Machinery/Electrical (30,4%; HS 84-85), followed by Transportation (25,3%; HS 72-83) on a two-digit level. On a four-digit level, products of the area “parts & access[ories] for motor vehicles” dominated (18,1%; HS 8708), followed by “transmission shafts, bearings, gears etc, parts (5,5%; HS 8483).

3.3.2 Detailed results 3.3.2.1 Location of headquarters

More than half of the participants (55,8%) worked at companies headquartered in the USA, followed by those headquartered in Europe (22%) and Asia (15,5%). A smaller portion of the survey participants had their headquarters in Canada (3,4%) and South America (2,7%), with those headquartered in Africa and Australia ranking last (0,3% respectively). (Figure 20) This USA-dominated result is not surprising since the iPCMP is currently tailored to support companies affected by U.S. Conflict Minerals laws,[29] directly impacting publicly-traded U.S. companies which then pass the reporting requirements through their global supply chain.

Figure 20: Location of headquarters (iPCMP user survey, Q01)

3.3.2.2 Operational regions

Asked about the regions in which their company operates, the respondents listed North America most frequently (81%), followed by Asia (50%) and Europe (46%). Less than a third indicated that they operate in South America (29%), Australia (14%), and Africa (9%). (Figure 21)

Figure 21: Operational regions (iPCMP user survey, Q02)

3.3.2.3 Company size

Slightly more than half of the survey participants (55%) worked at large enterprises with 250 employees and more. The remaining respondents (45%) represented small and medium-sized enterprises (SMEs), i.e. companies with less than 250 employees (Figure 22).

Figure 22: Company size (iPCMP user survey, Q03)

Of course, this relatively even distribution does not reflect market realities. “In the enlarged European Union of 25 countries,” for example, “some 23 million SMEs provide around 75 million jobs and represent 99% of all enterprises.”[30] We interpret these findings as follows: First, as several surveys have revealed, many companies are still in the early stages of their Conflict Minerals compliance efforts, have not yet begun gathering information needed to meet the reporting requirements of the SEC, or are still determining if the rule even applies to their products.[31] Secondly, the larger a company, the more likely it is that the necessary in-house structures (i.e. separate departments, staff, and supply chain expertise) for monitoring new compliance-related developments around the globe as well as for coordinating the creation and implementation of compliance programmes etc. are already available. This, of course, accelerates Conflict Minerals compliance efforts, since companies do not have to reinvent the compliance wheel and can make recourse to existing structures and procedures. Therefore, the slight ‘under-representation’ of SMEs in the iPCMP user survey could be due to the fact that companies of this size do not yet have the necessary structures and procedures to drive Conflict Minerals compliance efforts.[32]

3.3.2.4 Industry and main economic activities according to the ISIC code

Over two thirds (67%) worked in Manufacturing (ISIC, Section C). Nearly a quarter of the survey participants (22%) selected the option “Other”, naming a wide range of economic activities, whereby the automotive sector stood out here as most frequently mentioned area (cf. Annex 14ff.). The remaining participants were either active in Wholesale and retail trade; repair of motor vehicles and motorcycles (ISIC, Section G; 5%), Construction (ISIC, Section F; 4%), or Mining and quarrying (ISIC, Section B; 2%). (Figure 23)

Figure 23: Overview of industries / main economic activities according to ISIC code (iPCMP user survey, Q04)

More than half of those who chose Manufacturing specified that their main economic activities lie either in “Manufacture of fabricated metal products, except machinery & equipment” (ISIC C-25; 27,4%)[33] or in “Other manufacturing” (ISIC C-32; 23,6%).[34] (Figure 24)

Figure 24: Industries / main economic activities – Details on manufacturing sector (iPCMP user survey, Q04)

The remaining half of the responses paint a more fragmented picture, with the main economic activities unevenly scattered across the following 11 areas: “Manufacture of rubber & plastics products” (ISIC C-22, 13%), “Manufacture of motor vehicles, trailers and semi-trailers” (ISIC C-29, 10,6%), “Manufacture of electrical equipment” (ISIC C-27, 8,2%), “Manufacture of machinery and equipment n.e.c.” (ISIC C-28, 4,8%), “Manufacture of computer, electronic and optical products” (ISIC C-26, 4,5%), “Manufacture of basic metals” (ISIC C-24, 4,1%), and Manufacture of other transport equipment (ISIC C-30, 2,4%), with a vanishingly low percentage (0,3% respectively) active either in “Manufacture of wearing apparel” (ISIC C-14), “Manufacture of other non-metallic mineral products” (ISIC C-23) “Manufacture of furniture” (ISIC C-31), or “Repair and installation of machinery and equipment” (ISIC C-33). (Figure 23) None of the respondents working in Manufacturing had their main economic activities in “Manufacture of basic pharmaceutical products & pharmaceutical preparations” (ISIC C-21, 0%), which is not surprising, since the 3TG are obviously not essential to products in this area.

3.3.2.5 Reasons for exercising due diligence for the 3TG 3.3.2.5.1 Directly affected by US Conflict Minerals law

Only a small part of the respondents (16%) were an SEC issuer (filer) and thus directly affected by the Conflict Minerals reporting requirements of the U.S. Dodd-Frank Act and related SEC rules (Figure 25).

Figure 25: SEC issuers and non-issuers (iPCMP user survey, Q05)

Of those respondents indicating that they were an SEC filer, over three-quarters (78%) stated that they were preparing a Conflict Minerals report for their company as a whole and not as a legal entity of their whole company (Figure 26). One of the respondents remarked in this context: “Our subsidiary, a legal entity headquartered in the US, will report to our non-USA parent. The parent is the SEC issuer and will manage CM policy and file form SD.” (cf. Annex 15 for all of the comments on this question)

Figure 26: Impacted by Conflict Minerals reporting requirements as company or legal entity (iPCMP user survey, Q06)

3.3.2.5.2 Indirectly affected by US Conflict Minerals law

The majority of the respondents (84%) was not an SEC issuer (filer) and thus not directly affected by the U.S. Conflict Minerals reporting requirements of the Dodd-Frank Act and related SEC rules (Figure 25). Asked why they were preparing a Conflict Minerals report, the bulk of these (non-filer) respondents (94%) indirectly affected by the US Conflict Minerals law was preparing a report due to a customer request (86%) or in anticipation of a customer request (8%). (Figure 27) These results indicate that the companies directly affected by the US regulations, i.e. the publicly-traded companies under SEC jurisdiction, are passing the reporting requirements through their global supply chains, whereby similar effects can be expected from a possible European initiative on responsible sourcing of minerals originating from conflict-affected and high-risk areas.

Very few respondents (4%) were preparing a Conflict Minerals report voluntarily. Those preparing a report solely on a voluntary basis (1%) were all SMEs located further downstream: two were >50 and <250 employee OEMs headquartered in the U.S., one was a <250 employee Tier 1 headquartered in Asia, and one was a <50 employee Tier 2 based in Europe. The vanishingly low group of respondents that chose the option “Other” (2%) provided specifications for preparing a Conflict Minerals report, ranging from “we re not preparing a conflict minerals report. We are only responding to customer inquiries” to “the SEC issuer without English capability” to “also compliance with company’s own responsible sourcing policies and procedures” (cf. Annex 16)

Figure 27: Reasons of non-filers for preparing a Conflict Minerals report (iPCMP user survey, Q07)

3.3.2.6 Position in the supply chain

The majority of the survey participants was further downstream, with nearly half of the respondents (44%) being a Tier 1 / semi-finished manufacturer, followed by a nearly equally large group (43%) that was either an OEM / End-product manufacturer (22%) or a Tier 2 (21%). A significantly smaller percentage (8%) was either a Tier 3 (4%), a Tier 4-n (1%), or a Trader (3%), whereby none of the participants represented Smelters (0%). (Figure 28)

Figure 28: Position in the supply chain (iPCMP user survey, Q08)

These findings are not surprising, since the iPCMP with its many automatized functionalities specifically appeals to companies that have many suppliers, which are usually found in OEM, Tier 1 and Tier 2 position. That the option “Smelter” was not chosen by any of the respondents lies in the nature of the iPCMP (smelter detection and management is one central functionality of the platform, which is based on the EICC-GeSi Conflict Free Smelter Program).

Those that chose the option “Other” specified their choice, for example, by explaining that they had two or more different positions in the supply chain (e.g. “Tier 2 as well as trader“, “Mainly Tier 1 but also Tier 2 in some cases”, “We are both an OEM and a Tier 1 supplier”) or that they were a distributor, some also used the comment box to detail their activities (e.g. “manufacture of Bearings, sleeves and circles”) and/or to repeat or paraphrase their position in the supply chain (e.g. “component manufacturer”, “We supply completed units which are added to a vehical”). (cf. Annex 17)

3.3.2.7 Number of active suppliers

Almost three quarters (71%) of the respondents had fewer than 500 active suppliers (Figure 29).

Figure 29: Number of active suppliers (iPCMP user survey, Q09)

Not surprisingly, the survey also revealed that a) the further downstream a company was and b) the larger the company, the more active suppliers it usually had (Figure 30 and Figure 31).

Figure 30: Number of active suppliers in relation to supply chain position (iPCMP user survey, Q09)

Figure 31: Number of active suppliers in relation to company size (iPCMP user survey, Q09)

However, some of the respondents did not seem to have reliable numbers of their suppliers on hand, which was reflected in comments such as “unknown at this time”, “Too many for 1 person to realistically chase”, “Is there something to win?”, or “In this context as well as in context of question 3 this is our product line only. Globally our company employs more than 10 000 staff, but for that I could not estimate the amount of suppliers.” (cf. Annex 18)

3.3.2.8 Metals used in the products or manufacturing processes of the companies

Tin is the dominant metal used by the respondents in their products and/or manufacturing processes (94%), followed by gold (52%), tungsten (47%), and tantalum (38%). (Figure 32) This result is not surprising if one takes into account that tin also ranks first concerning the world production of the 3TG, whereas Tantalum comes last (Figure 33).

