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The EU Conflict Minerals Regulation – relevance for China and for more sustainable mineral supply chains

Posted: Dec 07, 2020

One of the most visible impacts from the COVID-19 pandemic has been the vulnerability of global supply chains. It touches on the consumer market, puts strain on logistics and other service providers, and more importantly on the livelihood of people in resource-rich countries. More relevant and critical than ever, ensuring a sustainable supply chain is high on the global agenda.

In this context, the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters (CCCMC) hosted the International Forum on Sustainable Mineral Supply Chains (SMISC) in Beijing from 2-4 December 2020. The SMISC week comprised of one high-level Summit and five thematic forums. Representatives came from governments, multilateral organizations, NGOs and leading Chinese enterprises.

Together with CCCMC, the Sino-German Center for Sustainable Development (CSD) organized an on-line thematic session on “The EU Conflict Minerals Regulation – Significance for Chinese Stakeholders”, jointly with GIZ sector programme Extractives and Development (X4D), on the afternoon of 4 December. The event provided a platform for policy dialogue and knowledge exchange among relevant stakeholders, aiming to improve mineral supply chain due diligence and deliver more concrete benefits to extractive countries, mainly in Africa.

China plays an important role in the extraction, refining and transportation of minerals. According to statistics from the Ministry of Commerce, there are currently over 1,400 Chinese mining companies operating overseas which created 2.26 million local jobs in 2019. Between 600-1,000 EU importers stand to be directly impacted and must install measures to make sure they comply with the regulation. Indirectly, the regulation will influence 500 smelters and refiners of tin, tantalum, tungsten, and gold, the majority of which are based in China.

“For German Development Cooperation, the sustainable sourcing of minerals and metals is very important as we believe that responsible extraction of resources is key to the economic development of many partner countries”, highlighted Johanna Wysluch, Head of the Programme Extractives and Development in GIZ, in her welcome remarks. “We as GIZ commit ourselves to a more sustainable, socially responsible mining and we believe that we all together can minimize environmental damage, monitor social and human rights obligations, and consider the climate-related consequences of mining”, Ms. Wysluch added.

Philipp Dupuis from the EU Commission’s Sustainable Development Policy and Conflict Minerals Unit provided an overview of the EU Conflict Minerals Regulation (EU CMR) and the timeline for its implementation. The EU CMR will come into full force across the EU on 1 January 2021. It requires importers of these minerals in EU to meet due diligence requirements derived from the Due Diligence Guidance by the Organization for Economic Co-operation and Development (OECD). The EU member states will be responsible for the effective implementation, designating national competent authorities for that purpose. He emphasized that “companies that have to carry out due diligence also can resort to individual supply chain due diligence schemes” which will be certified as being compliant with the EU CMR. In time, taking into account these due diligence schemes, there will also be a list of responsible smelters and refiners.

Mr. Andrew Britton, Managing Director of Kumi Consulting shared his insights on the significance for Chinese stakeholders along the supply chain from an independent third-party point of view. “The identification of ‘conflict-affected and high-risk areas’ (CAHRAs) is a critical early step”, said Mr. Britton. As there is no official list of CAHRAS, the identification of those areas is a frequently asked questions and Chinese companies are no exception. “Many industry stakeholders consider “CAHRA” to simply mean “Democratic Republic of Congo (DRC)” and its bordering countries, as these are the focus of the Conflict Minerals Rule contained within the US Dodd Frank Act. However, the OECD Guidance is very clear that it applies globally. Whilst many countries in Central Africa may indeed be classified as CAHRAs, there are plenty of other countries in other continents that would also fit that classification. “

“We work with around 12,000 suppliers in 70 countries. It is important to us that our partners meet the same high environmental and social standards by which we measure ourselves”, said Ms. Samara Madjid, Sustainability Manager from BMW Group. “The BMW Group assesses the sustainability performance of all suppliers as part of the procurement process, using a standardized online assessment. Only those companies receive orders who meet all of the BMW Group’s sustainability requirements, including those relating to conflict minerals.“ The BMW Group engages in different initiatives to increase cooperation, standardization, certification, and auditing (examples include the OECD, Drive Sustainability, the Responsible Minerals Initiative, the Responsible Business Alliance and the Initiative for Responsible Mining Assurance).

For a better understanding of the regulation, more exchanges and capacity building are still very much needed. Mr. Sun Lihui, Director of the Development Department in CCCMC, emphasized in his speech that “there are still a number of remaining questions unanswered, trainings to narrow the gap in capacities and clarify some misconceptions need to follow”. Mr. Sun emphasized that new regulation should not lead to more audits for enterprises. “The current schemes for mineral supply chain due diligence need improvement, that allows smelters to truly integrate these requirements into companies’ management systems instead of simply going through audits” added Sun Lihui.

Mr. Hagen Ettner, German Director of CSD, in his concluding remarks, highlighted the relevance of cooperation between public and private sector, between EU, China and resource-rich countries around the globe to increase sustainability in supply chains. “Our Center identifies the areas where we can combine business operations and development cooperation and where China, Germany and other European partners can join forces with partners in Africa and Asia. We see increasing interest of different stakeholders in joining forces in the mineral resources sector.” He also invited the participants to join the multi-stakeholder conference “The EU Conflicts Minerals Regulation: Perspectives from Producer Countries” which is convened by the German Federal Ministry for Economic Cooperation and Development and the Responsible Minerals Initiative on January 13-14, 2021. It can provide a platform for further in-depth exchange on the topic.

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