Figure 32: Metals used in products and/or manufacturing processes (iPCMP user survey, Q10)

Figure 33: World Production of the 3TG (Data Source: USGS 2013a,b,c,d)

However, half of the respondents that used the comment box for further remarks indicated that they do not use any of the 3TG in their products and/or manufacturing processes. Others stated that their products only contained very low quantities of these metals,[35] whereas some respondents mentioned that they didn’t know whether any of these metals were used in their products and/or manufacturing processes at this time, were still waiting for their first supplier reports or for completion of their due diligence process to provide accurate answers. (cf. Annex 19 for all of the comments on this question) The latter type of answers yet again implies and confirms the study-proven[36] fact that many companies are still in the early stages of their Conflict Minerals compliance processes.

3.3.2.9 Department responsible for Conflict Minerals Reporting

The survey revealed that the responsibility of Conflict Minerals reporting lies in the hands of many departments, i.e. no single department is solely in charge of this new compliance area, whereby the purchasing (35%) and the Quality Management (QM) departments (24%) were selected most frequently. (Figure 34)

Figure 34: Department(s) responsible for Conflict Minerals reporting (iPCMP user survey, Q11)

When specifying the option “Other / Cross-functional team”, the respondents either detailed the composition of their cross-functional team (e.g. “Cross-functional steering committee with Legal/Compliance and Supply Chain”), named individual departments not included in the options, with Sales listed most frequently in this context, or indicated that their company had not yet determined which department(s) would be responsible for Conflict Minerals reporting (cf. Annex 20).

[12] For further information on the iPoint Conflict Minerals Platform, visit http://www.conflict-minerals.com/

[13] Note that the data concerning the iPCMP users in total are from the point the survey started (July 2013).

[14] These include, among others: EC 2013; OECD 2013a; OECD 2013b; SRZ 2013; Tulane University 2011.

[15] Unlike area b) / question 2 concerning the operational regions of the companies, Canada and the USA were not clustered under the category “North America”. This is due to the fact that the USA already has a Conflict Minerals law in force which affects all publicly-traded U.S. companies, whereas currently (September 2013), Canada is still in the process of discussing the introduction of a similar legislation designed to ensure Canadian companies are not using Conflict Minerals in their supply chain.

[16] Cf. EC 2005; EC 2013. Note that these publications define SMEs rather than large enterprises. However, if one inverses the EC definition, one can determine a large enterprise as a business having EITHER a headcount of > 250 employees and an annual turnover of > €50 million; OR an annual balance sheet total of > €43 million.

[17] The annual turnover estimates are based on EC 2005, p. 14; EC/ESTAT 2013a; EC/ESTAT 2013b; Stat. Bundesamt 2013.

[18] Cf. UN 2008. In order to minimize the effort for completing the survey, the choices were narrowed down, since ISIC also includes areas which are not using Conflict Minerals, such as Forestry and logging (A-02), Manufacture of beverages (C-11), Sewerage (E-37), or Real estate activities (L.68).

[19] Due to a transcription error, the option “Trader” was presented twice as an option in the online questionnaire. In the Summary of results (cf. 3.3.2.6), the answers on this doubly present item were merged.

[20] Cf. Tulane University (2011): “A central issue in the discussion of economic impact is the number of suppliers to every issuer.” (p. 12)

[21] Cf. Tulane University 2011, p. 12f.

[22] Cf. DFA 2010, 1502(e)(4); SEC 2012, p. 39f.

[23] iPoint deliberately refrained from requesting the respondents to select the relevant HS codes themselves in order to keep their effort for completing the survey low.

[24] According to Tulane University (2011), the initial implementation of many of the internal efforts can be regarded as “‘sunk costs’ in the economic sense in that they are one-off costs in exchange for services which cannot be thereafter sold or the value otherwise recuperated. Once the management systems are [in] place, the codes of conduct have been revised, the new procedures are instituted, etc., the recurring cost of operating same is very low compared with the initial implementation.“ (p. 35). Tulane University (2011) describes „internal costs“ as “in-house” human resources that may already exist within the individual companies (effectively diverting internal resources)”, whereas external costs are defined as “money outflows” or “resource outflows – money paid to 3rd parties for consulting, IT systems and audits.” (p. 33f.)

[25] <5.000; <10.000; <25.000; <50.000; <100.000; <250.000; <500.000; <1.000.000; >1.000.000; >5.000.000 US$.

[26] <1.000; <5.000; <10.000; <25.000; <50.000; <100.000; <250.000; <500.000; <750.000; <1.000.000; <5.000.000; >5.000.000 US$/year.

[27] Cf. OECD 2013a, p. 19-52; OECD 2013b, p. 17-19.

[28] E.g., SRZ 2013.

[29] i.e. by the U.S. Dodd-Frank Act and the related SEC ruling.

[30] EC 2005, p. 5.

[31] Cf. IHS 2013; PWC 2013.

[32] This is also reflected in the iPCMP survey: Asked which department was responsible for Conflict Minerals Reporting at their company (question 11), one respondent which worked at a small enterprise (< 50 employees) replied: “we don't have a department that handles that.” Cf. 3.3.2.9 and Annex 20).

[33] The division “Manufacture of fabricated metal products, except machinery & equipment” of the ISIC Manufacturing section consists of three groups: Manufacture of structural metal products, tanks, reservoirs and steam generators (251), Manufacture of weapons and ammunition (252), Manufacture of other fabricated metal products; metalworking service activities (259). (cf. UN 2008, Section C, Division 25).

[34] The division “Other manufacturing” of the ISIC Manufacturing section consists of six groups: Manufacture of jewellery, bijouterie and related articles (321), Manufacture of musical instruments (322), Manufacture of sports goods (323), Manufacture of games and toys (324), Manufacture of medical and dental instruments and supplies (325), and Other manufacturing n.e.c. (329). (cf. UN 2008, Section C, Division 32).

[35] It would be very easy to exclude micro and small companies with a de minimis clause for employees, or in analogy to the 1-ton limitation in the REACH Regulation, for example a limitation on more than 100 kg cumulated 3TG per year (purchased volume).

[36] Cf. IHS 2013; PWC 2013.

ANNEX III (cont.)

3.3.2.10 Main product category

As regards the main product category according to the Harmonized Commodity Description and Coding System (HS) of tariff nomenclature, nearly a third (30,4%) of the products listed by the respondents can be allocated to the area “Machinery/Electrical” (HS 84-85), followed by products belonging to the area Transportation (25,3%, HS 86-89), Metals (18,6%, HS 72-83) and Plastics / Rubbers (8,9%, HS 39-40).[37] (cf. Figure 1). None of the respondents named products belonging to the HS areas 01-05 (Animal & Animal Products), 06-15 (Vegetable Products), 16-24 (Foodstuffs), or 25-27 (Mineral products).

Figure 1: Overview of product categories (2-digit level) according to Harmonized Commodity Description and Coding System (iPCMP user survey, Q12)

On the four-digit level, products of the area “parts & access for motor vehicles” (HS 8708) dominated (18,1%), followed by “transmission shafts, bearings, gears etc, parts” (HS 8483, 5,5%), and “motor cars & vehicles for transporting persons” (HS 8703, 4,2%). (for a complete overview of all the answers including, whenever possible, their allocation to a 4-digit HS code, cf. Annex 21).[38]

3.3.2.11 Estimated effort for Conflict Minerals Reporting 3.3.2.11.1 Initial costs

As regards the overall initial costs, i.e. the total one-time efforts for all of the seven cost items, nearly three quarters of the respondents (74%) reported costs under US$ 35 000, which result in an estimated € 13 500[39] (Figure 2).

Figure 2: Overall initial (one-time) cost (iPCMP user survey, Q13)

On taking a closer look at the individual cost items (Figure 3), area “6. INTERNAL: Gathering information / Reporting (estimation)” stands out against the other areas inasmuch as the survey respondents almost continuously indicated higher costs for this area. Similarly, area “7. EXTERNAL: Gathering information / Reporting (estimation)” also stands out in the higher cost regions.

These deviations could be due to the fact that some super-large companies have more than 50 000 suppliers, from whom they need to collect Conflict Minerals-related data for their own reports.

Figure 3: Initial (one-time) costs – Overview individual cost items (iPCMP user survey, Q13)

3.3.2.11.2 Ongoing costs

Concerning the overall ongoing costs, i.e. the total annually recurring efforts for all of the seven cost items, nearly two-thirds (63,8%) reported costs estimated at € 2 700[40] (Figure 4).

Figure 4: Overall ongoing (annually recurring) cost (iPCMP user survey, Q13)

On taking a closer look at the individual cost items (Figure 5), area “7. EXTERNAL: Gathering information / Reporting (estimation)” stands out, particularly in the higher cost regions. This finding is rather surprising if one takes into account that software tools such as the iPCMP, which facilitate and automatize the data collection and reporting processes, can be purchased for approximately € 60 (US$80) per calendar year.

However, in the comments, many respondents indicated that these were very rough estimates (one participant even spoke of “guesstimates”), with others stating that they had no estimate of costs available at this point in time. This is not surprising if one takes into account that the first Conflict Minerals reports are only due in May 2014. Then again, other respondents were able to come up with far more concrete costs. In this context, one of the survey participants provided the following (from iPoint’s perspective rather high) estimate: “total estimated project costs $1.7M, with about $200,000 annual ongoing costs per year”. Other respondents indicated much lower or no extra costs for Conflict Minerals compliance. (for all of the comments on this question, cf. Annex 22) It is not possible to draw a straightforward conclusion from the overall picture of the comments, and the respondents’ selections of their efforts in relation to individual cost items and types (initial; ongoing) seem to offer more reliable data on this question.

Figure 5: Ongoing (annually recurring) costs – Overview individual cost items (iPCMP user survey, Q13)

3.3.2.11.3 SMEs vs. Large Companies

Slightly more than half of the survey participants (55%) worked at large enterprises with 250 employees and more. The remaining respondents (45%) represented small and medium-sized enterprises (SMEs), i.e. companies with less than 250 employees.

As regards the overall initial cost, small and medium-sized enterprises (< 250 employees) had less expenditures than large companies (≥ 250 employees): 90,8% of the SMEs vs. 75,7% of the large companies reported overall initial costs estimated at € 27 000,[41] whereby 85,1% of the SMEs and 66,2% of the large companies had overall initial costs estimated at € 13 500[42] (Figure 6).

 

Figure 6: SMEs vs. Large companies – Overall initial costs (iPCMP user survey, Q13)

We have similar results with the overall ongoing cost: 91,1% of the SMEs vs. 81,7% of the large companies reported overall ongoing costs estimated at € 27 000,[43] whereby 73,9% of the SMEs and 55,5% of the large companies had overall initial costs estimated at € 2 700[44] (Figure 7).

Figure 7: SMEs vs. Large companies – Overall ongoing costs (iPCMP user survey, Q13)

3.3.2.11.4 Issuers (SEC filers)

A small part of the respondents (16%) were an SEC issuer (filer) and thus, as a publicly-traded U.S. company, directly affected by the Conflict Minerals reporting requirements of the U.S. Dodd-Frank Act and the related SEC ruling.

More than half of the issuers (54%) had overall initial costs below US$175.000, whereby a third (33%) of the issuers estimated that their total one-time effort for all of the seven cost items at € 13 500.[45] However, a fifth (21%) of the issuers indicated slightly higher overall initial costs, estimated at € 270 000[46] (Figure 8).

Figure 8: Initial costs – Issuers (iPCMP user survey, Q13)

The overall ongoing costs of issuers were somewhat lower than the overall initial costs: For this cost type, two-thirds (66%) reported recurring annual expenses for Conflict Minerals Reporting estimated at € 27 000,[47] with a quarter (25%) even indicating overall ongoing costs estimated at € 2 700.[48] However, a tenth (10%) of the issuers also indicated a slightly higher total of ongoing costs, estimated at € 27 000[49] (Figure 9).

Figure 9: Ongoing costs – Issuers (iPCMP user survey, Q13)

3.3.2.11.5 Non-Issuers (SEC non-filers) 3.3.2.11.5.1 SMEs

Among the group of non-issuers, there was a relatively balanced relationship between SMEs (51%) and large companies (49%). Thereby, the majority of the SMEs had rather moderate overall expenses for both cost types, with 85,1% (initial costs) resp. 87,6% (ongoing costs) of the respondents indicating costs estimated at € 13 500[50] (Figure 10 and Figure 11).

Figure 10: Initial costs – Non-Issuers SMEs (iPCMP user survey, Q13)

Figure 11: Ongoing costs – Non-Issuers SMEs (iPCMP user survey, Q13)

3.3.2.11.5.2 Large Companies

The survey revealed similar results for the non-issuing large companies: In this group, a slightly smaller majority also reported rather moderate overall expenses for both cost types, with 76,1% (initial costs) resp. 79% (ongoing costs) of the respondents indicating costs below € 13 500[51] (Figure 12 and Figure 13).

Figure 12: Initial costs – Non-Issuers Large Companies (iPCMP user survey, Q13)

Figure 13: Ongoing costs – Non-Issuers Large Companies (iPCMP user survey, Q13)

3.3.2.12 Expected social and economic impact of Conflict Minerals due diligence on conflict-affected and high-risk areas, for local operators and communities as well as for the underlying conflicts themselves

A slight majority of the respondents (55%) expects that Conflict Minerals due diligence will not have a social impact on conflict-affected and high-risk areas, for local operators and communities as well as for the underlying conflicts themselves (Figure 14).

Figure 14: Expected social impact (positive or negative) of Conflict Minerals due diligence on conflict-affected and high-risk areas (iPCMP user survey, Q14)

As regards the expected positive social impacts of Conflict Minerals due diligence for local operators, local communities, and the underlying conflicts themselves, the majority of the respondents (60%) delivered answers which can be subsumed under the heading “Political and social stability”, followed by “International awareness, transparency and progress” (27%), “Environment” (7%), and “Defunding the warlords” (6%). (Figure 15; for the complete answers on this question, cf. Annex 23)

Figure 15: Expected positive social impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q15a)

Concerning the negative social impacts of Conflict Minerals due diligence for local operators, local communities, and the underlying conflicts themselves, the survey participants provided a wide range of answers with no clear majority. The responses can be clustered as follows: “Impoverishment / Unemployment” (22%); “No significant or further negative effects” (21%); “Embargo / Reduced economic activity” (18%); “Increased bureaucracy and effort” (18%); “More corruption” (16%); and “Violence increase / escalation” (5%). (Figure 16; for the complete answers on this question, cf. Annex 24).

Figure 16: Expected negative social impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q15b)

Concerning the question whether Conflict Minerals due diligence will have an economic impact (positive or negative) on conflict-affected and high-risk areas, for local operators and communities as well as for the underlying conflicts themselves, there was a tie: 50% of the respondents expected an economic impact, whereas 50% did not (Figure 17).

Figure 17: Expected economic impact (positive or negative) of Conflict Minerals due diligence on conflict-affected and high-risk areas (iPCMP user survey, Q16)

Concerning the expected positive social impacts of Conflict Minerals due diligence for local operators, local communities, and the underlying conflicts themselves, the majority of the survey participants (47%) gave responses which can be subsumed under the heading “Increased trade and market fairness”, followed by “Improvements in local income distribution and social/political development” (31%); “No significant or further negative effects” (13%), and “Benefit for conflict-free mines and operators” (9%). (Figure 18; for the complete answers on this question, cf. Annex 25)

Figure 18: Expected positive economic impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q17a)

The answers concerning the expected negative economic impacts can be clustered to five groups, whereby the majority is subsumable under the heading “Economic loss for local operators and society” (60%), followed by “Cost or price increase“ (15%), “No significant or further negative effects” (12%), “Increased illegal trade and corruption”(8%), and “Other” (5%). (Figure 19; for the complete answers on this question, cf. Annex 26)

Figure 19: Expected negative economic impacts for local operators, local communities, and the underlying conflicts (iPCMP user survey, Q17b)

 

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[37] NB: Of all the answers the respondents entered as free text, 15% were not allocatable unmabiguously to a specific HS code. These unallocatable answers were excluded from the calculations for Figure 1.

[38] When a product was allocatable to more than one HS codes, the list was ordered by the lowest code.

[39] The applied exchange rate is 1.3 €/US$. The formula for this and the following calculations is: maximum cost amount divided by two (median) divided by 1.3 (€/US$ exchange rate).

[40] US$ 7,000/2/1.3

[41] US$ 70,000/2/1.3

[42] US$ 35,000/2/1.3

[43] US$ 70,000/2/1.3

[44] US$ 7,000/2/1.3

[45] US$ 35,000/2/1.3

[46] US$ 700,000/2/1.3

[47] US$ 70,000/2/1.3

[48] US$ 7.000/2/1.3

[49] US$ 700.000/2/1.3

[50] US$35.000/2/1.3

[51] US$35.000/2/1.3

ANNEX III (Cont.) 5.   ANNEXES

5.1     Annex 1: World Production of Tantalum by Development Status, Income, Political Stability of the Producer Countries (according World Bank), Country Groups and Economic Blocks (Reichl et al. 2013)

5.2     Annex 2: Examples of industry uses of tantalum according to the ISIC Code

Division || Group || Class

|| Section B - Mining and quarrying ||

07- Mining of metal ores || 072 - Mining of non-ferrous metal ores || 0729 - Mining of other non-ferrous metal ores

|| Section C – Manufacturing ||

20 - Manufacture of chemicals and chemical products || 202 - Manufacture of other chemical products || 2029 - Manufacture of other chemical products n.e.c.

24 Manufacture of basic metals || 243 - Casting of metals || 2432 - Casting of non-ferrous metals

25 Manufactures of fabricated metal products, except machinery and equipment || 251 - Manufacture of structural metal products, tanks, reservoirs and steam || 2512 - Manufacture of tanks, reservoirs and containers of metal

|| 252 - Manufacture of weapons and ammunition || 2520 - Manufacture of weapons and ammunition

|| 259 - Manufacture of other fabricated metal products; metalworking service activities || 2591 - Forging, pressing, stamping and roll-forming of metal; powder metallurgy

|| || 2592 - Treatment and coating of metals; machining

|| || 2593 - Manufacture of cutlery, hand tools and general hardware

26 Manufacture of computer, electronic and optical products || 261 - Manufacture of electronic components and boards || 2610 - Manufacture of electronic components and boards

|| 262 - Manufacture of computers and peripheral equipment || 2620 - Manufacture of computers and peripheral equipment

|| 263 - Manufacture of communication equipment || 2630 - Manufacture of communication equipment

|| 264 - Manufacture of consumer electronics || 2640 - Manufacture of consumer electronics

|| 265 - Manufacture of measuring, testing, navigating and control equipment; watches and clocks || 2651 - Manufacture of measuring, testing, navigating and control equipment

|| 265 - Manufacture of measuring, testing, navigating and control equipment; watches and clocks || 2652 - Manufacture of watches and clocks

|| 266 - Manufacture of irradiation, electromedical and electrotherapeutic equipment || 2660 - Manufacture of irradiation, electromedical and electrotherapeutic equipment

|| 267 - Manufacture of optical instruments and photographic equipment || 2670 - Manufacture of optical instruments and photographic equipment

|| 268 - Manufacture of magnetic and optical media || 2680 - Manufacture of magnetic and optical media

Division || Group || Class

27 Manufacture of electrical equipment || 271 - Manufacture of electric motors, generators, transformers and electricity distribution and control apparatus || 2710 - Manufacture of electric motors, generators, transformers and electricity distribution and control apparatus

|| 274 - Manufacture of electric lighting equipment || 2740 - Manufacture of electric lighting equipment

||  275 - Manufacture of domestic appliances || 2750 - Manufacture of domestic appliances

|| 279 - Manufacture of other electrical equipment || 2790 - Manufacture of other electrical equipment

28 Manufacture of machinery and equipment n.e.c. || 281 - Manufacture of general-purpose machinery || 2811 - Manufacture of engines and turbines, except aircraft, vehicle and cycle engines

|| 282 - Manufacture of special-purpose machinery || 2824 - Manufacture of machinery for mining, quarrying and construction

|| || 2829 - Manufacture of other special-purpose machinery

29 Manufacture of motor vehicles, trailers and semi-trailers || 293 - Manufacture of parts and accessories for motor vehicles || 2930 - Manufacture of parts and accessories for motor vehicles

|| 303 – Manufacture of air and spacecraft and related machinery || 3030 - Manufacture of air and spacecraft and related machinery

32 Other manufacturing || 325 - Manufacture of medical and dental instruments and supplies || 3250 - Manufacture of medical and dental instruments and supplies

5.3     Annex 3: Production of Tantalum of individual Countries (Reichl et al., 2013)

5.4       Annex 4: Share of World Tantalum Production 2011 by Countries (Reichl et al. 2013)

5.5     Annex 5: Tin: World Smelter Production, by Country (USGS 2013c)

5.6     Annex 6: World Production of Tin by Development Status, Income, Political Stability of the Producer Countries (according World Bank), Country Groups and Economic Blocks (Reichl et al. 2013)

5.7     Annex 7: Share of World Tin Production 2011 by Countries (Reichl et al. 2013)

5.8     Annex 8: World Production of Tungsten by Development Status, Income, Political Stability of the Producer Countries (according World Bank), Country Groups and Economic Blocks (Reichl et al. 2013)

5.9     Annex 9: Tungsten production of individual countries (Reichl et al. 2013)

5.10   Annex 10: Share of World Tungsten Production 2011 by Countries (Reichl et al. 2013)

5.11   Annex 11: World production of gold, by development status, income, political stability of the producer countries (according World Bank), country groups and economic blocks (Reichl et al. 2013)

5.12   Annex 12: Production of gold of individual countries (Reichl et al. 2013)

5.13   Annex 12: Production of gold of individual countries (Reichl et al. 2013) (cont.)

5.14   Annex 13: Share of world gold production 2011, by countries (Reichl et al. 2011)

5.15   Annex 13 (cont.): Share of world gold production 2011, by countries (Reichl et al. 2011)

ANNEX III (Cont.)

5.16   Annex 14: Industry and main economic activities according to the ISIC code (iPCMP user survey, Q04) – Respondents’ specifications on the option “other”

Q04: “What industry are you from and what are your main economic activities?” – Specifications on the option “Other”

3471 - PLATING & POLISHING

Accessories for pick up trucks made in mainly aluminium.

Airgas is a leading distributor of industrial gases, hardgoods and safety supplies.

Aluminum die casting/foundry

Authorized Distributor of Electronic Components

Auto parts

Autolamp

Automobile Components

Automotive

Automotive

Automotive (Friction Materials)

Automotive air conditioners and engine cooling systems

Automotive antennas and antenna cable assemblies

Automotive fasteners

automotive frames

Automotive Industry

Automotive parts supplier

Automotive Supplier

automotive supplies

automotive Tier 1 stamping

Automotive, Wire Harenesses

Automotive/Aerospace

automotive/aerospace components

Autoparts manufactuer and seller (seals & gaskets)

Chemical Distribution

XXX is a foundry and machining facility, mainly focusing on iron parts for auto and industry, including caliper bracket, caliper housing, exhaust manifold, etc

Coils slitted and cut to length

Complete windscreen wiper systems

Consulting firm that supports manufacturers of all types of products

Design, manufactoring and construction of air-intake systems for gasturbines according customer specifications

distributor of electro-mechanical parts and components

Distributor of Industrial Hose, Fittings and Accessories

Distributor of Wire & Cable

Distributors of nautical components.

XXX manufacturing Corp. make gasket (Rubber, metal gasket)

Electrical safety devices for vehicles

electrical sales

electronic components for the automotive industry

Engine Components Industrie for Diesel Engines on Ships, Locomotives and Gensets

fabrication of polyurethane foam and fiberglass insulation

Fasteners, Distribution

Forging

Foundry

Framing and stamping

Gray and Ductile Iron Foundry

HPDC aluminum alloy parts for automotive industry

Hydrostatic transmission supplier to outdoor power equipment manufacturers.

Industrial Plastic Distribution & Fabrication

Injection molder

Investment Casting - Low Alloy/Stainless Steel/Brass/Aluminum

Iron Foundry

Labels

Lubricants

Manufacture and distribution of basic metal fasteners and attaching equipment

Manufacture engine cooling devices such as radiators, charge air coolers, oil coolers and condensers.

Manufacture of automotive components (brakes).

Manufacture of automotive parts

manufacture of gaskets, seals

Manufacture of lead acid batteries.

MANUFACTURE OF PRESSURE SENSITIVE LABELS MADE FROM PAPER OR FILM (VINYL, POLYPROPYLENE, POLYESTER)

Manufacture of springs and metal product

Manufacture of truck, automobile, marine, and industrial internal combustion engines.

Manufacturer of Automobile components

Manufacturing - assembly of automotive systems

Manufacturing and distribution of tire valves.

manufacturing car part ( stamping)

manufacturing in third party to machining parts

Manufacturing of Aircraft

Manufacturing of automotive parts

Manufacturing of mechanical assemblies for automotive industry (OEM's). Conflict minerals (only Tin) in our products are only present in 3 antifriction bushings purchased to 1 European company.

Metallic components for automotive industry - Brake Rotors

Mfg of Paint

Nameplates

Paint and coatings

Painting parts

paper making

PCB

Printing folding cartons

produce automobile parts, like rubber parts, rubber metal parts, and interior parts

producing and manufactoring of screws, studs, bolts in steel material

Rubber

rubber parts

Sealing Bearing and Engineered Solutions

Sensors & Controls

solders, brazes, materials for electronics packaging

stainless steel product

Steel distribution

Steel Plate Distribution

Supply for the automotiove parts and power tool parts and others

tanning and finishing leather for use in automotive industry

Transportation Logistics

We have two units on the same site: - Machining brake system parts - Polymers processing

WE PRODUCE AND DELIVER CORRUGATED BOXES

we produce wire harnesses for automotive

wholesale distribution

Zinc alloy die-casting

5.17   Annex 15: SEC issuers’ reporting on Conflict Minerals as a whole company or as a legal entity (iPCMP user survey, Q06) – Respondents’ Comments

Q06: “If you are an SEC issuer (non-filer), are you preparing a Conflict Minerals Report for your company as a whole or as a legal entity?” – Comments

As requested by customer

Company in XXX XXX GROUP

Company sats they will not prepare an SECOND report.

N/A

N/A

Not a filer

Not an SEC filer

not determined as of this date

only local

Our firm falls out of scope, but we will be supporting filers

Our subsidiary, a legal entity headquartered in the US, will report to our non-USA parent. The parent is the SEC issuer and will manage CM policy and file form SD.

subsidiary plant

We are a subsidiary of a fortune 500 company

WITH MXXX WXXX

would like to understand significance of difference.

5.18   Annex 16: Reasons of SEC non-filers for preparing a Conflict Minerals Report (iPCMP user survey, Q07) – Specifications on option “Other”

Q07: “If you are not an SEC issuer (non-filer), why are you preparing a Conflict Minerals Report?” – Comments on option “Other”

also compliance with company's own responsible sourcing policies and procedures

Customer asked me to do so.

In support of our OE customers.

Our company is owned by a SEC-listed group

the SEC issuer without English capability

We are a XXX supplier

we re not preparing a conflict minerals report. We are only responding to customer inquiries

XXX and XXX request

XXX has requested us to answer questions in respect to Conflict Minerals Report

XXX questionary

XXX request

XXX requesting, we don't sell precious metals we are a supplier of maintenance parts for their buildings

XXX understands that this action will provide a combat to eliminate all conflits (ethnic, social,...) in Countries or Regions) affected for this problem.

XXX, XXX, XXX, XXX for the noment

5.19   Annex 17: Position in the supply chain (iPCMP user survey, Q08) – Specifications on option “Other”

Q08: “What is your position in the supply chain?” – Comments on option “Other”

Authorized Distributor of Electronic Components

component manufacturer

Design, manufactoring and construction of air-intake systems for gasturbines according customer specifications

Distributor

Distributor

Distributor

In case of Rubber gasket we have tier2 position.

Mainly Tier 1 but also Tier 2 in some cases

manufacture of Bearings, sleeves and circles

Metal Service Centre

NONE

Steel Plate Distributor

Tier 1, 2, and 3 on some programs

Tier 1, Tier 2, and Tier 3

Tier 2 as well as trader

tube mfg

we are a supplier of maintenance parts for XXX’ buildings

We are both an OEM and a Tier 1 supplier

We delivered direcly to ORM's

we make rubber parts for the auto industry

We produce wire harnesses for seats, automatic gear, start&stop

We provide color and additive concentrates to end-product manufacturers as well as Tier providers.

We provide metal fasteners world wide to the furnature, mattress and automotive industries.

We supply completed units which are added to a vehical

We supply materials for the manufacture of electronic components/sub-assemblies/assemblies

We support multiple levels in the supply chain

we use a small amount of tin-based additives.  No tin metal or alloys

5.20   Annex 18: Number of active suppliers (iPCMP user survey, Q09) – Respondents’ comments

Q09: “How many active suppliers has your company got?” – Comments

For our subdivision Electronics, for global company don't know

globally; idetntified to be potentially affected by CM

Guess

Inclusive of all subsidiaries and affiliated companies globally

In this context as well as in context of question 3 this is our product line only. Globally our company employs more than 10 000 staff, but for that I could not estimate the amount of suppliers.

Is there something to win?

Less than 20

only one effected by Conflict metals law

Supplier for raw materials

These suppliers are for materials containing conflict minerals

Too many for 1 person to realistically chase.

unknown at this time

5.21   Annex 19: Metals used in products and/or manufacturing processes (iPCMP user survey, Q10) – Respondents’ comments

Q10: “Which of the following metals do you use in your products and/or manufacturing processes?” – Comments

34CrNiMo6. 30CrNiMo8, 42CrMo4 are the basic material.

Al

All are possible content because of broad range  of inventory offered

all product produced by our company are made of stainless steel

Aluminum

Always tin in solder in electronics, also the other substances but less. E.g there are capacitors with tantalum, printed circuit boards with gold layer etc

Anyone

At this time, I have found that one of the catalyst is Tin which per Supplier, some of the Tin is incorporated in product

comercial assembly, any othe above mentioned metals would be contained within XXX or XXX products that we buy in.

Conflict minerals (only Tin) in our products are only present in 3 antifriction bushings purchased to 1 European company.

copper Iron Steel Zine-alloy

Currently unknown. Possibly tin

electronic parts

ferrum, silicon, copper, etc

Gold plating in Printed Circuits Boards (PCB)

Impurities in aluminum alloys

legacy of iron

less than 1000 lbs per year

limited applications with tin; electronics with tungsten and gold;

Low quantities used for soldering contacts.

Metals are not used as component parts, Rubber bonded to metal inserts are mild steel, domestically produced.  No conflict materials are used.

Minor quatities

n/a

n/a

No

No

0

No

No above metal was used in our parts

NO METALS IN CORRUGATED BOXES

No of them are in our Products

None in the products. The […] question was about the use of Tin / Gold / Tungsten in our manufacturing equipment: Strictly speaking it is safe to assume that tin and gold are used in at least some of our electronic equipment for soldering / connectors ... like computer / telephones / ... Also we use tungsten carbide as any steel machining company probably would use. We checked with the company requesting information and were allowed to sign off that these products are not used in our manufacturing. […]

no related material

No use

No,we do not have above metals.

NON

None

None

None

NONE

None

None

None

None

None

None

None

None

None

NONE

None

None

None

None

None

None

None

None

None

NONE

NONE in ours, investigating our suppliers

none listed above

None of the above

None of the above

None of the above

None of the above

None of the above

None of the above mentioned

None of them

none of them

None of these

none of these

None of these minerals in our direct manufacturing processes.

None of those

NONE USED

None!

none, we don't produce or sell the above metals

Our products do not contain conflict materials.

Our products do not use above material.

we trade none of these materials

None. Tin is present as impurity into Zn alloys, less than 0.003%

None; aluminum & stainless steel only

not as raw material but as part of a semifinished product.

Only for two parts. Clip (tin plated) & switch contact (gold plated) sourced in Peru & Canada

Only in select products for strength

only small percentages in brass and alloys of zinc and copper

Our best estimate is that we would have tantalum, tin and gold.  We are unsure about tungsten at this point.

Our brake system unit have been worked whit grey Casting iron, but we have not been used any of the metal above

purchased electrical components (connected to our parts) contain minor quantities of these metals.

Steel

Steel, Alum. or Stainlesteel

still awaiting supplier responses... electrical compoents

The majority of our manufacturing sites do not use raw metals. But components, coatings, etc. that go into/onto our products may contain these metals.

The Sn it is a residual element which is coming from remelted scraps used by suppliers to cast Al alloy ingots.

This is an estimate, as we have not received all of our supplier reports at this time.

This is our current belief, but will be validated through our due diligence process.

Tin ( Sn% ) 0.2 %Max

Tin (Sn) is used to manufacture the Pb alloy that will be used on positive and negative grid the lead acid battery.

Tin is present in steel, but I don't believe it is added.

trace amounts in metal stampings and coatings.

trace amounts in product only

under study

Unknown

Used as single element, alloying element and/or plating element

Very minimal qunatities of tin are used in some of our products

we are not a manufacturer

we are not producer

We are still trying to get information from our suppliers.

We are unknown at this time.

We do not purchase any of these items, tho our suppliers may.

we do not use any of these metals

We make gaket of aluminum.

We solder connections in the electronic controllers of the attaching machines we sell.

We use none.  Some suppliers use trace amounts for their manufacturing process.

we use Zinc

5.22   Annex 20: Departments responsible for Conflict Minerals Reporting (iPCMP user survey, Q11) – Specifications on option “Other / Cross-functional team”

Q11: “Which department is responsible for Conflict Minerals Reporting at your company?” – Comments on the option “Other / Cross functional team”

also Laboratories

Business Operation System Department

Cross-functional steering committee with Legal/Compliance and Supply Chain

Engineering - Material compliance Purchasing - Strategy + affected commodities

Environmental Compliance

Executive, Purchasing, IT

Finance, Purchasing and Legal

GENERAL MANAGER

HR & Ecology department

Including Finance

Ink room

ISO/ Quality

Management Planning Team

Manufacturing Dept

Marketing

marketing  department

Marketing Department

N/A, as we do not use the Minerals in question

none, we don't produce or sell the above metals

not determined as of this date

Owner

Parent company will coordinate subsidiary company responses and take responsibility for reporting jointly with the applicable US subsidiary functional groups.

Procurement/Quality/EH&S

Product management, procurement, legal, sales

Quality

Quality and Purchasing is working together.

Quality Engineering

R&D has the lead.

R&D Team

Regulatory Affairs

Sales

Sales

Sales

Sales

Sales

Sales

sales and marketing

Sales and Marketing for customer liaison

Sales Department

sales/customer service

Supply Base

Undecided at this point.

under study

we don't have a department that handles that.

5.23   Annex 21: Main products allocated to HS Codes on a 2-digit and 4-digit level (iPCMP user survey, Q12)

Q12: “What is your main product category?” – Response Text || HS Code (2-digit) || HS  Code (4-digit)

mfg paint || 28-38 || 32xx

Metal stamping and assembly. || 28-38 || 3212

Color and additive masterbatch for the thermoplastics industry. || 28-38 || 3811

thermoplastic color and additive concentrates || 28-38 || 3811

Closed Die Forging of Critical Rotating Disc || 28-38 || 3818

Custom stamped and machined parts from thermosets, thermoplastics, films, and fibre with in-house tooling. || 39-40 || 39xx

Plastic || 39-40 || 39xx

vacuum formed plastic products || 39-40 || 39xx

Industrial Plastics || 39-40 || 39xx

plastic products with 2nd finishing. || 39-40 || 39xx

Vinyl compounds || 39-40 || 3904/ 3905

Chemical - phenolic resins || 39-40 || 3909

polyurethane foam, fiberglass insulation, and sponge rubber || 39-40 || 3909

vinyl caps and plugs, extruded tubing || 39-40 || 3917

Rubber and Plastic || 39-40 || 39xx/ 40xx

Rubber & Plastics || 39-40 || 39xx/ 40xx

rubber&plastic || 39-40 || 39xx/ 40xx

Rubber products || 39-40 || 40xx

Automotive foam and rubber parts || 39-40 || 40xx

Rubber products || 39-40 || 40xx

Rubber || 39-40 || 40xx

Molded rubber. || 39-40 || 40xx

Automotive rubber parts (not tires); Automtive fluid carrying components (fuel/brake lines, cooling components, etc) || 39-40 || 40xx

EPDM rubber || 39-40 || 4002

Gaskets, shims, washers || 39-40 || 4016

Seals || 39-40 || 4016

cattle leather || 41-43 || 4104

copper tubing || 44-49 || 4416

Paper || 44-49 || 48xx

CORRUGATED BOXES || 44-49 || 4819

Paper cartons || 44-49 || 4819

Rolled fabrics and industrial goods. || 50-63 || 50xx/ 51xx/ 52xx/ 58xx

bowden cables || 50-63 || 56xx

Mechanical Cable Systems || 50-63 || 5607

Tubing || 50-63 || 5909/ 7304/ 8307

Apparel || 50-63 || 61xx/ 62xx

RUBBER BOOTS AND BELLOWS || 64-67 || 6402

Friction Material || 68-71 || 6813

foundation brakes for the light vehicle automotive industry (disc brakes, drum brakes, brake pads) || 68-71 || 6813

Weld studs and stud welding equipment || 68-71 || 7117

Steel Coils || 72-83 || 7213/ 7221/ 7227

Steel coils || 72-83 || 7213/ 7221/ 7227

Metal fabrication and spray in bed liners in trucks. || 72-83 || 72xx- 83xx

metal powder || 72-83 || 72xx- 83xx

Powdered Metal || 72-83 || 72xx- 83xx

IRON AND STEEL CASTINGS || 72-83 || 72xx

Tinplate Steel || 72-83 || 72xx

Stampings || 72-83 || 7204

automotive components, metal stampings || 72-83 || 7204

stamping car part || 72-83 || 7204

Large stampings and fascias || 72-83 || 7204

Carbon and alloy steel bars || 72-83 || 7207

Carbon & Alloy Steel Plate || 72-83 || 7207

engineered metals and alloys || 72-83 || 7217

Low carbon steel || 72-83 || 7217

stainless steel product used for EGR || 72-83 || 7218

Gray and Ductile Iron Castings || 72-83 || 73xx

Gray and Ductile Iron castings || 72-83 || 73xx

Axles, pins, and gears || 72-83 || 7319/ 8483

Iron and Aluminum castings || 72-83 || 7325

Gas line structures || 72-83 || 7305

RIGGING HARDWARE AND WIRE ROPE || 72-83 || 7312

Screws, Studs, Bolts || 72-83 || 7318

helical springs and wire forms || 72-83 || 7320

Springs || 72-83 || 7320

Compression Springs || 72-83 || 7320

Manufacture of springs and metal product || 72-83 || 7320

heating and air conditioning of buildings || 72-83 || 7322

Seat heaters, seat climate systems, electronics, wire harnesses || 72-83 || 7322

Iron castings || 72-83 || 7325

bronze manufacturing || 72-83 || 7403

Aluminum alloy parts || 72-83 || 7601

HPDC aluminum alloy parts || 72-83 || 7605

rivets and cold formed parts || 72-83 || 7616

zinc component parts || 72-83 || 79xx

Zinc alloy die cast for: Buildings, Automotive, Electronics || 72-83 || 7901

Turning parts from steel. || 72-83 || 8104

AGRICULTURE || 72-83 || 8201

Hardware || 72-83 || 8302

steel hardware || 72-83 || 8302

Brackets and clamps, heavy truck industry || 72-83 || 8302

structural components and assemblies for the  automotive industry || 72-83 || 8302

Brackets & springs || 72-83 || 8302

Laminated lock warded lock Combo lock python lock flush handle || 72-83 || 8310

Complex machined metal parts for the Aerospace and Oil/Gas & Energy Production industries. || 84-85 || 84xx/ 85xx

components and systems for Automotive, Transports, Aerospace, Electrical machinery and production machinery || 84-85 || 84xx/ 85xx

Fuel handling systems || 84-85 || 8401

Internal combustion engines || 84-85 || 8408

Engine sensor || 84-85 || 8409

Engine Bearing & Bushing Manufacturing || 84-85 || 8409

engine parts in motor vehicle made of steel || 84-85 || 8409

Industrial & Hydraulic Hose, Fittings & Accessories || 84-85 || 8410

Hydraulic rotary actuators || 84-85 || 8410

hydraulic and electric components || 84-85 || 8410

Hydraulic pump || 84-85 || 8413

louvers, dampers, fans, blowers || 84-85 || 8414

Automotive air conditioners and engine cooling systems || 84-85 || 8415

automotive & HD heating/cooling || 84-85 || 8415

HVAC equipment || 84-85 || 8415

HVAC system || 84-85 || 8415

Furnace parts || 84-85 || 8416

Heat Exchangers || 84-85 || 8419

Heat exchangers || 84-85 || 8419

air filtration || 84-85 || 8421

Accessories for pick up trucks || 84-85 || 8431

Castings || 84-85 || 8454

Castings || 84-85 || 8454

Injection molded plastic || 84-85 || 8480

Injection molded plastic parts || 84-85 || 8480

Metal injection molding parts,powder metallurgy parts,self lubricating bearing,connecting rod for auto seat etc. || 84-85 || 8480

valves for venting systems of automotive fuel systems || 84-85 || 8481

Valves || 84-85 || 8481

Custom unground ball bearings and assemblies || 84-85 || 8482

Camshaft Casting Rough Part & Finish Part || 84-85 || 8483

off highway gear components || 84-85 || 8483

Torque Converter, Engine Pulleys || 84-85 || 8483

Crank Assy || 84-85 || 8483

Bearings, Hydraulics, Cutting Tools, Specialty Steels || 84-85 || 8483

Sheet Metal forming || 84-85 || 8483

Cast crankshafts || 84-85 || 8483

Cranckshaft || 84-85 || 8483

bearings, sleeves, circles, gear and gear box || 84-85 || 8483

gears for transmissions || 84-85 || 8483

Shafts || 84-85 || 8483

Gears || 84-85 || 8483

shaft seals and gaskets || 84-85 || 8483

Gasket for vehicle. || 84-85 || 8484

gaskets, seals || 84-85 || 8484

GASKET MADE OF VARIOUS MATERIALS; EVERYTHING FROM PAPER TO COPPER || 84-85 || 8484

electrical and process instruments || 84-85 || 85xx

Coils, inductors, chokes, transformers || 84-85 || 85xx

ELECTRICAL COMPONENTS || 84-85 || 85xx

Electronic components || 84-85 || 85xx

Components for communication industry || 84-85 || 85xx

electric motors || 84-85 || 8501

electric motors || 84-85 || 8501

Diesel Generator sets, bow and stern thrusters, winches and in general supplies for marine industry at boatyards level. || 84-85 || 8503

rare earth magnet || 84-85 || 8505

Lead Acid Batteries to automotive vehicles. || 84-85 || 8507

Complete windscreen wiper systems (electric motor, linkages, arms) || 84-85 || 8512

Safety devices for vehicles such as radar, vision and night vision cameras, systems to control airbags etc || 84-85 || 8530

LED lighting,heat sink || 84-85 || 8531

Fire and Gas Detection control systems, Hazardous Area control systems, and Gas Turbine Controls, and Engineering expertises in the form of consultancy. || 84-85 || 8531

PCB (printed circuit boards) || 84-85 || 8534

electrical fuses || 84-85 || 8535

Membrane Switch || 84-85 || 8535

Electromechanical Components, specifically switches || 84-85 || 8536

ROTARY SWITCHES AND RELAYS || 84-85 || 8538

Manufacturer of electromechanical products including rotary switches, rocker switches, relays and mechanical assemblies || 84-85 || 8538

Auto Lamp || 84-85 || 8539

Lithography equipment for the seminconductor manufacturing industry || 84-85 || 8541

Solders and brazes for electronics packaging || 84-85 || 8542

Wiring harnesses || 84-85 || 8544

Wires and cables || 84-85 || 8544

Wire, Cable, Cable assemblies and wiring harnesses || 84-85 || 8544

Wire Harness Assemblies, interior lighting(underhood, ash, curtesy) || 84-85 || 8544

Park Brake Cable Assembly || 86-89 || 8607

Brake system unit: hidraulic brake cylinders; Polymer unit: rubber and plastic parts || 86-89 || 8607

Vehicle || 86-89 || 87xx

Vehicles || 86-89 || 87xx

Automotive industry || 86-89 || 8703

Injection molded and assembled plastic components for the Automotive industry || 86-89 || 8703

Automotive || 86-89 || 8703

Automotive vehicles || 86-89 || 8703

Automotive || 86-89 || 8703

Automotive || 86-89 || 8703

Automotive || 86-89 || 8703

Automotive || 86-89 || 8703

Automotive || 86-89 || 8703

Automotive || 86-89 || 8703

Chassis-Finish Goods. || 86-89 || 8706

SUSPENSION AND STEERING || 86-89 || 8708

Automotive Interiors component - Seat, Door panel, Headliners, floor console, Instrument panel || 86-89 || 8708

Automotive Electronics || 86-89 || 8708

Autoparts || 86-89 || 8708

Motor vehicles, power equipment and engine manufacturing, distribution and support. || 86-89 || 8708

electronic components for the automotive industry || 86-89 || 8708

produce automobile parts, like rubber parts, rubber metal parts, and interior parts || 86-89 || 8708

Automotive Parts || 86-89 || 8708

automotive components || 86-89 || 8708

cars and car components || 86-89 || 8708

Suspensions || 86-89 || 8708

Automotive components (stampings, welded assemblies and mechanical components) || 86-89 || 8708

Automotive replacement water pumps || 86-89 || 8708

Automotive equipment || 86-89 || 8708

Automotive Electronics, such as AFS, PEPS, etc. || 86-89 || 8708

decorate part including exterior beltline, door fram, A/B / C pillar etc. || 86-89 || 8708

automotive parts; power tool parts; gas-fired accessories; textile machinery || 86-89 || 8708

automotive filter and engine components, coolers; off-road power systems; cooling systems; diesel engine applications; || 86-89 || 8708

Automotive components, Power Tools, Industrial equipment, Hydraulics || 86-89 || 8708

Automotive components || 86-89 || 8708

Automotive drive train || 86-89 || 8708

batteries for vehicles || 86-89 || 8708

automotive and construction component || 86-89 || 8708

automotive parts - starter & alternator motors, audio & video products || 86-89 || 8708

Various automobile parts || 86-89 || 8708

Automotive Fuel Delivery Modules || 86-89 || 8708

Automotice electronics || 86-89 || 8708

Coatins for automotive || 86-89 || 8708

Automotive shifters, smart actuator pumps, and electronics. || 86-89 || 8708

electronics for vehicles || 86-89 || 8708

Automotive Wire Harnesses and Components || 86-89 || 8708

Automotive Electronics || 86-89 || 8708

automotive plastic moldings || 86-89 || 8708

automotive components for service || 86-89 || 8708

Automotive sound proofing || 86-89 || 8708

Manufacturing of Electronic control Unit of Automotive Engine,Automotive Heated Seat and Vent Module || 86-89 || 8708

injection products for automobile || 86-89 || 8708

Automotive gas springs, dampers, link rods and vacuum actuators || 86-89 || 8708

Automotive sensors for wheel speed system, transmission, steering system anf fuel cards. || 86-89 || 8708

bumper assemblies || 86-89 || 8708

INTERIOR AND EXTERIOR AUTOMOTIVE LIGHTING || 86-89 || 8708

plastic parts (automotive) || 86-89 || 8708

Automobile Lighting || 86-89 || 8708

Brake Rotors || 86-89 || 8714

Aircraft || 86-89 || 88xx

Automotive and Heavy Duty Filters || 90-97 || 9002

including caliper bracket, caliper housing, rotor, knuckle, exhaust manifold, etc || 90-97 || 9017

Electrical test equipment || 90-97 || 9024

test & measurement instrumentation || 90-97 || 9024

Nameplates || 90-97 || 94xx

residential furnishings || 90-97 || 9404

Fasteners || 90-97 || 9607

Fasteners || 90-97 || 9607

Fasteners || 90-97 || 9607

All-Metal Fasteners || 90-97 || 9607

Fasteners || 90-97 || 9607

Automotive fasteners || 90-97 || 9607

metal fasteners || 90-97 || 9607

pins and shaft rods || 90-97 || 9615

Energy Management || 98-99 || 98xx

Construction Equipment Components. || 98-99 || 98xx

The company’s wide range of products and services are used in areas such as cooling food, air conditioning, heating buildings, controlling electric motors and powering mobile machinery. The company is also active in the field of solar and wind power as well as district heating and cooling infrastructure that targets entire cities and urban communities. || 98-99 || 98xx

Low and medium voltage electrical equipment and related components, software and services || 98-99 || 9820

Transportation Logistics || 98-99 || 9852

Authorized Distribution of Electronic Components: Resistors, Capacitors, Interconnect, Electro-mechanical, EMC and  Switches || 98-99 || 9950

trading- no production || 98-99 || 9960

Acoustic and emission products || Not allocatable unabiguously

Air Induction Assemblies and Interior Assemblies || Not allocatable unabiguously

Alloy components || Not allocatable unabiguously

Antenna's || Not allocatable unabiguously

bearings, joints, retaining rings, disc springs, rod ends, keys, clevises, washers, knurled washers, linear guideways, axial joints, angular joints, nuts || Not allocatable unabiguously

board level electronic components || Not allocatable unabiguously

Compessor Wheel for Turbor Charger || Not allocatable unabiguously

Construction equipment / attachments || Not allocatable unabiguously

Cover assembly,tube,guide rod, || Not allocatable unabiguously

Die casting of aluminum parts || Not allocatable unabiguously

Diesel engines || Not allocatable unabiguously

Diesel fuel system valves, sensors, and fillers. || Not allocatable unabiguously

DRIVETRAIN / AEROSPACE / POWDERED METROLOGY || Not allocatable unabiguously

E-coat || Not allocatable unabiguously

Electrical Contacts || Not allocatable unabiguously

EPP product || Not allocatable unabiguously

GASKETS, SEALS -PE FOAMS PARTS || Not allocatable unabiguously

GOLD BONDING WIRE || Not allocatable unabiguously

HEAVY MACHINERY || Not allocatable unabiguously

High Pressure Diesel Fuel Lines || Not allocatable unabiguously

Hydrostatic transmissions || Not allocatable unabiguously

Industrial gases, welding hardgoods and safety products. || Not allocatable unabiguously

instrument clusters || Not allocatable unabiguously

Interiors & Power Supply || Not allocatable unabiguously

Mechanical Face Seal Kits || Not allocatable unabiguously

mechanical pumps, valves and seals for O&G, Power/Energy, Chemical and GI. || Not allocatable unabiguously

NAICS CODE 32112 || Not allocatable unabiguously

piston rings || Not allocatable unabiguously

Plastic injection molded components || Not allocatable unabiguously

Plastuc Raw Material || Not allocatable unabiguously

Platic tubes for wire hardness protection and fluid transfer || Not allocatable unabiguously

Polymeric materials || Not allocatable unabiguously

Powertrain components || Not allocatable unabiguously

Process equipment, heat exchangers, centrifuges, pumps and valves for pharma and food. || Not allocatable unabiguously

Protective caps/plugs. || Not allocatable unabiguously

Resin || Not allocatable unabiguously

Sensors || Not allocatable unabiguously

Sensors and sensor assemblies || Not allocatable unabiguously

Sheet metal products || Not allocatable unabiguously

Soft ferrite components and assemblies || Not allocatable unabiguously

special lubricants || Not allocatable unabiguously

stamped and plated components || Not allocatable unabiguously

the air-intake housing are produced in carbon-black steel or Stainless-steel || Not allocatable unabiguously

thrusters for maritime marked || Not allocatable unabiguously

Too Many - We deal with all industries. || Not allocatable unabiguously

truck accessories || Not allocatable unabiguously

Turbocharger; center housing. || Not allocatable unabiguously

Turbo-chargers components, lever assy and arm&valve assy. || Not allocatable unabiguously

5.24   Annex 22: Estimated effort for Conflict Minerals Reporting (iPCMP user survey, Q13) – Respondents’ comments

Q13: “What is the estimated effort for Conflict Minerals Reporting at your company for the following areas?” – Comments

?

167

72

a very rough estimation

Almost- no cost.

Anyone

As these material are neither in our products or in our raw material / processes per se, we approach this with minimum effort. However, as our customer explicitly demands a report we do report "No use"

Because we do not deal in minerals we are not spending any resources on it.

cannot understand what effort the question is asking for

Cost information has not all been identified at this time.

Currently unknown

do not have information available

Do not know at this point.

Due to the fact, that no Conflict Minerals are used in our production process, it is not possible to answer this question properly.

Essentially zero

estimation of 3rd party audit costs not possible at this point in time

Handled by headquaters in Japan mostly, so I do not know.  But for now just 3, 6 and 7

Have not calculated costs

I am not able to judge, since report to SEC will be prepared on company level - it will include our two other divisions

Intra-Group reporting effort cost are guesstimates.

i-Point premier licensing

Just Time

N/A

Never been reported.

No assessment at this point.

No budget allocated

no comments

No conflict minerals used

no costs have been estimated

No estimates available.

No extra costs involved.  Done by manager as requested.

No idea, but some people work a lot with this

No information available

NO METALS IN CORRUGATED BOXES

None

None

None as we do not use the Materilas specified in point 10

nor calculated yet

not determined as of this date

Not estimated yet.

Our company was agree whit conflict materials, before this rules.

rest to be determined

TBD

The  cost of for Conflict Minerals Reporting is exceedingly high

The Sn content is limited by the standard EN 1676:2010

The time involved has been ridiculous in comparison to the actual success that could have been achieved through other means...

there is no activities because no conflict minerals used.

This is a new area.  We will be working to improve our efforts.

Too early to tell, but significant

too soon to estimate ongoing costs per year.

total estimated project costs $1.7M, with about $200,000 annual ongoing costs per year

Uncertain at this point.

unknown

unknown

Unknown.

Unsure of impact at this time.

Very limited since we do not use 3T&G

We are still trying to understand the activity in details.

we are unusure of these costs at this time.

We have not estimated a cost of implementation

we rapresent italian and european producers with an international experience. we can ensure that all our suppliers/producers respect all the law according to this issue

5.25   Annex 23: Expected positive social impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q15)

Q15a: “What positive social impact of a Conflict Minerals due diligence scheme do you expect for local operators and communities as well as for the underlying conflicts themselves?” – Respondents’ clustered answers

Political and social stability

· Avoid war

· Better conditions

· Blurring conflicts of any nature and improve living standards for poor countries

· bring about life changes for people

· change goverment

· Decrease of violence

· Decreased activity

· establishing rules to protect people insecurity

· Ethnic-Social Equilibrium and better income distribution of the regions free of conflicts.

· for communities in order to preserve life

· happy to have products without materials which are prohibited/made from inappropriate practices

· help to protect chils affected for this situations

· Improved human conditions in treatment and pay.

· improved working practices, including less child labor and improved mine conditions

· inhibition of inhuman mining

· it may discourge some traficing by terrorist group/rebels

· It may help to reduce issues like child labour, minimization of armed groups.

· Less interest in using people as half slaves, more focus on sustainable incomes.

· limited probability of reduced violence

· long term positive effect

· long-term stabilisation of conflict areas

· Lower the bussiness for the mines and smelters funding war in the area, translating into less conflict in the area.

· May have a positive social affect in affected affected areas..

· May put pressure on these countries to stop current human rights violations.

· Potential reduction of human right abuses and related issues

· preventing expliotation of a large class of people

· Puts additional pressure on conflict regions to change

· reduce the use of forced labor in the conflict minerals areas

· Reduces corruptiomn

· Reduction in exploitive labor.

· Reduction in forced mining to aid militias

· Reduction of business = improve political possibilities.

· reduction of extortion, brybery, corruption; more safe working conditions

· Regulate current human condition for those people.

· Respect and guarantee human rights

· Responsible sources of minerals should strengthen - leading to more responsibel employment etc.

· Since there is less support of military groups there will be less armed conflicts

· social change

· state sponsored operations will decrease

· stop of human rights abuse

· Working together to reduce conflict

International awareness, transparency and progress

· Awareness

· Awareness about Conflict Minerals

· Awareness of the situation to the world

· Awareness of where conflict materials are supplied from and a effort to eliminate them in our processes.

· Bring more light to the cause

· Companies will begin to form means of tracing supply chains that in the future will benefit such communities

· Encouraging companys to reduce the use of conflice minerals spontaneously

· improve the society's awareness

· increases awareness of issues

· International Pressure and risk, will cause some dealers to stop dealing with it.

· more awareness

· more emphysis on minerals used in products

· More focus on the problem

· pressure on governments to regulate

· raises awareness of issues

· security, transparency

· traceability schemes will legitamize miners

· We need more diligence in use of IT Sistems

Environment

· Avoid environment contamination

· Environment

· Environmental factors

· It good for environment.

· Suppliers will be helping DRC from exploiting their natural resources.

Defunding the warlords

· It should help with the defunding of the military groups in the Congo and surrounding areas

· May help defund the warlords

· Reduce funding

· Reduces the flow of money from mines to the armed groups

5.26   Annex 24: Expected negative social impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q15)

Q15b: “What negative social impact of a Conflict Minerals due diligence scheme do you expect for local operators and communities as well as for the underlying conflicts themselves?” – Respondents’ clustered answers

Impoverishment/Unemployment

· a lot of workless people

· Additional impoverished local communities due to smelters ceasing operations in the DRC and surrounding countries.

· hurts locals for lack of business

· I THINK IT WILL JUST PUSH THE OPERATIONS FURTHER UNDERGROUND AND WILL MAKE IT HARDER FOR THE HONEST WORKING PERSON TO EARN AN HONEST LIVING

· It will cause unintended consequences to the country that will hurt the citizens financially

· Less money going into already poor countries.

· loss of business means loss of a lot of money and jobs. this again has a negative effect on the population living in these areas

· Loss of jobs due to major companies banning minerals from the DRC

· potential shutting out of the market of smal operators- unemployment

· the human population in these areas will be poorer and poorer.

· unemployment rates will rise,  reason for conflicts will be increased short term

· Will negatively affect an already damaged economy.

No significant or further negative effects

· having a bad effect on human health.

· It doesn't mean that the same groups will not find other income sources. As this law is treating one of the effects, not the real cause, the armed groups will find another way to get income and probably create new problems in the regions.

· it has been reported from an OECD meeting that school enrollment is down for local communities

· Metals will be sold to customers who don't care. Less opportunities for locals to get an income can fuel the conflicts.

· Militant groups are likely to continue to be in power (moving away from CFS sourced mines and tapping new mines). The CFS program is unlikely to work; as there is no way to regulate what the smelters purchase.

· one more rule forced by government that does not contribute to the bottom line.

· people will always make money and do what they need to do to survive.

· rebels will take over any successful operation

· Seeking other means

· This legislation will not stop any mining in the DRC or adjoining countries. It is political kowtowing, nothing more.

· Trade will do at risk and secret - less fear of hurting people (nothing to lose)

· Won't stop conflict mining activities completely

Embargo/Reduced economic activity

· Causing a de facto embargo that is likely harming the country more than it is helping it.

· Decrease of orders of conflict minerals in the affected area

· defacto embargo of area

· I believe that many companies are essentially going to source from other areas thus negatively impacting legitimate local operators and their communities

· it will create an embargo on the involved countries

· It will drive down the amount small operation can sell there material

· Local operators not involved in conflict will be affected nagatively as potential customers go elsewhere.

· Loss of business

· Reduce economic activity in the regions, despite however small that might already be in the areas.

· They will find other ways, but the people in general will suffer from the economic loss.

Increased bureaucracy and effort

· A great deal of reporting time is being spent raising overhead cost for US copanies.

· administration,

· cost factors for small tier suppliers

· high cost for certification, maybe the fair companies will be not able to undergo certification

· It will have a dramatic cost, as a whole, to manufacturing in the US in order to implement the necessary controls and maintain

· managing/ time input necessary

· May cause an increase of minerals costs

· These initiatives are costly and add more layers of govt. mandated compliance.

· too much burocracy

· will cost money & manpower that solves nothing.

More corruption

· black market operations will increase to fill void

· cause more conflicts for suppliers using these minerals in order to find alternate products

· Conflict will be driven by other more socially damaging activities such as drug exportation/manufacture.

· Creation of even more oppresive, under-ground, lucrative ways for marketing forbidden minerals

· Less possibilities to have corruption financing the conflict will ultimately trigger the involved corrupt communities to find other ways of fueling the conflict

· May drive even more corruption as the illegal operators seek new ways to smuggle their goods

· Possibly little to no impact that may drive greater demand from wrong places

· pressure will continue to increase on the innocents as the bad actors develop new means of exploitation to maintain their power

· topic turns over to get more criminalizes

Violence increase/escalation

· Barriers imposed by the minority which holds the 'power' currently in the regions can cause major conflicts to prevent this action.

· Potential arm movement.

· Unlikely to improve the situation and likely will escalate the violence beyond current areas.

5.27   Annex 25: Expected positive economic impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q17)

Q17a: “What positive economic impact of a Conflict Minerals due diligence scheme do you expect for local operators and communities as well as for the underlying conflicts themselves?” – Respondents’ clustered answers

Increased trade and market fairness

· a more stable political surrounding will attract more investors

· Blurring conflicts of any nature and improve living standards for poor countries

· Due diligence will keep the need to stop buying conflict minerals fresh in people's minds. This means there will not be a market for these minerals.

· Fair trade of conflict minerals

· Finance to the groups performing non- humanaterian activities will be stopped.

· Improve customer satisfaction

· Improved economics with global trade allowed

· increase in economic rewards

· invest in safer equipment/practices

· It may slow the supply of the conflict materials initially

· Less money for the warlords

· More regulations

· Needs of the market

· Positive impact for responsible business

· possibly drive up vlaue of a scarce commodity

· possibly for a living wage in the conflict areas or at least stop endentured service

· Reduces corruption

· restricting number of players

· save economic loss due to abuse of conflic minerals

· Source minerals to more economic areas.

· stop for money supporting war

Improvements in local income distribution and social/political development

· Better income distribution and financial development of the regions free of conflicts.

· Better salary conditions and align companies to current business regulations

· DRC will be benefited.

· Due diligence will generate some local financial infusion

· Hopefully ease tensions and fighting in the affected areas

· less forced labor for local peoples;

· local operators will be encouraged to operate in a more acceptable manner.

· long term positive impact when (if) conflicts are resolved

· May have a positive social affect in affected areas

· Oppression always runs out of effect when subjects learn about alternatives. Payment will be more to local benefit.

· people can generate legal income

· reduce the use of forced labor in the conflict minerals areas

· social change, business direction change

· To be possible that the communities can grow in freedom

No significant or further negative effects

· I don't known.but I think so.

· I don't really see an positive economic impact.

· No positive impact

· None

· Requires additonal resources to do the research

· the price for small operation will be drive far from market value, causin a loss

Benefit for conflict-free mines and operaters

· Better prices

· good mines should prosper

· If the conflicted mines and smelters go out of bussiness, more sales will come to conflict free mines/smelter.

· It good for the supply chain.

5.28   Annex 26: Expected negative economic impact of a Conflict Minerals due diligence scheme: Clustered free text answers (iPCMP user survey, Q17)

Q17b: “What negative economic impact of a Conflict Minerals due diligence scheme do you expect for local operators and communities as well as for the underlying conflicts themselves?” – Respondents’ clustered answers

Economic loss for local operators and society

· Companies may avoid purchasing materials from the DRC region so they don't have to go through the hassle of determining whether or not the materials are "conflict free".

· Companies walking away from sourcing in the affected region

· Could decrease jobs in the area

· Decrease of orders of conflict minerals in the affected area

· Decreased business in region

· decreased demand for conflict minerals mined in DRCAC

· due to burdensome compliance rules some might avoid doing business with any operators of the DRC which again leads to a big economic loss in these areas

· embargo

· even though it is blood money, the communities in those regions will see even less money

· Export taxes paid for mineral sales collected by exporting countries will not be available once more illegal activites are taken up to fund conflict.

· For conflict-affected areas, economy can get poorer as sales of minerals will drop off according to this activity

· FOR THOSE WHO ARE ALREADY IN A DESPERATE SITUATION, i AM NOT SURE THIS IS GOING TO MAKE IT ANY EASIER.

· high probability of reduced income for local operators as major corporations reduce or eliminate purchases

· I am concerned that it may adversely affect legitimate income for the area.

· I think many legitimate operators will be forced out of business as companies move to sources away from the conflict area

· initially local operators will lose out

· it will create an embargo on the involved countries

· It will hurt the economy in these areas

· Legislation will drive elimination of purchases from the region - Purchases from good/bad entities

· Legitimate mines sales will drop generating additional finalcial problems to the region.

· Less money for the legitimate miners and their families

· Less money going into already poor countries.

· Loss of business

· Loss of jobs in affected countries

· lower prices for goods without traceability, people will remain impoverised and unrest will increase

· Mines may become unused and, therefore, communities may be economically crippled.

· More companies will require sourcing of conflict minerals outside the DRC which will significantly depress all areas within the DRC.

· no income for the working mining for them if nobody will purchase

· people could loose access to income due to administration, registration etc.

· People not knowing about the Conflict Minerals issues will probably avoid buying products from that area just by the name "DRC" even if the company producing has no relationship with the anti-government society.

· People will be out of work

· potential unemployment for artisanal miners

· Recession because of conflicts (deaths, destruction,...)

· reduce work available in these areas

· reduced ability to make profits from conflict areas;

· Revenue at mines will decline, locals will lose employment, gangs will still rule.

· short term negative economic impact on the people in those regions

· Short term this will have a negative impact on their operations

· short term: household incomes will decrease due to loss of employment

· Slower economic growth for the high risk areas, as mining operations slow down

· some people will lost their job, families will lost income,

· The small local operators will likely be negatively impacted.  The conflict parties will be affected also.  This may not serve to alter their activities.

· They will loose out - fewer customers = lesser margins

· until civility is restored, the local operators continue to consolidate and the population in general will not enjoy any of the benefits the natural resources may have been able to provide

· Will reduce companies willingness to work with legitimate ore/minerals providers in the affected/at risk countries

Cost or price increase

· $$

· change supply chains,m increase costs; gives advantage to companies of those countries that do not care about Due Dilligence on CM

· Cost increases that will ultimately be passed on to customer causing great impact on the econony.

· Cost to much $$$$

· Cost up

· For companies, they might not be able to reduce cost by procuring the minerals at a higher price from somewhere else not DRC.

· high costs involved

· higher operating costs for complying companies

· I think this politically motivated effort is only going to increase cost for the private sector, and increase government environmental costs. This effort will not benefit the DRC in any way or prevent any mining in such regions.

· prices will increase

· will this benefit to people subject to current exploited people ? Will minerals market suffer increase in pricing?

No significant or further negative effects

· Another regulatiom that will not have it'ss ittended effects.

· At first due to finding alternate sources, but level off in the end.

· CANNOT EVALUATE

· Conflicts will keep going on till the UN gets tough and clamps down on these people and that will never happen

· I don't known.but I think so.

· It will generate another layewr of useless information.

· Law Suits for get quick rich Lawyers and Organizagions

· No impact

· No negative impact

Increased illegal trade and corruption

· I THINK IT WILL JUST PUSH THE OPERATIONS FURTHER UNDERGROUND AND WILL MAKE IT HARDER FOR THE HONEST WORKING PERSON TO EARN AN HONEST LIVING

· It is our opinion, the materials will be laundered through other areas and will eventually make it into the supply chain.

· More crime and corruption

· Only special person will be rich.

· possibly increase illegal trading & mining

· rare earth metals are worth a lot of money.  They will find a way to sell them regardless of what the law says

Other

· As mentioned above

· Infra structures need to be developed enabling fair sharing by local population.

· same as # 15.

· same as above